Almost everyone wants to make money in the stock market today, but only a few have the capacity to bear the risk involved. If you are one of those people who tend to sell under panic when the markets crash, then share and mutual fund stocks are not your cup of tea.
You need to understand your risk bearing capacities and you also need to chalk out a clear cut investment plan for your investments- the kind of returns you might be expecting, the time period for which you might want to invest and the amount of risk you are ready to bear.
Are you prepared to take the risk?
It is noticed that mostly young people are willing to take high risk while investing. It is because of their age and aggression and the will to make it big, early on in their lives. While taking risk is important, it is suggested that the situation in analyzed before you actually set your foot forward with a risky deal. Yes, it is a fact that higher returns ask for greater risk, but you need to assess whether the expected returns are commiserate the risk being taken or not. The thumb rule while investing in risky assets, irrespective of your age, is that you should have enough money to sustain yourself and your family for another 6 months, just in case the worst was to happen with your investment returns.
What kind of return should be expected?
Normally, expecting a 15% rate of return on investments (ROI) is a good number. 15% is quite higher than what you would normally get from banks via Fixed deposits etc, and it is also high enough to cover for fluctuations in inflation etc. in the future, as well.
How long should the money be invested for?
Ideally, the investment should be for 10 years. People are impatient with their stock investments and seek immediate returns, but there is no surety of such an eventuality happening. 10 Years might seem to be a long time, but ideally, this is how long seasoned share traders hold their shares for, in order to gain the maximum benefits in the long run. For those who just cannot afford to invest for that long a period, 5 years is the minimum one should be looking at, in order to gin guaranteed returns
Ideally therefore, one should invest in considerably risky assets over a relatively long period of time. The ideal rate of return that one should expect during this period should be 15% or more, annually, in order to ensure that the risk taken was worth the returns.