Tuesday, August 30, 2011

Investing Rules for New Investors

Investing world does not allow anyone to follow any set rules. The volatility of share price can be very disturbing for new investors. But right knowledge and know how about share market investment can greatly minimize this volatility. With the number of shares on offer these days new investors may get confused to select on basic of sector they operate, market capitalization, dividend yield, price earnings ratio, earning per share etc.

If we want to learn something about investment from the great investor Warren Buffett, then we must learn to keep investing simple. But having said that, with lack of know how about investment people do end up making investment rather complicated. Here we will discuss how new investors can keep their investment simple and effective.

Do you know managing your money?

People know money management only till it is resting in their bank savings account or in their fixed deposits. The reason behind this is that the risk involved in this form of investments are very low. So invariably the returns that is achieved from these investment options are also very low (hardly beating inflation).

Compared to bank deposits and savings account, bonds are slightly riskier form of investment. But again the returns from the bonds are not going to satisfy new investors.

Climbing up the ladder of risk we see stock, mutual funds and ETF’s. With the increased risk comes the urgency to invest wisely. But unfortunately people like to invest in shares rather carelessly and without much know how.

What a New Investors shall do to invest wisely?

New investors who can rather be classified as part timers shall rather invest to create a well diversified portfolio. Investment option most suitable for such investors are index funds. These funds are great for developing economies whose stock market index is expected to climb skies in years to come. These tracking funds are expected to perform much better than the actively managed mutual funds in long term. With only little bit of efforts investors can get maximum returns but of course in long term.

The simpler you keep your investing process the better returns you will get. Learn to manage the risk return paradigm. Like here I have proposed just index funds for new investors. The solution is too simplistic for majority of my readers to believe. But it is fact. Simplicity is not liked much in the
Complex work of share market.

People make money by making the most logical investment most complicated. So keep it simple and in case you are not an expert of share market then I would recommend you to invest in index funds through Systematic Investment Plan (SIP).
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