Finance the Bull & Tame the Bear

‘I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.’

-Warren Buffet

When Warren Buffet, the ‘Oracle of Omaha’ quoted the above, he simply meant and underlined one important rule of investing – know what you are buying. Although many invest in the stock market, hardly a few have decent returns against their names. What most lack is knowledge and more importantly financial planning. The stock market is not rocket science and all one needs is a sound understanding of its workings and an in-depth knowledge before proceeding to actually invest in it.

Firstly, one should not invest vast amount of their savings in the stock markets. Though the money making potential of the stock markets is great, so is the risk involved. That is why experts suggest investing small amounts of money at regular intervals to avoid timing the markets. Also one’s investments and asset allocation should reflect the risk-appetite of the investor. For young investors who might prefer a high-risk investment might opt to invest a large part of their investments in high beta stocks and a smaller chunk in fixed deposits and other debt instruments. Older investors might prefer a higher exposure to debt instruments and a limited exposure to stocks and even so, primarily large caps. Uninitiated investors can choose to invest via mutual funds instead of stock trading. A mutual fund allows you to invest without actually needing to track the stock markets on a daily basis.
Also, investing in a mutual fund allows the investor to invest in a larger number of companies which may not be possible conventionally. The risk too is minimised as the investors’ money is pooled in to make up a large corpus which is then managed by the fund manager who takes care to churn out positive results while exposing it to minimum risks. It is also not necessary to invest a large amount of money in a mutual fund. One can invest regular amount via a mutual fund SIP. SIP is an acronym for Systematic Investment Planning by which the investor can invest in small monthly instalments starting from as low as Rs. 500. This way one can average one’s investments against any quick ups and downs in the markets thus avoiding the need to time the markets.

It is always better to invest with knowledge by your side. If you don’t have the time or the patience to manage your investments on a regular basis it would be better to get professions to manage your finances. Though a personal wealth manager might be a little expensive, but one can always find some great wealth advisors online. Plan your finances well and re-examine your portfolio once in a while to ensure that it is in line with your goals. Investing is a precise art and it is advisable that you go about it in an informed manner.