Support My Efforts By Visiting The Advertisers

Disclaimer

This is a personal blog. The opinions expressed here represent my own, not those of my employer and is not intended to malign any religion, ethnic group, club, organization, company, or individual.

Investing Strategies

>> Thursday, October 14, 2010

What is the most important aspect when investing?
i) Market Timing
ii) Security Selection
iii) Asset Allocation

Market timing is the attempt to predict the future by buying or selling investments in an effort to maximize profits. Many feel that this is the most important; hence, they regret not entering the market when it bottoms and exiting when it peaks.

As we all know, it is impossible to predict the future (Unless through an unfair advantage like insider information or market manipulation or just simply plain luck). These attempts will cause frustration and incur hefty transactional costs, with little profitable results over the long run.

A simple strategy would be to practice dollar cost averaging. Over the long term, the average purchased price will be lower than the average price. This is due to purchasing of more units when prices are low and less units when prices are high.

Security selection is the attempt to predict which specific security will outperform. This is normally carried out by performing fundamental analysis. Many also place great importance in this area by focusing on working out all the required financial ratios to pick the ideal security.

This poses the risk of being too narrowly focused. The selected security is not guaranteed to perform as expected and there are so many unforeseen circumstances that can affect its performance. At the same time, it is too time consuming to analyze all possible securities.

A strategy to overcome these drawbacks is to use Exchange Traded Funds (ETFs). These ETFs mirror the performance of Indexes. Index components are already determined, they are usually the more established securities and it offers diversification at low management fees.

Asset allocation involves determining the percentage of your portfolio to be spread across the various types of securities. It is an often neglected aspect but can be the most important, especially since one has full control over it.

The key to asset allocation is the correlation of the securities within your portfolio. For example, if there are 2 types of securities with low or even negative correlation, the returns will not be affected yet the risk can be minimized by combining them in the correct proportions.

In conclusion, the mass market can achieve reasonable results by determining their risk appetite, followed by allocating their portfolio wisely based on correlation into the respective type of suitable securities’ ETFs using dollar cost averaging.


- Written for IMSavvy

0 comments:

Disclaimer

Privacy

The owner of this blog does not share personal information with third-parties nor does the owner store information is collected about your visit for use other than to analyze content performance through the use of cookies, which you can turn off at anytime by modifying your Internet browser’s settings. The owner is not responsible for the republishing of the content found on this blog on other Web sites or media without permission.

Blog Comments

The owner of this blog reserves the right to edit or delete any comments submitted to this blog without notice due to;

1. Comments deemed to be spam or questionable spam
2. Comments including profanity
3. Comments containing language or concepts that could be deemed offensive
4. Comments that attack a person individually

Terms and Conditions

All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.

This policy is subject to change at anytime.

About This Blog

To promote the education of individuals for the need to have a healthy lifestyle and wealth management through proper financial planning, particularly in investments.




Top Blogs


Awards

There was an error in this gadget

Top Sites

  © Blogger templates Sunset by Ourblogtemplates.com 2008

Back to TOP