Why Do We Need a Stock Advisor?

Overview

For first-time investors, trading on the stock market can be like taking a plunge in dark waters – with little sight of what’s before you and how to deal with it. You may have done your due diligence in terms of research, but its practical usage will likely elude you when you are in the thick of the action.

Young professionals entirely consumed by work are the demographic that majorly constitutes first-time investors. This is why it is becoming exceedingly simple to invest in the stock market with an army of specialised service providers accessible to you with the click of a button. There is an abundance of online portals, mobile apps and stock advisory services available on these platforms.

Mistakes first-time investors make

Before we delve into the functions a stock advisor performs, let’s first look at some common rookie mistakes made by new, unguided investors.

Chasing trends

As a newcomer who is on their own, you will be tempted to follow trends. As a result, you may end up investing in stocks the sale of which is in momentum, often to simply associate with big names. A host of other factors must be considered before making such an investment, other than simply to buy low and sell high.

Lack of planning

First-timers setting out to pour their hard-earned money into the share market may not have an end-goal in mind. This leads to reckless and erratic investment patterns that may cause losses. As a new investor, you tend to trade based on your guesswork instead of facts.

Personal bias

Just because you like a certain company doesn’t mean you should necessarily invest in it, because your biases do not guarantee returns. Moreover, even though it is said that fear and greed rule the market, you should not let them sway you into making investment decisions. Because the stock market can be intimidating for newcomers, they tend to give in to their emotions. The bottom line is, new investors let emotions make their decisions.

Holding on to badly performing stocks

New traders often feel the need to hold on to stocks of companies that are not performing well anymore in the hopes that they will pick up. You may wait to sell a stock whose value is dipping until it returns to its original price. This is called a “cognitive error” and may cost you if the shares’ value continues to slide.

Failing to diversify

Diversifying your investments ensures that you don’t put all your eggs in one basket. Investment in just one class of assets such as equity or commodities, or a single sector can increase the risk of losses. Investors should try to include all major spaces in their portfolio.

Why you need a stock advisor

A stock advisor is an expert who can recommend the right avenues of investment after analysing not only the performance of various securities but also your risk-taking capacity and interests. Many advisors register with the Securities & Exchange Board of India (SEBI) and are given a registration number. Here are a few stock advisory services an expert will perform for you:

  • Overwhelmed by sheaves of information regarding investment? You can trust your stock advisor to sift through data pertaining to your individual interests, finances and goals so that you may make an informed decision.

  • There are all manners of funds and securities available to investors. You may not have the time or resources to browse through all of them. Stock advisors will help you choose between stocks and mutual funds, or index funds and actively managed funds.

  • Your stock advisor will help you identify which investments should be used for retirement accounts and non-retirement accounts.

  • The expert will issue a stock market advisory regarding where you should invest, the risks associated with each such investment, and the rate of return you can expect from your portfolio.

  • Stock consultants also help you manage your income taxes by strategically investing in securities and identifying the types of taxable income from your investments. They will also ensure that you know what taxes you will have to pay if you sell your assets.

  • The expertise of your stock consultant will especially be required when as an Indian investor, you choose to buy global stocks. Investing in international giants such as Amazon, Apple, Google and Facebook can be tricky if you don’t know that market.

Conclusion

As opposed to stock advisors, brokers simply help conduct buying and selling of securities on behalf of the investor for a commission on each transaction. Experts providing stock advisory services take a measure of your financial position, and analyse facts and data to recommend the best course of action for your investments for a fee.

Traditional brokers have expanded to providing stock market advisory, along with carrying out trades for investors. They may also legitimise their business by registering with SEBI.

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