“Think before you invest”, “Invest wisely”: these are some of the clichéd phrases often given to almost every investor as a ‘free advice’, especially the newbies! Yet, this is either misunderstood or not understood at all. So what does this ‘Invest Wisely’ exactly mean?
Here is a SIMPLE TECHNIQUE to invest wisely:-
And it’s the Rupee Average Costing. This simple yet effective technique helps you earn greater return on your investments, no matter how your investment portfolio is!
To understand how this method works have a look at a typical situation of its kind:
Say, in a IPO of a manufacturing company, you buy 1000 shares of Rs. 20 each. The price of the shares gets slashed by Rs. 5 after 15 days, i.e. the share which was costing Rs. 20 some days before, has now come down @ Rs. 15. Clearly, you’re at a loss of Rs. 5000. And this is not the end, it may further go down. So what next?
Here is the right entry of Rupee Cost Averaging, according to which, instead of investing the entire amount you have in lump sum, you invest constantly or periodically. So instead of buying 1000 shares in one go, you can buy them weekly or fortnightly, like, 100 shares today, 500 after a week and so on.
If you had followed this method in the given situation, then this is what your situation would have been: 100 shares @ Rs. 20; SAME 100 shares after a week @ Rs. 15, Rs. 10…. So your cost for 300 shares comes out to be Rs.4,500. While if the investment was made in lump sum in the first week, then the cost for 300 shares would be Rs. 6,000!
Seeing the difference? Aren’t your profits and losses getting more balanced using this technique? Of course yes! Now sudden rise or fall in the market does not hit your portfolio like it does if this method isn’t followed.
Note some important points of this method that you need to keep in your mind:
- Don’t rush to invest every time when market is at its best!
- The investments should be uniform even if the market is not rising..
- Your investment should depend upon the amount of money and NOT the number of shares! It should be constant which will land in favourable situation. You’ll be able to invest at right time and buy more shares.
- This method isn’t ‘buying’ specific. This works even if you’re selling because the money you invest in constant.
- This is useful as you’ll be able to make profit even if the market isn’t doing well.
- The risk gets decreased while you play the market trends.
- Because of constant investment, it inculcates regular investing habit in you rather than a ‘regular saving’ one!
Last but not the least, this technique takes away the pain staking ‘forecasting’ of market trends far from you!
So invest wisely, make big, Don’t haste and be safe!