Investing is simple and it creates wealth as it has helped many people achieve their financial goals. Many people are unaware of how to invest, which makes them clueless about various investment strategies to be used to receive good returns. Key to success in investing is getting started early. Below you’ll learn how to invest in a simple way which has been proven itself time and again.
Create a Philosophy:
Before initiating an investment, keep your basics clear as simpler the things, better the results you would earn. For initiating an investment, prioritize the understandability of the framework of the stock market. The best way to invest in stocks is selecting good companies and holding them back for a long term. These investments become best investments when the companies selected have a competitive advantage, sustainability and strong brand value in the market. These companies should have a leadership position in the market. The objective is to buy at lower rates when markets are underperforming (i.e. when the market is bearish) and book your profits at highs or at peak. (I.e. when the market is bullish). This won’t happen overnight and it takes a time to reach those levels. Patience is the key to grow your money.
Follow the Chosen Philosophy:
Many people find it difficult to make money from wither day trading or long-term investments, this is primarily due to switching investment strategies. They tend to shift their strategies very frequently rather than sticking to one, due to which they end up making losses.
There are a couple of reasons for this, First, the tax structure and transaction cost eat up your profits which leads to losses or people end up earning less. Second, the share price movements in short term are prone to volatility in the market which makes the trade a speculation activity as Indian stock markets usually work on market sentiments. Most importantly, in short run, the fundamentals do not exist but in long run, the stock depends on the underlying business of the company. Studying the company’s business, business model and financial performance can allow an investor to understand the company's overall performance fundamentally and if it has a competitive advantage, investing in that stock can pay off within months or decades beating market performance helping you achieve financial goals.
Building a portfolio:
One of the asset class you would invest in is 'Stocks’, Either you may be investing go for pure equities or Mutual Funds. There are many options to invest in index funds, sector funds or Exchange traded funds if you are buying a mutual fund. Index funds in a way are good option as it has low fees and gives you good returns.
Picking individual stocks give you good returns if different strategies are applied. Many people want to be safe and secured hence they watch out for dividend paying stocks. Having Dividend paying stocks puts investors into a safe driving seat as it gives regular returns which help investors in need of cash or to reinvest back by accumulating stocks. Another method is of value investing, which involves undervalued stock whose prices are available at discount to the intrinsic value of the business. Value investing delivers strong results and produces strong returns. There are many small companies which must be discovered and invested into until it becomes huge enough to hit the radar screens of the investment community. The growth potential stocks need to be discovered in early stages, buying them at cheaper valuations until becomes expensive ones, selecting the right stocks can yield huge returns.
It is upon you how you want to implement these strategies based on your preference and risk appetite along with duration. Few investors would be using single strategy and diversify its portfolio, this is what would be their investment philosophy. Others would be using multiple strategies to diversify their portfolios, which could involve different stocks. If these strategies are implemented in a proper manner the portfolios would certainly deliver more than expected returns considering you follow your investment plan and philosophy diligently.