Financial-FAQ

If you are waiting for a perfect time to enter then you will end up waiting forever. as a beginner, you can start with a conservative approach in selecting stocks to start. And one of the prerequisite for not losing it all is financial discipline. I would suggest sitting down and write down your Primary Income, Passive Income and any side business or Hustle Income. This will give you a starting point. The next objective is to decide on your expenses to meet the necessities and extra expenses. Then you will have your Savings left. Now everybody has different golden rules. But as a beginner, the Amount for your stock investment should be either 10% of your Primary Income or 30 % of your Savings.

As it's always a risk when starting out, you just need to ensure you manage your risks to avoid ending up in a ditch. With your starting budget, I would suggest you go for dividend stocks or Large Cap Stocks and invest using a SEP. This will help in your learning process and will keep your risk low.

As you get more experienced you can increase your budget to 10% of your (Primary + Passive Income) or 50% of your savings whichever is higher. And you can start including Mid Cap Stocks and Small-Cap Stocks in your Portfolio.

Return on capital employed (ROCE) is a financial ratio that can be used in assessing a company's profitability and capital efficiency. In other words, this ratio can help to understand how well a company is generating profits from its capital as it is put to use. To calculate this metric, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

• Return on capital employed (ROCE) is a financial ratio that measures a company’s profitability in terms of all of its capital.

• Return on capital employed is similar to return on invested capital (ROIC).

• Many companies may calculate the following key return ratios in their performance analysis: return on equity (ROE), return on assets (ROA), return on invested capital (ROIC), and return on capital employed.

As a Beginner, You should Start with Low-Risk Categories. These will mostly Fall under Large Cap, aka Blue Chip Companies. These Categories will give you the comfort of low risk but sometimes Low growth opportunities as their prices are often too stable with low volatility.

Then you need to include Dividend Yield as another factor for selection criteria to improve the overall Returns.

Next Comes the Valuation. You want to enter the market when stocks are lower, But how long will you wait for that? It will help if you read our FAQ about "What is the Best Time to Invest in Stocks?"

Last but not least is Discipline. It would help if you were more disciplined than ever when making decisions regarding Investments or Trading alike. Using Systematic Equity Purchase is often a good starting point. And then comes the moment to Decide on Budget.

Here I would Like to quote the "10% Rule" from Mr Warren Buffet. Their Definition is straightforward, And I Like the ten from a relatively young age. So For Budget, we will use 10% of your Monthly Net Income to keep your exposure limited. And Then, Based on Factors of Market Capitalisation, Dividend Yield and Market Valuation, you can select your Top 10 Stocks where each stock will get a Budget of 10% of the Equity Budget.

So, Suppose your monthly Net Income is Net_Income. In that case, Main Budget is Main_Budget, Budget for purchase of Equity is Equity_Budget and Systematic Equity Purchase Budget for Each Stock is SEP_Budget, Then Their Relation is:

Main_Budget = 10% of Net_Income

Equity_Budget = 10% of Main_Budget

SEP_Budget = 10% of Equity_Budget

And at the end

SEP_Budget = 10% of ( 10% of ( 10% of Net_Income))

Based on this, what you are getting is a Dividend Stock Equity Model. You can check our latest Equity Model which should suit your requirements.