The best advice anyone can give you is to ‘find your own simple strategy for investing in the Stockmarket, and ideally one that works for you’. Understand what you are trying to achieve and continually build on what you already know.
Your investment strategy should support the organization of your individual resources in terms of the money you have available to invest and how much time you have on your hands. Start slowly and focus on building up your confidence. With some thought you will be able to establish a place for your money where it can grow without you checking on it constantly.
The four basic ways to invest into the Stockmarket are:
1. Fixed cost averaging,
2. Buy-and-hold,
3. Market timing and/or
4. Individual stock picking.
Fixed cost averaging means investing a fixed amount of money at fixed intervals of time regardless of the price of the shares. This is a sensible approach and it takes a lot of the worry and stress out of investing. It means committing yourself to investing a fixed amount of your income every month.
When the price is up, you buy fewer shares, when the price is down you buy more shares. Fixed cost averaging does not guarantee the best results, however it provides the greatest opportunity to get the best price on shares over the long term.
It results in lowering the average cost slightly, presuming that the fund fluctuates up and down. Buying shares this way proves far more effective than buying a fixed number of shares each month. It also eliminates reliance on market timing and stock selection saving you time to focus on other activities in life.
Buy-and-hold is investing a lump sum and never moving it around for a long period.
Market timing involves accurately predicting movement of the stock market in advance. This is the most difficult and time-consuming approach and requires the best of luck not to mention masses of research. From an academic point of view, it is virtually impossible to guess the correct day of the month that the market is going to be at its lowest.
Stock picking is the most difficult and involves identifying shares that are undervalued in the hope that these shares will deliver market-beating returns through research and analysis. Although this can be very lucrative, it is highly dependent on speculation, which is riskier than investing in shares that have held their value consistently over time.
Studies show that both Market timing and Stock picking methods actually reduce performance rather than improve it, while fix cost averaging and buy-and-hold methods perform the best.
The purpose of investing your hard earned money is not to experiment with your essential savings. This is never an option for a beginner, neither is it wise even for the seasoned investor. Stick with fixed cost averaging.
A sound strategy is to settle into regularly contributing to your investments on a monthly basis. This eliminates the need to rely on market timing or stock picking. Pacing your investments this way will give you time to focus on other things.
There's no such thing like investing at the 'wrong' time.
Experienced investors accept the natural peaks and troughs of the market. In fact, troughs are good because you are buying more shares for the same amount of money.
The reality is that no one knows what the Stockmarket will do next. The best the so-called experts can do is to speculate on predicting the short-term direction of the market. You are better off ignoring these.
Fact is: The long-term direction is of the market is up!
Do not be tempted to wait for the better moment to start investing. No one buys at the very bottom and sell at the very top. The most important thing is taking part.
If you plan well, choose well, and leave your money in long enough, you will make good returns in the long run, even if you bought just before a massive crash and had to wait for the market to struggle up.
The general trend is up, so get in, weather the storms and enjoy the sunshine!
"The key to making money in stocks is not to get scared out of them."
*-- Peter Lynch - One Up On Wall Street
