Moneycontrol
Aug 27, 2012 03:59 PM IST | Source: Moneycontrol.com

Investment tips for amateur investors

Many amateur Investors often make investment decisions without doing any proper research. They either invest blindly or get influenced by other decisions ignoring hard facts. Financial advisor Jitendra Solanki shares some useful tips which will help new investors to make right investment decision.

Investment tips for amateur investors

Many amateur Investors often make investment decisions without doing any proper research. They either invest blindly or get influenced by other decisions ignoring hard facts. This leads to mistakes which jeopardize the primary objectives of their investments.


To become a smart investor one has to take wise and calculated decisions. Investments which are planned for goals such as supporting the income or providing for retirement have to be based on a detailed research to avoid any dissatisfaction. Although there are many savvy individuals who make their investment decisions after analyzing the real facts, still large number of investors gets attracted to short term tips available through different sources and end up making big mistakes.


Here are some basics which amateur investors should consider while planning their investments.


1. Read Before You Invest: For any kind of investments understanding the basics concept is a necessity today. There are many good books available which explains these concepts in a very simple and illustrative manner. With internet as a valuable resource, many write-ups can be found highlighting the basics of investing in different avenues. Whatever mode you select, reading about your preferred investment avenue helps in self-awareness and making more efficient decisions.


2. Know Your Risk Profile: You can be an aggressive investor or a medium to low risk taking individual. Knowing your risk profile is very important to select the right asset class. If you lose your sleep when markets are highly volatile then exposing yourself higher to equities in the initial stage will not be a wise decision. Hence, analyze your risk tolerance level before making any investment decisions.


3. Diversify your Investments: Many investors try to concentrate on few stocks or sectors to generate higher returns from their portfolio. But most of them ignore higher risk associated with a concentrated portfolio. It's wiser to have a portfolio diversified across asset classes so that you benefit from wider opportunities and if there is underperformance from any asset class, it does not affect your entire portfolio. Even within equity portfolio, diversifying across different categories like Large cap. Midcap etc. is more beneficial. Increase your exposure to specific sectors or stocks only if you have done your homework and are sure of your selection.


4. Avoid Relying on Tips: There are many small broking companies or individuals who will approach you with tips having unrealistic expectation on returns. They will pound you with emails, on television or will use print media to ensure their investment ideas reach you. Avoid any such tips for investment. Relying on your own research is the best strategy to invest your money.


5. Plan Your Investments: Planning your investments and sticking to it is necessary for achieving the desired results. Many a time's investors change their investment strategy on basis of what others are doing which is not the right approach. If you have planned some investments and have built a strategy to achieve your goals, stick to it unless there are fundamental changes in the underline avenues.


6. Adopt Periodic Rebalancing: When you choose allocation of your investments, it changes with rise or fall in value of any asset class or within investment category. By adopting rebalancing at periodic intervals you can stick to the asset allocation strategy you have planned thus avoiding any overexposure which may not match your risk profile.


7. Avoid Being too Greedy: Its wiser not to wait for unjustified rise in your investment values. Booking your profits at regular intervals will ensure you earn the desired income before the tied turns against you. So if you have invested in equities and have reached targeted returns then booking profits will be a wiser approach then to wait for the next rise. You can keep a trigger in your investments which book your profits when a defined profit level is achieved.

Success of your investment strategy hinges on how well you research. You may take help of professionals or do it yourself if you are a financial wizard!!! In both the scenarios learning investment basics helps in avoiding too much dependence and unrealistic expectations which makes you a smart investor. 

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