Equity investments are one of the most lucrative long-term investment options available in the market. However, they are highly risky as prices tend to remain very volatile. Like any other financial instrument, stock market investing aims to earn returns by buying at lower prices and selling when the prices rise.
However, unlike commodities, you cannot process and add value to the purchased equity. The appreciation and depreciation of the equity are entirely dependent on market conditions and the company’s performance. All these factors are beyond your control. Thus, there are two options to make profits through stock market investing — time the market or stay invested for the long term.
It is almost impossible to time the market correctly even for professional traders. Therefore, the best way to enjoy higher returns on your stocks is to invest for a longer time horizon.
A market where the prices decrease is known as a bear market and when the prices increase, it is called a bull market. In a bear market, when all equity prices are low it is easier to gauge companies on their performance and buy their shares. When the prices increase later, you may be able to earn huge profits.
However, in a bull market, it is extremely difficult to decide if you should get in, liquidate your holdings, or exit your current investments at higher prices. The risk involved is extremely high because there is no guarantee that the prices will hold. If you want to make fresh investments in a stock, the risks are higher because the bull-run may end and you may lose a significant portion of your capital investment.
Here are three things you should consider when the stock markets are at higher levels.
- Reassess your investments
Periodically reassessing your investments is important. However, if you have not done this, now may be a good time to do so. You must analyse the reasons such as past performance of the company and its future plans that you considered when you invested in these shares. This evaluation is not a one-time exercise but an ongoing task. If the fundamentals and goals that the company had have now changed and the new ones do not look as promising, then it would be a good time to exit. But if they look promising or are still progressing the same then it would be a good idea to remain invested.
- Hedge your risks
It is always advisable to maintain a diversified portfolio. Adding dividend stocks to your portfolio is recommended in all market conditions. A company will not pay a regular dividend if it does not expect profits to continue. Although regular dividend income helps to hedge against market corrections, it will not completely overcome your losses due to falling prices. With a dividend reinvestment plan where you use the income to buy additional stocks, you are able to increase the number of shares and your income with the compounding effect.
- Regular investing
The stock market has historically returned higher profits over the long term. Thus, irrespective of the prevailing market conditions, it is recommended you buy new and existing shares on a regular basis. Your investment must not be based on the value of the stock market indices. When you buy high-quality stocks periodically, it eliminates the need to time the market. Therefore, regularly investing in good stocks ensures you do not miss out on any bigger possibilities.
Keeping the aforementioned in mind, you may consider to revisit your online demat account and revalidate your portfolio as required. Reassess your holdings and decide on your investment strategies in the current market conditions.
If you do not have an account and have been trading and investing through a broker, it would be a good idea to open a demat account online. The entire process is quick and hassle-free and provides several benefits. You can always retain your broker as your back-up and advisor for your investments.
The e-KYC facility further simplifies the online demat account opening procedure. The account provides all the data you need to carry out various types of analyses on your existing stock or new equities that you may want to invest in.
Time in the market has always been a better, safer, and more lucrative option than timing the market. Open an account today and start investing.