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How to Invest in Stocks with Little Money

How to Invest in Stocks with Little Money
You are short on cash, nevertheless, you want to invest in stocks and profit from volatility. Here's how you can go about it, in the safest possible way.
Charlie S
There are many small investors who wish to learn stock investing for decent gains. Most people believe that you need a lot of money to make stock investments. However, this is not true. You have the freedom to buy stocks as per your budget and risk-taking ability. There are, however, some things which you need to keep in mind, before investing your hard-earned money.

Investing in the Stock Market with Limited Funds

Conduct Detailed Stock Research
Researching stocks is vital for all investors, irrespective of the amount of money they wish to put in. Such research can be useful to identify potential investment opportunities and make investments at the right time. It involves knowing company fundamentals, company promoter details, past performance history and growth rate over the years. Investors can think of buying stocks, provided all these things are positive for any company.

Understand the Intrinsic Value
Understanding the valuations of stocks is very important. For this, investors need to take the market capitalization, price-to-earnings ratio, peer comparison of profits, and market capitalization into account. Investments in fundamentally strong stocks, chosen through sound technical analysis can help in generating superior returns over the years.

Buying at the Right Price
Stock market investments can provide brilliant returns if the buying price is attractive enough. So, you need to invest your money on corrections, instead of a continuous rally of several points. Studying technical charts helps in determining the support points and resistances effectively. You can take help from professional technical analysts if you have any kind of doubt in your mind.

Avoid Overexposure to a Particular Sector
When you are investing with low amounts of money, you should avoid overexposure in any particular sector. Diversified investment strategy provides handsome profits, as per the opinion of senior stock analysts. You need to choose two or three sectors which are performing consistently and invest your money in them carefully. Try to analyze the performance of these sectors and take decisions to increase your investment in any one sector or decrease it.

Book Profits at the Right Time
Profit-booking at the right time is extremely essential for all small investors. Since the funds you have are quite limited, you need to get out of stocks, making a decent profit, and re-invest your profits to maximize your returns. This will naturally increase your total capital gradually. Make sure that you do not sell your stocks and incur losses, as this will cause erosion of capital.

Have Stop Losses at Right Levels
Stop losses are essential to lock your profits at the right levels and to minimize your losses. Once the current market price reaches the stop loss point, you can exit your position and re-enter the stock again at fair or just valuations. This technique is most useful for day trading purposes.

DISCLAIMER: This article is just for reference purposes and does not recommend any stock market investments.