There are several methods for investing in the stock market . You can speculate on the stock markets yourself or entrust the management of your money to a professional . The first method requires good training to get started on the stock market. Becoming a trader cannot be improvised, it takes time, motivation and above all a lot of work. The second method is accessible to the greatest number, it is a simple investment on the stock markets. Depending on the method chosen, the purchase and sale of financial assets will be done through different means.
In any case, before investing in the stock market, you must also determine your risk profile. If you want to be successful in making money, this is a very important step. We must not go against his nature as an investor. Some will seek to maximize the capital gain while others want above all to minimize the risks to protect their capital.
Small precision before presenting you the different methods to invest in the stock market. I am going to talk to you here about long term speculation and not short term trading. The objective is to present to you the different means at your disposal to build a stock market portfolio as part of an investment.
Invest in the stock market directly
To invest in the stock market, you can open a securities account with your bank or with an online broker specializing in the stock market . Your securities account can be associated with a ELSS. The ELSS offers important tax advantages but in return your money must remain blocked for at least 3 years. You should therefore be sure that you do not need your money during this period.
Investing in the stock market by yourself involves significant risks. Indeed, any investment must be considered. You should not only be able to spot good opportunities (using technical analysis or fundamental analysis, or both) while practicing active diversification of your portfolio.
But the most important thing to invest well in the stock market is timing. If you take a position before a stock market crash, you may have found the best value in the market, your investment will lose. Without going into extreme cases, taking a position at the right time is to generate better profitability on your stock market investments. To help you find good opportunities, you can use our technical equity analysis research tool.
Investing in the stock market indirectly
If you do not feel capable of building up a stock market portfolio, you can invest in the stock market via investment funds (Equity funds, index funds, debt funds, ULIP etc.) . These mutual funds can in most cases be incorporated into a life insurance policy. There are then three ways to invest in the stock market:
Free management
: This type of management allows you to choose the investment funds in which you wish to invest. You completely decide on the allocation of your assets between these different mutual funds. You have the option of making changes throughout the life of your investment.
Management under mandate
: You entrust your money to a manager who is in charge of allocating your assets. It is he who decides in which funds to invest. Your opinion does not enter into the choice of funds. The manager has full powers over your account and can make arbitrations if he wishes.
Managed management
: You entrust your money to a manager but giving him instructions to follow. For example, you can tell him that any profits are reinvested only in equities, or ask for a gradual increase in risk each year…. All fantasies are possible as long as the manager agrees to the signing of the contract.
Your risk profile
To invest well in the stock market, you must determine your risk profile beforehand. Either you invest directly and you must then be able to determine it for yourself, or you go through a professional who helps you define it through a questionnaire. There are 3 main risk profiles:
Cautious investors
: This category includes investors with a strong aversion to risk. Above all, they do not want to waste their money and are not looking for performance. Their objective is just to make their capital work while ensuring a low profitability of their stock market portfolio.
With a direct stock market investment method, you should then favor defensive stocks, large caps and yield stocks.
With an indirect stock market investment method, the allocation of your assets will be geared towards money market and bond funds. Equity funds will be lightly weighted so as not to expose your portfolio to risk.
Balanced investors
: This category includes investors with a moderate aversion to risk. They are willing to take some risks to get some performance. This is the category of investors who will have the greatest diversification of their stock market portfolio.
With a direct stock market investment method, there will be total diversification between defensive / cyclical stocks, Large Caps / Small Caps, growth stocks / yield stocks.
With an indirect stock market investment method, the distribution will be fair between equity, bond and money market funds.
Dynamic investors
: This category groups together investors with a low aversion to risk. Above all, they are looking for performance and are willing to take risks to achieve their goals.
With a direct stock market investment method, you should then favor cyclical stocks , small caps and growth stocks.
With an indirect stock market investment method, the allocation of your assets will be geared towards equity funds which will allow you to seek performance and boost the profitability of your stock market portfolio.