A defined Budget plan for your stocks is vital so that you keep track on your profit or cut down your losses for the next quarter or financial year. It gives you direction to stay alert and within limitation so that you become long term investor. When you invest in stock market, you face a lot of volatility in stock prices and discover non-anticipated fluctuations. Not even best online trading platform can help you if you have not budgeted your investments.
Extracting Money to Invest
The early stages of getting the capital together is hard because you’re converting your working hours to money, but the later stages of compounding capital are easier. You gain momentum as your money grows faster through good returns than you can earn it by selling your time. While 12% annual returns will seem very high to an average investor who invest in banks and deposits but for an experienced trader in the financial markets, this number is a worthy long term goal, if the investment is large over a period of 10 years. With an average salary of ₹40,000, allocating 5% of saving in online recurring each month for stock investment would mean every month of at least ₹2000, amounting to ₹24000 by year end. By next month to year basis, you can start investing in stocks and earn profit. Use online recurring deposit calculator to know where your recurring forecast and current status.
Buy and Hold Investment
The key to successful compounding growth is to take excessive controlled risk taking or by not having an exit strategy for your investments. Even buy-and-hold investing from 2010-2020 in the BSE 500 index returned about +154% when including dividends. The 12% annual return we are looking for has happened historically in small caps; they have returned 13.2% annually from 2010-2020. So it’s possible to have these returns on average over the long term. If you maintain a diversified portfolio with 20% exposure to high volatile stocks – each of the option performed, then you will have over +20% annual returns in your accounts half the time and you will be a successful investor in the Indian stock market.
Holding stocks for longer term reap benefits with budgeted plan. You can easily achieve an average of 12% long term returns through investing, trading, and avoiding bear markets and market crashes. Recession, unemployment and natural calamities are usually factored in all such long term investments. That’s where the real danger exists-having negative returns. The best thing you can do to maintain good, long term returns is to not lose money. Play it safe with stable investments. Be an investor and not a gambler.
How Budgeted Plan Performs
Opening free demat account is easy but understanding stock market comes with experience. It’s a simple math when you factor in recent pandemic and other sudden mishaps in the market:
- If you lose 10% of your investment you have to gain 11% to get back to even.
- If you lose 20% of your investment you have to gain 25% to get back to even.
- If you lose 50% of your investment you have to gain 100% to get back to even.
The most important aspect of compounding your money over the long term is not to lose a lot of money in the pursuit of your gains. If you have ₹10,000 and lose 50%, it takes you down to ₹5,000. A 50% return on your now ₹5,000 only takes you back to ₹7,500. You would need a 100% return on your ₹5,000 just to get back to your original ₹10,000. You would need to double your money just to get back to even.
Invest Safely with Budgeted Plan
When you suffer the loss of capital, it is much more difficult to get back to where you started. It’s easier to keep a budgeted plan, what you have invested according to the plan and grow it slowly. When compounding your money, it’s crucial to invest it in solid companies with long term track records or bonds from financially strong companies. Avoid chasing investments that have a lot of risk like penny stocks or suspicious business ventures. Don’t use financial derivatives like options or futures until you have a full understanding of exactly what you’re doing and how much you’re risking.