While investing in the stock market online, it is easy to get swayed away by the possibility of making huge profits in a short amount of time. However, it is important to note that unless you are a full time trader by profession, stock market returns are generally made over the long term. Due to the volatile nature of equities, the rate of return on your stock holdings may fluctuate year on year, but stabilize over time. Hence, as a regular investor, it is important to have your long term portfolio in place before setting aside a small sum for trading, if one is interested in the same.
Return on investment or ROI is the profit or loss percentage one has made after selling a security which they had purchased. You can calculate this percentage measure by simply dividing the net profit or loss on the investment by the total cost of the investment.
Any trader promising you a certain ROI while trading must not be trusted blindly. This is because the rate of return while trading is extremely unpredictable, with most amateur traders actually losing money on a year-on-year basis. Hence, it is important to learn trading from actual experts with experience in the field. Another factor to consider is that trading profits are taxed under short term capital gains, which is higher than long term capital gains.
Certain seminal subjective and objective factors come into play when calculating a decent trading return on investment for a particular stock option. The two most influential factors are listed below:
1. Risk Tolerance of the Investor- If the investor in question is aversive to high-risk investments, then he may settle for lower ROIs. This may translate as a decent trading return for the investor as he can circumvent risky trading as well as make a profit.
2. Gestation Period for the Investment to Generate Returns- As a rule of thumb, investments that have a longer gestation period, offer higher ROIs to attract investors than the ones that have a shorter period of waiting.
If your trading portfolio is beating your long term holdings’ portfolio in terms of returns after taxation, one can consider it a success. Otherwise, it is prudent to simply invest with a long term mentality.
It is not advisable to assume any guaranteed return on investment while trading stocks. However, with experience, one can top up their portfolio by trading well. Hence, it is advisable to first have your long term portfolio in place and only then venture into short term trading. This should be done with caution after mock-trading for a short while to build experience.
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