The first thing you should decide – how much money you want to invest in the stock market.
And the second thing is how much risk you want to take.
Stock Market gives you multiple options with different risk factors and returns potential. Obviously, high return options carry high risk.
Let’s assume you want to build an investment portfolio of Rs. 2,00,000 within the next 12 months. And you have Rs. 80,000 sitting idle in your account which you can invest right away.
So the strategy would be starting with Rs. 80,000 initial capital and investing Rs. 10,000 every month in the stocks. Right?
Now investing does not mean buying the shares immediately. Research and analysis may take time. You can keep learning and set aside the allocated funds in a separate bank account that is linked with the trading account.
HDFC, ICICI and SBI (and all major banks) provide the option to open 3-in-1 account but the problem is that demat accounts provided by banks charge heavy brokerage.
You can open 3-in-1 account with discount broker UpStox that helps you open Zero Balance saving account with IndusInd Bank. You can just allocate the funds directly from IndusInd bank which would be locked for trading and investing.
You would earn regular saving interest on the allocated funds unless you actually buy the shares.
OK.. Now you have sorted out funds allocation.
Now understand how to diversify funds to de-risk your portfolio and yet learn (& earn) within the next 12 months.
Keep the example of building 2,00,000 investment portfolio, divide the investment into 3 categories
- Short Term Day Trading
- High Potential Stocks
- Low Risk Stocks
You can allocate numbers as per your risk appetite. If I had to do at the age of 30 when I have a regular income from job and my primary objective is to learn & earn from stocks.. then I would allocate like this
- Rs. 10,000 for Day Trading (I would get margin upto 3L for day trading)
- Rs. 90,000 for High Potential Stocks
- Rs. 1Lakh for Low Risk Stocks
Then I would open 2 demat/trading account.. one for long term investing and second for short term investing. The primary reason is that we have to keep our finances safe from our own bad behaviour.
Humans tend to cut the losses by averaging out falling stocks or to bring back lost money in day trading. That’s because of the ego problem that we don’t want to label ourselves as losers.
I actually lost money because of my ego issues. Controlling emotions in investing is 50% work of managing a portfolio.
Better to keep money in separate accounts and commit to your spouse that you won’t use long term investing money for short term trading. Your spouse would keep the control on your behaviour and you would keep the control over your money. (That’s exactly what I do)
Once you have sorted out your allocation then send me an email (firstname.lastname@example.org)
Commit yourself that you would complete this course till the end and invest wisely into the stock market in 2020.
Disclaimer: I won’t give you any tips on stock buying or selling but help you learn the exact stock analysis skills that I learned in the last 10 years.