Investment Basics

While there are many rules to investing, most guidelines have the same basic principles. Here are some golden rules to investing that can apply to almost anyone.

Invest regularly – Investment should not be guided by market sentiments. Often one finds investors entering the market or mutual funds during a boom and losing interest when the market falls or a fund’s performance dips. Keep putting in your money at regular intervals.

Early Bird – Time spent in the market is more important than timing the market. Start early. Compounding will ensure your nest egg is stuffed when you need it. Early twenties is the best time to starting putting away a bit.

Whimsical Buying – Don’t buy and sell on whims. If you have bought an instrument, there must be some reason behind it. So give it time to perform. Avoid hot stocks to start with! The best way to make money in the equity space is keeping a longer horizon. Give your investments time to grow. Its time in the market vs timing the market.

Taking Home Profits – Book periodic profits. If you have a target of 40% in a stock, book at least some profits at that level.

Proper asset allocation – Decide how much you can put in risky investments. The money put in equity mutual funds and stocks should be the money you would not be in a hurry to put your hands on. Say allocate 10 -15% for such instruments and keep it that way. Asset allocation has many principles to it. The most basic principle is 100 – Age. Let's say you are 60 years old, you can allocate 100-60=40% of your savings to equity related instruments. However I have found sticking to personal risk appetites while allocating assets to be most efficient.

Simple allocation – Keep it simple. Cash at bank, risk free instruments like PPF, diversified equity funds and 5-10 blue chip shares should cover 90% of your investment needs. The fancier the instrument, higher the cost in most cases! You can add one commodity like gold or silver to the above.

Review – Review your portfolio. Many investors have got this knack of a daily review. Unless you want to buy and sell just for the fun of it, a quarterly review should be good enough. Bring in major changes if needed in your yearly review.

Don’t let emotion govern your use of money. Discipline and regular investments are the keywords.

Here are some further resources.