How much money should you invest in stock markets?

People often end up investing majority of their savings into stock markets, especially if they get a handsome profit on their first trade itself.They also commit more money to recoup all the loses they made earlier.

Both these situations are dangerous. More than 80% of the retail investors in India have this problem of committing more. In the first case, they do it because they are excited about making more money quickly and in the second case they do it out of despair – to somehow recoup the losses and get out of the market. Ask any broker whom you know personally – he will have a list of hundreds of clients who came in –opened de-mat accounts and vanished in a year’s time.

HOW MUCH ? IS THERE A FORMULA?

So what we are trying to give you is a set of two tips that would help you have control over your money invested in stock markets:

First of all – never try the ‘daily money making process’ in stock markets. I know quite few of them who has tried ‘playing in stock markets’ to make a daily income-and lost all their money.

Secondly, There is a limit to which you should expose your money in stock markets. There’s no hard and fast rule as to how much should be exposed. However to help you out, here’s a formula which gives you a rough calculation about how much money should go into stocks based on your age.

It is:

90 –(minus) YOUR AGE = % of income to be exposed In stock markets.

So, if you are 35 years old , you can expose a maximum of 50% of your income into stocks. Ok. Fine. so does that mean you can expose 15% of your income at 75? May be not. Investments in stock markets ideally should be stopped at the age of 65 or 70 maximum. Again , as I said earlier , investing is entirely personal. If you have the money, health and will to invest at 70 or even at 90 , Go ahead ! ! Sir Warren Buffet is 81 years old now, and he hasn’t stopped investing !

Clearly, when you are young , you can afford to take more risk and hence, you should be investing in stocks rather than debt funds. when you grow older, the proportion of money invested in stocks should be brought down and the the debt or fixed income potion in your investments should be increased.

You may like these posts:

  1. Some truths about stock markets
  2. Should you Borrow Money to Invest?
  3. Should you invest or trade in stocks?

1 Response to “How much money should you invest in stock markets?”

rajinder kapoor

July 25, 2014 at 3:56 am

good information!

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