Investing in the Market: Regular Stock Investing is the best strategy

By Investment Blogger, on January 3rd, 2011

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When seeking to investing in the markets of equity, the first and main questions that arises is often.

“Is this the right time to invest?”

The question we often ask ourselves, especially when the stock markets lack visibility. Today (Jan, 2011, date of first publication of this article), the Sensex is around 20,000 points, it is difficult to determine the short-term trend: Is the sensex going to soon fall below 19,000 points? Or else the market will fall temporarily before increasing again? In such a situation it is always becomes very dicy for small investors to decide whether to enter or exit the market.

How can I be sure of good investment period?

Even if the investor expects a recovery in the long term financial market shares, even if the investor wants to benefit from the potential market, how to be sure to go in the right time?

However, my decision to invest should not be based trend short-term market action, but the trend in the medium and long term is more predictable and important. Even if the trend in the short term lacks visibility, the historical performance of index tends us to demonstrate that investment action for long term brings more profitability.

Thus, between year 2000 and 2010, the Sensex rose from 5,500 points to nearly 20,500 points. This is almost 275% up from the then Sensex of year 2000 (in 10 years). Moreover, the performance of the Sensex index does not take account the dividends that were paid to shareholders.

So even if we are convinced that investing in the market is going to perform very well, still it is essential to manage the period of market entry and exit. Indeed, the investor who has placed its entire capital in mid-2007 or in September 2000, will never win in the financial markets competition with the investors who have started investing in the market in March 2009 or March 2003. Year 2007 and year 2000 were the worst entry points and 2009 was the best entry point for investors who wanted to start investing the market.

The best solution to optimize the ‘investment period’ is very simple to implement. This strategy of investing in the market will generate significant gains: your investing capital in equity markets should be placed not at once, but over a period of regular basis. We call this investing in the market with systematic investment plans (SIP). Ideally, one should invest in the market for an average of total period of three to four years to avoid wearing only his investment market levels too high. This way of investing helps to smooth the purchase price of the securities to avoid investing too heavily in periods of recovery (when sensex is bullish).

Thus, periodic investment or systematic investment plans (SIP) of small identical amount every month in securities like mutual funds, unit trust etc can be done. If the securities have a high price, the investor gets to buy fewer units of mutual funds as compared when the prices of securities is lower. This investment approach allows to meet the primary objective of any investor: buy stocks when prices are low and avoid buying when prices are too high.

This acquisition method allows therefore to manage the cost of securities and avoiding major purchases when prices are too high. With this type of acuisition of mutual fund units, investors have tremendous control over units they are buying. Ideally we want to buy as many units as possible but at bargain price. SIP helps us to meet this objective.

CONCLUSION:

Investment in equity markets is the investment that brings more profit (especially if you select the best unit trust or mutual fund with your consulting independent wealth management) provided to control the entry period. In times like we live in today, it is prudent to spread investments over a specified period.This spreading of investment allows the investor to avoid investing in the market all his capital when market levels are too high.

optiker

January 6, 2011 at 9:06 am

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