Often you hear stories that people have lost money by investing in stock markets. Also you hear from experts that stock markets are the ideal place for seasoned investors to make money. Also you hear that stock markets give anything between two to four times the rate of return you get from your bank deposits, only if you invest smartly.
Then how to ensure that we invest smartly ? Is it really possible ?
The answer is an emphatic YES, only if you follow some basic rules :
You need to first ensure that not more than 20% of your corpus is allocated for investing in stock markets.
You need to ensure that you invest only through a mutual fund route, if you are new to stock markets.
You need to ensure that your investments are spread across three to five industries and schemes so that there could be some risk spreading.
You must have the practice of studying about the macro and micro factors affecting the industries you have invested or you are planning to invest.
And you need to invest for at least two years time span or more, because stock markets follow a cycle of ups and downs. Typically the stock markets move up for one or two years and they stay subdued for the following one or two years. Long term investments in industries you can understand and follow would always get you decent returns.
Last but not the least, once your investments grow to healthy profits, you must be smart enough to cash out your stock market investments in that industry and reinvest the money earned, somewhere else.