Smart moves for better investment in stocks

Highlights

• An investment without an objective is like a traveller without a destination, said Ralph Seger.
• If you choose to invest in stocks, it is advisable to investigate and understand the innards of the stock market before you invest.
• With a diversified stock portfolio, one limits exposure to risk arising from a single holding.
• It is important for an investor to stay aware of tax implications from obtaining, owning, and selling out shares.

Every investment that one makes should be driven by an objective or at least be well-defined in terms of its utilisation upon maturity. Be it for education, property, holiday or retirement, an investment tagged with a purpose has a greater possibility to last longer with lesser chances of premature withdrawal.

After one has a distinct investment goal, next comes the selection of the kind of investment one wishes to make. There are myriad options wherein one may put in an amount of capital and expect profitable returns. Today, in this article we will explore the option of investments in stocks.

While some investors consider the stock investment to be a way to beef up long-term treasury, others choose to stay away from it owing to the associated risk element. Considering both elements to be plausible, we have jotted down some focal points that one may consider for a smart investment in the stock market. Have a read!

• Understand the innards of the stock market

Before putting in huge amounts of money in the stock market, an investor must get familiar with some key concepts, terms, and trends of trading. Entering the market with a fair understanding of essential terminology of stocks and the stock market, as well as their significance helps in making a better decision of buying or selling a stock. In addition, one must be aware of the factors, both usual and unusual, which possess the potential to cause turbulence in the market. At present, Russia’s invasion of Ukraine is one such major incidence that has triggered ups and downs in the market. 

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• Build a diversified portfolio investment

Single stock holding may land an investor in a hot-and-cold spot and keep him/her stuck with no loss no profit screenplay. Therefore, experts advocate for a diversified investment portfolio. Dividing one’s total amount of investments in different stocks is termed as diversification. It is believed that this practice restricts one’s exposure to risks linked to a single type of asset. This is considered to be one fine way of decreasing the risk element and elevating reward probability.

• Optimise your tax efficiency

As per law, investment income is to be listed in one’s tax return. This includes earnings from interest, dividends, rent, managed fund distributions, capital gains from property, shares and cryptocurrencies. Thereby, when one obtains, owns, and sells out shares, there are certain tax implications that he/she must know and understand. There are tax implications from taking part in a dividend reinvestment plan, receiving dividends, participating in a bonus share scheme, receiving a call payment on a bonus share scheme, receiving non-assessable payments, transactions of the company you have invested, such as mergers, and demergers.

• Gauge your risk tolerance

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"Stock market investments are subject to market risk.” We all have heard that quite often, fairly because price fluctuation and volatility is an indispensable part of the stock market. While one cannot steer clear of the risk involved in selling and buying shares, one can possibly prep up for a calculated risk, reducing the potential for financial loss. For risk assessment, one can trace a stock’s historical behaviour and outcomes or study its standard deviation. This can be a crucial step in evading costly losses from stock investment.