A Simple Technique to Invest Wisely

A Simple Technique to Invest Wisely

12/22/2013 10:39:00 am
By Priya Agarwal
Expert Author Priya Agarwal
Invest wisely is one phrase which is so commonly used, its meaning is either mistaken or forgotten. So, what does it mean to invest wisely? To invest in the stock market without making any hasty decisions. To have your basics right, and avoid major losses and be able to gain maximum returns on your investment.
However, the more important question here is,
How to invest wisely?
More than the what, it is the how that matters more. Because, whether its a gain or a loss; it is your money on the line. Here's a detailed look at a simple and easy to implement method.
Say hello to Rupee Cost Averaging - A wonderful technique to safeguard your investment portfolio. It is a simple method which if used well, will help increase your ROI, irrespective of the type of investment you make.
Let us take an example to understand better, you have found that a blue-chip company has some put forth its shares at Rs.50 each, so you have bought say 500 shares. A week later, the prices are down to Rs40 per share and you are looking at a loss of Rs 5000. You are left wondering if you could have bought the shares at Rs 40 itself right? Now, what if it reduces further?
This is where Rupee Cost Averaging will help you. Instead of paying the entire 25000 in one go, what if you had invested with Rs 5000 every week? In the first week you would have bought 100 shares at Rs 50 each, in the second week you would have bought the same at Rs 40 each and in week 3,4 and 5 the share price would be Rs 35, Rs45 and Rs 55 respectively. So, instead of buying 500 shares you would have bought 570 shares for the same amount. This will definitely help you balance out the profit and loss, and gradually increase your profits.
Some of the key points of Rupee Cost Averaging are as follows:
  • Don't invest using a lump sum amount every time the market rises.
  • Invest uniformly irrespective of whether the market is rising or not.
  • Invest a constant amount of your money, and not in a constant number of shares. This will help you buy more shares when you invest at the right time.
  • This method works well for buying as well as selling, since you are putting in a fixed value of your money.
  • Even when things are against market trends; you would still be able to increase your gains.
  • Similarly, when you're playing the market trends, your risk is reduced.
  • This method helps you stay disciplined in investing and effectively converts a regular savings idea into a regular investing approach.
Apart from stability in investment, the good thing about Rupee Cost Averaging is that you are relieved from the unnecessary pressure of forecasting market highs and lows.
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Article Source: http://EzineArticles.com/?expert=Priya_Agarwal

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