One skill that is mandatory for the long term success of an investor is the ability to observe and learn from the markets. Investing is a risky affair. Stock markets rise and fall in the blink of an eye. Only an investor who is alert can tackle these difficult situations.
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The Indian market has been witnessing a roller coaster ride. The market trends are unpredictable. Coronavirus, crude oil price war, Yes Bank crisis have added to this scenario. However, there are a number of things to be learnt. A few worth mentioning are:
1. Have Multiple Bank Accounts: The banking system in India has taken a hit with the Yes Bank crisis. Therefore, it is important to have more than one bank account. Splitting your income across bank accounts serves as a backup during such a crisis.
The government provides deposit insurance to depositors. Deposit insurance is like any other insurance and provides protection in case of a bank default. In India, the deposit insurance is up to Rs 5 Lakh. However, this amount is limited to all the accounts held in a single bank. Instead, if you hold accounts in two separate banks, a deposit insurance of Rs 5 Lakh will be provided for accounts in each bank.
2. Investment Diversification: Diversifying the portfolio is an age old advice. With each change in the economic environment, stock prices fluctuate. The coronavirus and bank crisis have caused a massive crash in the stock markets. That is why it is important to make investments that are not affected by market trends.
Make long term investments, which will give high returns over a period of time. Ensure an investment in assets other than equity like gold and real estate.
Diversifying will provide the following benefits:
3. Do Not Depend on News Headlines Alone: The moment a news headline pops up, investors take action without a thought. This can often result in the wrong decisions. Do not depend on news headlines alone.
A news article generally consists of 200 to 300 words. News might throw light on the current happenings, but it cannot predict the future movements. Make sure never to jump to conclusions. Do proper research before taking any action.
4. Investments with Long Term Horizon: Historical data shows that on an average; a bearish market lasts for a year or two. There have been predictions that if the current scenario continues; it would soon lead to a global recession. If so the market would take 2-4 years to make a recovery.
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Experts advice making long term equity investments which would recover from the losses and contribute to wealth creation. Equities held for 10 years or more are likely to give massive returns.
5. Never Trust Sellers: Sellers of financial products are often misunderstood as advisers because of their negotiation skills. Investors take their word and invest without a second opinion. This can be dangerous. Sellers entice you to invest in products which give them a commission. Invest in a product only after background research. Invest based on your risk profile.
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