Investing Strategies

When it comes to investing in the stock market, the fact is, you can become a millionaire with the right strategy and discipline. Investing in the stock market is easy. Take your first steps and learn to invest in the stock market here.

1. Investing isn't just for high rollers

You don't have to have WarrenBuffett's bank balance to dabble on the stockmarket. Most investment funds will accept monthly deposits or lump sums. You do, however, have to be able to stomach watching your savings fall in value as well as rise.

Investing is a long game, so you must be prepared to lock your money away for a minimum of five years, ideally a decade or more. It is therefore best suited to those with long-term financial goals, saving for retirement or a child's education, for example, rather than a house deposit or a new car. 

 
2. Beware reckless caution

Gambling your money on unpredictable markets can be nerve-wracking. But history has repeatedly shown that over the long term equities outperform cash savings. This is hardly surprising when you consider the pitiful returns offered by banks on savings accounts. The average bank pays just 4%. That is less than the current rate of inflation of 8%, meaning that the majority of cash savers are actually losing money in real terms.

3. There are tax advantages of investing

Savers are entitled to an annual tax-free allowance of up to Rs.1,50,000 under Section 80C. Invest in tax saving instruments to reduce large tax outlay. 

4. Think about what you want to invest in

Cash is traditionally seen as the least volatile asset class, your money is safe unless a bank or building society goes bust. But as shown in point two, its buying power can be eroded by inflation so you end up losing money in real terms. Fixed interest investments, which are loans to companies (in the case of corporate bonds) or governments (known as government bonds or gilts), provide modest but reliable returns are traditionally regarded as lower risk than equities.

However this risk profile is changing and when interest rates start to rise their prices could fall and the risk of capital loss increases. Shares, also known as equities, offer a stake in a company. Shares tend to rise in value when a company does well and fall when it does not.

5. Don't put all your eggs in one basket

If you funnel all your hard-earned cash into shares in one company and the company tanks, you will lose it all. The idea is to 'diversify', which involves dividing up your lump sum across a portfolio and investing portions into varied companies, asset classes or global markets.

As some markets fall, others will rise and cancel out losses. How you spread your money will be led by your attitude to risk. 

6. Think about investing through a fund

You can buy shares directly but this can be expensive, difficult and risky. For a beginner, it's usually better to invest through a mutual fund, which offers an affordable way to buy up lots of different assets without the responsibility of making your own investment decisions

A fund manager then uses their expertise to buy and sell shares (or bonds) on your behalf to maximise returns for investors. There is a charge for investing in funds, but because you are spreading the cost with your fellow investors, it works out much cheaper than it would be for you to invest in the same shares yourself.

7. Spend time choosing the right fund

You need to do your homework to pick one that meets your financial goals and suits your appetite for risk. The funds invest in more than 30 sectors, categorised by asset class (equities, say, or fixed-income); sector type, such as technology or property; and investment style such as growth or income.

Monitor the performance of a fund over a period of time, five or seven years, rather than just looking at whether a fund did well last year. Remember you are playing a long game.

8. Invest regularly to minimise losses

It is impossible to pick the perfect moment to invest to beat the market. Improve your chances of maximising your returns by drip-feeding your money into a fund on a regular basis, for example once a month, rather than investing a lump sum in one go. This is known as rupee-cost averaging. You buy fewer shares if you catch the market when it is rising but you can buy more at cheaper prices if it is falling, averaging out the overall cost and risk.

About DreamGains

Dreamgains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.