5 Ways to Avoid Losing Money in the Stock Market

Following a few simple criteria, many business owners and investors are successful while investing in the stock market. They learn how to increase and multiply their money using simple approaches.

However, some investors need help to succeed. Trading costs them a ton of money. They ponder what went wrong, what errors they made, and how to avoid future stock market losses. 

Follow the 5 ways outlined below to prevent losing money in the stock market if you are an individual investor.

What Is a Stock Market?

As the name indicates, a stock market is a location where buyers and sellers come together to transact or buy and sell shares of publicly traded corporations. A stock market is sometimes referred to as an equity market, a share bazaar, or a share market.

Simply put, Ashish would submit a sell order on the stock market if he wanted to sell five shares of Reliance Industries for Rs 500 each. The stock market will locate a buyer who wants to purchase five shares of Reliance Industries for Rs. 500 each. As a result, the stock market is an electronic marketplace where buyers and sellers may transact in shares.

5 Ways to Avoid Losing Money in the Stock Market

Set reasonable goals

When investing, you should have reasonable expectations of your potential returns. Additionally, statistics like average rates of return may include errors.

For instance, you would have earned an average rate of return of 10.2% if you had invested in large-cap companies between 1926 and 2020. And Rs. 100,000 invested would have increased to Rs. 18.4 million over 30 years if you got this rate of return.

But throughout the same period, your returns would have ranged from a high of 54% in 1933 to a low of -43% in 1931. If you made your first investment in a year with losses, it could make you hesitant to make future ones.

It’s critical to realize that your returns won’t be linear but will be an average of positive, negative, and flat returns. And realizing this may help you get through the difficult years ahead.

 Recognise a realised loss from an unrealised loss

You can feel like you lost money when you check your account balance and notice that it’s lower than the previous month. Unrealized losses or profits, however, are the figures you have seen on your statement or when you check into your account. Throughout a day of stock market activity, these figures fluctuate for better or worse and are only regarded as true losses or profits when you realize them by selling your assets.

For instance, if you lost money last month and your account balance was Rs 10,000 last month, it may now be worth Rs 9,000 instead. You will only lose money if you sell this investment before it reaches its initial worth. As the stock market has consistently gained in value over the long term, so should your assets, provided you continue investing.

 Have a reasonable timeframe

How successfully you manage your money amid stock market disasters may depend on how fast you need it. If you experience a 30% loss and won’t need your money for 25 years, you may ignore it since you know that in a few years, the value of your account may increase to its original level. However, if you want to use the money next year, you could be terrified of losing any of it.

Consider your time horizon before making any stock market investments. And the more likely it is, the more cautiously you need to spend. Losses may appear severe only because you are afraid of not meeting your goal, and you will be less likely to give up investing over a minor decline.

Manage feelings

It might be difficult to control your emotions while losing money, and it may seem to last forever. However, decreases are rarely permanent. When you’re feeling this way, knowing how to manage your emotions could be the difference between achieving poor returns that lag benchmarks and staying up with them.

Reviewing historical stock market declines might be beneficial when it seems like the world is ending and there is no end. Investors who stuck with it frequently recovered their losses in a few years, even during some of the worst downturns. If you had just invested in large-cap companies from 2000 to 2002, you would have lost around 38%. However, by 2006, you would have recouped your investment and be slightly in the black.

Invest according to your risk tolerance

What do you think about volatility? Do you hardly notice it and know it is a typical market cycle phase? Or does this make you feel sick each time it occurs?

More aggressive investments can increase your long-term earnings, but they also carry a higher risk of loss during a bad year. Additionally, these investments can be too hazardous for you if the losses look excessive.

It could be challenging to remain motivated if this occurs. You may avoid this by ensuring your investments are within your risk tolerance. Additionally, even if it offers a lower rate of return, you should pick an asset allocation strategy that matches your level of risk tolerance.

Instead of bringing you farther away from your objectives, investing should assist you in achieving them. While it is typical for your account value to rise or fall regularly, you are not required to lose money. You can avoid it by keeping your worries in check, making sure you have the right assets, and having reasonable expectations about how your accounts will grow and when those gains will happen.

Conclusion  

The stock market is a marathon, not a 100-meter sprint. You will require years of study and investigation to succeed as an investor.

Anyone who invests in stocks has the potential to both gain and lose money. You must approach the stock market investment like any other kind of business. To consistently profit from the stock market, you need to study a lot and have real-world experience.  

By following the advice given above, you may begin making money on the stock market today.

You should invest most in yourself. Using Piramal Finance, you can learn more. Visit the Piramal Finance website to learn more about the stock market.