Advanced Investing Strategies Every Student Should Know
Created on 31 Jan 2024
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The number of new investors saw a generous 27% Y-o-Y growth in 2023, as per BSE. This significant surge in retail investors has played a pivotal role in driving the market's stellar performance thus far. It has hardly been a month in 2024, and we have already heard record-breaking movements in the Sensex and Nifty.
Many investors amidst the rising numbers are students or fresh graduates who are eager to try their hand in the bull-bear market. However, limited knowledge about market trends and unreliable resources make investing even more of a risk for novice investors.
That is where this article comes in. We will discuss the best hacks for students or beginners to apply in their investment strategies and make good gains. The best part? It will be a much more advanced discussion exclusive of the basic tricks you are aware of.
Advanced Tips for Students in Investing Grounds
Moving past the conventional wisdom of diversification and risk management, here are some lesser-known but valuable advanced tips for beginner investors:
1. Master Tax Efficiency:
Capital gain tax applicable on the earnings, as well as the taxable income, is a thorn in all investors’ sides. Instead of losing a lengthy amount of capital for every investment you make, try to be smart about it. There are plenty of options to save tax on investments, among which asset allocation is one of the most preferred ones.
You can invest in a myriad of options, like equity, bonds, schemes, mutual funds, etc., to diversify your portfolio. Different asset classes have different tax implications. Stocks, for example, have different tax rates for short-term and long-term gains. By strategically allocating your investments across assets, you can potentially delay recognising taxable gains until they become long-term, which often comes with lower tax rates.
Strategically sell underperforming assets to offset capital gains and reduce tax liability. Choose investments with qualified dividends or capital gains distributions for lower tax rates.
Also, try to be aware of the tax implications of your investment decisions. Consider tax-efficient investment strategies and take advantage of tax-advantaged accounts. Click on this link to learn about more tax-saving options.
2. A Different Approach from the Obvious:
This particular tip is a crucial one, and it is one from which many won’t agree. The large-cap shares in the market, which have been multi-baggers for a while, like TCS, Asian Paints, etc., are often considered the best choice for stocks.
Though they are a good addition to the portfolio as they have given amazing returns to investors for a long time now, are they a good fit for beginners? I don’t believe so.
You see, these stocks are so in demand they have become overvalued and can be considered a risky bet. Apart from this, such stocks grow at a stable 10-15% yearly, which cannot be considered a big difference for beginner investors.
So, finding shares with high growth returns instead of safe stocks would be a better option. But, if you wish to avoid high risk, then I would recommend ignoring this particular tip.
3. Contrarian Investing:
Contrarian investing is a strategy that goes against the prevailing market sentiment. Instead of following the herd and buying what everyone else is buying, contrarians deliberately seek out investments that are out of favour or unpopular, believing that these contrarian bets have the potential for significant future returns.
Here's how it works:
a. Market Psychology: When a particular asset class or security becomes hot, people get excited and drive the price up, often beyond its intrinsic value (just what I discussed above). This creates a bubble – an inflated price based on emotion and speculation.
b. Contrarian Perspective: Contrarians see these bubbles and believe that a correction is inevitable. They go against popular opinion and sell these overpriced assets while they can.
c. Value Hunting: Simultaneously, contrarians look for undervalued assets that have been ignored by the market. These could be companies experiencing temporary setbacks, out-of-fashion industries, or assets that are simply misunderstood.
Applying this strategy would be beneficial for those beginners who are looking for high returns and who are willing to look beyond the recency bias. Contrarian investing requires patience and discipline. It can take time for the market to recognise the true value of contrarian bets, and sometimes the chosen investments might decline further before the turnaround.
4. Embrace Portfolio Diversification Smartly:
You must have heard the phrase, "Don't put all your eggs in one basket!” Gulp it down and make it a part of your essence, as it will help you earn good returns even at the beginning of your investment journey.
Plenty of options are available at your fingertips. If you look at the recent data, these are the investments Indians prefer at present:
Based on the above data, low-risk options like mutual funds and gold have been ranking the charts. To decide, ask yourself how much amount you can live without if you were to lose it right now. The figure that pops in your head is your investment sum.
Make your choice based on this scenario, and forget about that sum, as it will be utilised for your future plans.
4. Be Mindful of Behavioural Biases:
We all have mental blind spots. Conquer your inner investor to become efficient in grasping the investing realm with ease!
Learn to identify and overcome emotional biases like recency bias or confirmation bias to make rational, data-driven decisions. Think of it as unlocking the master level of investing through self-awareness. Stick to the following mantras for a better control:
- Don't react impulsively to market fluctuations; stick to your long-term plan and avoid panic selling or chasing trends.
- Don't base your investment decisions solely on recent market performance – remember, past performance does not necessarily indicate future results.
- Seek out and consider information contradicting your beliefs to avoid making biased investment choices.
5. Develop a Continuous Learning Mindset:
Investing is a long journey. If you think that you will invest in multi-baggers, earn good returns in a year or so and then be on your merry way, then you cannot be more wrong. This is primarily a misconception for beginners, as the first year is filled with making mistakes, losses, and learning.
You cannot avoid the uncertainty that is a crucial part of the investment market. The only thing you can do is speed up the learning process.
Devour books, listen to podcasts, network with other investors, and stay updated on market trends. After all, investing is more like a marathon, not a sprint! Stay curious, keep learning, and adapt to changing markets like a champion runner.
You can start your learning by taking investment courses from Quest by Finology. Options like “My First Stock Market Course” and “Beginner’s Guide to Stock Market” would greatly benefit your investments.
The Bottom Line
Young students fresh out of school or college are keen on possessing a fat bank balance, and they wish to do it as soon as possible. This idea behind instant earning money is what, unfortunately, connects people with the stock market. I say, unfortunately, because this is not true at all times.
The stock market, or investing in general, is infamous for being a gamble, but it's actually a well-designed structure of statistics, figures, and a little intuition. Learning how to actually see behind the pretty facade, a company has created would give you the perfect weapon to generate hefty capital.
Now, you must remember that the above tips are just that. It's crucial to conduct thorough research, understand your risk tolerance, and create a personalised investment strategy that aligns with your financial goals and circumstances.
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