Skip to main content

A beginner guide to Investing

"If past history was all there was to the game, the richest people would be librarians."

– Warren Buffett

Investing, particularly investing well, is not the easiest game in the world. It requires a multitude of virtues like patience, keeping faith in your investment and the important ability to admit it when a mistake has been made. Even the doyen of investing Warren Buffett admitted he made a mistake about his Berkshire stock saying

"I've made lots of dumb decisions. That's part of the game."

There are a few basics that are vital to hold on to while investing. So much so, we believe it would be nearly impossible to be successful in the field without these four building blocks of investment.


1. Set the right goals

Before investing any money, it is absolutely vital that your goals are clearly defined. There are many different approaches to setting these goals. Ask yourself a few questions.

• Is your ultimate goal to simply preserve your capital and to grow it at above inflation (and risk) adjusted returns over a long period of time?
• Or do you prefer quick turnaround times bearing in mind that it might ultimately be high risk?
• What is your tolerance for risk?
• What do you want to achieve over the short term and what are your long term plans?

• How much time will you have to devote to your portfolio?

Defining these goals will ultimately decide the asset allocation along with buy and sell strategies for your portfolio. It is also important to remember that your goals are not hard and fast and can change if necessary. However, it is best to define them as clearly as possible so an overall strategy can be defined.

2. Don't panic

Sudden bubbles and busts have often left investors paranoid and in a panic. Behavioral biases are often at their strongest in such cases. Many investors are guided by external cues like news coming through the papers, TV channels or simply by word of mouth. Fear and greed are two major contributors to panic in the market. Optimism forms market peaks and pessimism forms market bottoms.

It might be easier said than done but you must have faith in your investment strategy and stay calm. After all, there are bargains to be had at when the market hits the bottom!

The same can be said about selling when stocks are low. Fear can drive an investor to rid himself of his equities. Staying rational during market highs and lows is the best way to minimize the risks of behavioral biases while investing.

In short, you must accept that markets are volatile creatures and it is important to stay calm and use the volatility to your advantage.

3. Allocate assets wisely

Diversify your portfolio by investing in diverse asset classes as hedges against inflationary and deflationary environments. Ensure that you invest in the highest quality spectrum of different asset classes. For example, when investing in equities you should look at strong businesses preferably with sustainable barriers to entry and when investing in debt, you should invest in debt of those companies that are preferably backed by the government and which are providing a necessary service e.g. utilities. Gold works as a high quality cash reserve. This strategy helps mitigate the various risks facing a portfolio over the long term.

Apart from under diversification, another big no is over diversification which can actually work against you and decrease your chances of getting good returns. A well balanced portfolio will have the ability to maintain the purchasing power of a portfolio through any economic environment while providing good returns over the long run.

4. Hire a proficient financial advisor

Don't assume you can do it all yourself. Successful investing comprises of numerous different factors and variables. While it might look easy to navigate the market in times of prosperity, it becomes difficult to avoid emotional and behavioral biases when things are bad.

Good investment advisors are individuals who are trained to remain rational through all of Mr. Market's mood swings thereby avoiding impulsive decisions that could prove to be detrimental to your portfolio in the long run. Hiring a wealth manager who understands your goals can bring in fresh expertise and go a long way toward increasing your returns.

Common perception deems investing to be a gamble where you can 'get lucky and strike it rich' while it actually involves taking a series of calculated risks based on careful research. Preserving and growing your capital requires discipline and sticking to a few basic rules will ensure that you meet your investment goals in the long run. And remember to always ask a professional for help when you are in doubt.



SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now