Many professionals have wrong notion that saving is investing. Fact of the matter is, both are completely different. Saving money in bank account and operating demat account sometimes every quarter will not make you a successful stock trader.
Saving Is Not Investing
When you change your routine spends and minimise expenses to save money, all you are do is diverting your money to a safer place. And later saving it in your bank account. It does not increase value when you keep it at home. The appreciation is also negligible when you keep it as bank deposit.
Even if you enrolled for other banking products, you are usually paid a marginal interest, it is extremely small and not contributing towards an increase in your overall asset value. On the other hand, when you spend your money in investment, there are high changes of your principal amount’s appreciation. Your money gets exponentially valued – doubling ot tripling after some months. This rise in money valuation is far higher than monthly. So avoid saving in bank as it is not going to make you rich. It is better to invest money in products that builds your portfolio and help you in achieving your goals of buying house or starting your own business.
No Easy to Rich schemes
When you plan to invest, don’t get allured into heavily advertised fancy schemes. If it claims to give you double returns in few weeks, then it is definitely a scam. There can be investment schemes that claim you will get higher payments in EMI format. And cumulatively, you end up earning double the principal amount in one year. Not only is such scheme fake but you might also put yourself into legal trouble if you become agents of such schemes if it is a “making members” type program. Similarly, in share market, there is sudden rise of a stock price of a fairly unknown company, do not let your greed win you over. Do not invest in such company stocks. So completely avoid any of such schemes and make sure you also do not share such scrupulous information with your friends and colleagues.
First things first, you must know how trading is different from investing. Investors buy stocks and hold them for a long time — many times patiently dragging this “waiting period” to few quarters. This holding period need experience and deep research about the company whose stocks they purchase.
Traders prefer to hold stocks for as little as a few hours or as long as several months, and in few rare scenarios even a year or more.
Investors on the other hand carefully balance their investment portfolio between growth stocks, foreign stocks, securities, value stocks and domestic stocks including long term, intermediate and short term bonds. A diversified portfolio generally gives the investor a steady return of investment between 5 percent to 12 percent, depending on the type of stocks bought. The loss may also happen if out of greed, more amount is invested in high volatile high risk securities.
For regular investors, online trading has a mixed bag portfolio; 80 percent invested in various securities of share market and 20 percent in long term bonds keeps money invested in different sectors. Bonds can give an average annual return of 12 percent during a 20-year period. On the flip side, in a conservative portfolio, only 20 percent amount is invested in securities and 80 percent in bonds.
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