What is dollar-cost averaging? Let’s say you’ve got $100,000 to invest in shares but you’re nervous about the market.

What if the doomsayers are correct and we’re heading for further economic and market woes? You can ignore the risks and put your $100,000 in now; keep the money in cash and wait until you’re sure the outlook is OK (which could mean keeping it in cash indefinitely); or you could compromise and invest your $100,000 over, say, 10 months with contributions of $10,000 each month.

The third strategy is dollar-cost averaging. It can be done through either regular saving (super is a great example, as a percentage of your salary is invested regularly without you having to do anything about it) or drip-feeding a lump sum into investment markets.

Instead of putting all of your investment money in at once (and risking the chance that the market might tank tomorrow), you average out your entry price so that your overall return is more likely to reflect that of average market returns.

So how does it work? Think of it as a strategy where you automatically buy more when investments are cheap and less when they’re overvalued. To take a very simple example, assume you want to invest $1000 a month in a share fund. The units are currently valued at $1 each so you buy 1000 units this month. By April, the market has risen 20 per cent. Your $1000 will buy 833 units. In May, the doomsayers are proven correct and the market crashes by 50 per cent. Your $1000 will now buy 1667 units in the share fund.

So you have 3500 units worth $2100 - a loss of 30 per cent on your investment. If you had invested the full $3000 in the beginning, however, you would have only 3000 units worth $1800 - a loss of 40 per cent.

If the market recovered a further 50 per cent in June, units in the share fund would be back to 90¢. After buying another 1111 units, you’d have 4611 units worth $4150 - a 3.75 per cent gain on the $4000 you had invested. But if you had invested the full $4000 in the beginning, your 4000 units would be worth just $3600 - a loss of 10 per cent.

Dollar-cost averaging is most advantageous at market peaks as it shields you from the risk of putting all your money in at the wrong time. However it can reduce your return when markets are rising. If you had received a lump sum in early March last year, for example, you would have been much better off investing it immediately than drip-feeding it into the market.

In a recent briefing, NAB Private Wealth said critics argued that because share prices historically rose more often than they fell, investors using dollar-cost averaging were likely to pay higher average prices than investors who jumped in boots and all.

However, this argument overlooks human psychology. Most investors are reluctant to put money into shares when the outlook is grim but happy to do so when prices are high. Instead of investing their lump sum last March, for example, many investors would have kept it in cash and missed out on part or all of the upturn.

How do I use dollar-cost averaging? Bailey says it works best with long-term regular savings such as super, as the process is automatic and your portfolio has time to benefit from buying more units or shares when prices are low. Setting up an automatic regular savings plan also avoids the temptation to try to second-guess the market by postponing regular investments when prices are falling and catching up later when the market looks more promising.

You can set up regular savings plans outside super but NAB warns it could involve higher transaction costs than investing a single larger amount and may be more complicated to track and implement. If you’re considering using dollar-cost averaging to get back into the sharemarket, NAB says studies suggest shorter periods (six to 12 months) to become fully invested give better returns than longer periods.

Reference: Sydney Morning Herald.

So, what exactly are bonds?

Companies typically have two ways of raising cash when they need to expand their businesses or need it for a mind-boggling number of needs. One is by going public and diluting their ownership of the company to investors who would all pay a morsel (share price) and claim ownership: stocks. Another way of raising money is the age old method of borrowing: bonds.

Companies can borrow from the investors themselves and when each of the investors lends out even a small amount like $1000 it quickly rolls into a huge sum of money which the company can use for its expansion or other needs. Usually the federal government also borrows money from the investing public (these are the government bonds) for its own use. All of this money is returned to the public in a periodic manner with interest paid on the sum borrowed.

So typically, a bond is nothing but a loan that you hand out to companies or the government itself. The loan is paid back to you (an investor) within a scheduled time and at a specific, pre-determined interest rate (also known as coupon rate). The borrower (the company or the government) would have agreed in writing to pay back the borrowed amount (called as face value, in bond parlance) at a fixed date into the future which is when your bond matures ( the amount would have been paid back to you in full with Interest) and this date is called as the maturity date.

Since you always know how much you are owed exactly, these investment vehicles are less risky, more stable and hence they pay less compared to stocks. They are often called as fixed-income securities or debt-market instruments to reflect on the fact that they are predictable, more stable, pay less but don’t fluctuate wildly.

Between the two important investment vehicles — debt (Bonds) and equity (Stocks), there is this major difference. When you pick stocks, you claim ownership of the company, complete with voting rights and the works - you make money when the company you invested in makes money. When you buy bonds, you become a creditor to the company and in principle, when push comes to shove and when companies have to liquidate for some reason, the creditors are given the first preference and the bond investors are paid up first.

Over the past few years, the example given above has been pushed to the maximum and has caused what we now know as the Global Financial Crises - Link to a great video to show how it happened

PD

Your next property purchase could be a steal if you adopt the right approach and get ready to take a shot when it raises its head.

Some say that at this time in history, lie no other, those who invest wisely and deeply in carefully selected assets (not too risky - due diligence remember) will be the next ‘Rich’ over the coming decade. So, to give you a help along, below there are 12 ways to help push the property purchase in your favour.

1. Look for an eager vendor

A vendor under distress is the most obvious component of a cheap purchase. There is no moral high ground here- often it’s a case that the seller needs a quick disposal and is willing to cut back on the price in order to move the bricks and mortar on. While it is not pleasant to see another party in a sticky situation, you may be doing them a favour by relieving them of the property, and in most circumstances, it is a business transaction where if you don’t, someone else will.

Ben Anderssen is the director of Brisbane based buyer’s agency Property Chase and is on constant lookout for property bargains for his clients. He often finds his best source of information to be the sellers own representative.

“If you quiz the agent you will get to the point where they’ll start telling you perhaps a bit extra…  And you can’t forget that agents, despite everything else, are there to do a deal. You’ll be able to tell pretty quickly whether or not they’re in a hurry to sell,” says Anderssen.

Some eager vendor situations include:

Vendor has bought elsewhere -Gun-shy buyers will contract on one home before selling their current abode and will include a “subject to sale” clause in the dealings. As settlement draws near, they become eager to dispose of their old property and now is the time for you to leap. Drive hard on the bargain - particularly when you’re armed with a cash contract free of conditions.

“I spoke to an agent the other day and he said ‘It’s a young couple that owns this property and they have bought another house and have bridging finance’ and I just thought “Oh my god, this is perfect,” recalls Anderssen.

Divorce Settlement - No-one enjoys seeing these situations come to a head but the end of a relationship is often punctuated by cutting ties and the settling of assets. Even where the separation is amicable, there is often an eagerness to move on and this means disposing of assets at a quick sale price. The effect can be amplified in acrimonious endings where both parties are eager to severe ties as quickly as possible.

Mortgagee sale - Costs of living pressures, interest rate rises, spiraling petrol prices - all catch phrases that have put further stress on those trying to service a mortgage and keep their head above water. Unfortunately an overextended buyer may receive an unwanted knock on the door from the financier looking to recoup their loan. While watching for a “Mortgagee in Possession” sale is one strategy, the other is to seek out an owner trying to consolidate their assets and settle their loan.

Deceased Estate - In the situation where property is willed to the next of kin, there may be many recipients to consider. While this is sometimes a sticking point, it is common for family member to agree that a quick disposal of the property will help put the estate to rest. Another consideration when multiple beneficiaries are involved is that the value of their share becomes diluted so any reduction in the offer can appear minor. For example, a $500,000 home divided between four siblings will reap $125,000 per share. If a cash unconditional offer of $460,000 is forwarded, a $40,000 saving to the buyer means each sibling now gets $115,000 - not too dramatic a fall in the scheme of negotiations.

2. Get Smart

Fore armed is fore warned. When a bargain arrives, the first buyer to spot it will be the victor so if you don’t recognize the gift horse when it arrives, someone else will ride off with it.

My first purchase occurred in inner Brisbane in 2003. After months of researching the market, I was sure a dated 2 bedroom unit with lock up car accommodation could be located for under $180,000. Despite agent’s reservations about such an animal existing, I received a phone call from one local realtor informing me that something had come onto the market “just yesterday”. He first called the out-of-town lady at the top of his possible purchaser list that was keen to find a Brisbane base for her student daughter, but she had baulked at the $145,000 asking price. Within three hours we had arranged to meet at the unit and, armed with an intimate knowledge of the market, I suggested he bring around a standard contract of sale at the asking figure. The contract was signed on the kitchen bench within the first half hour of the inspection. The body corporate manager told me later that the Gladstone based couple who sold it were delighted to get $145,000 for it. My response - “That’s great because I was delighted to pay $145,000 for it”. The end result is that after $30,000 worth of renovations the unit was worth approximately $210,000 and now five years later is around the $340,000 mark.

Know your market. Set your criteria about what you want and get informed. If you know that your next investment is to be a four bedroom, two bathroom, double garage renter in outer Melbourne, get real about what they sell and rent for. Dig, dig, dig so you become the local expert. When the right property comes along, you might be surprised to find that both the vendor and your competing buyers have scant idea as to what a great deal the property offers.

3. Be Prepared

Take a leaf out of the scouting book of bargains. Get ready to break the tape and be first across the line. By taking care of a few of the basics, you can remove uncertainties and move quickly.

Arrange your finance before you start hunting your prey. Know how much you can afford to borrow and get it organised. Now is the time to shop around for finance, not when your unconditional day of reckoning is imminent. Also, go through the exercise as to what sort of rental you need to achieve on your investments to help service the loan. This is an important step that can stop a prospective buyer in their tracks if they haven’t taken the time to consider the return on the investment.

Form a relationship with professionals whose help you’ll need when snatching a deal. Most valuers are happy to discuss generalities of how they view their areas of expertise and can stand at the ready to provide their services quick smart when they know you are likely to call. Similarly have the number of your trusted pest and building inspector handy so they can provide a ready to go service when you come up with a possible winner. By making their acquaintance early you can get some pre-purchase heads up on possible pitfalls that might surround your sale of the century.

4. Raise Your Profile

In the real estate game wallflowers don’t get dances. Once you know what you want, what it should cost and where it’s located, get out there and get known. Most agents keep tabs on buyers who are serious and ready to jump in their area. For an agent, a smart, cashed up purchaser who can be quickly married up to their perfect property partner saves headaches, puts money in the bank and helps forge an important professional relationship.

Good agents keep buyers phone numbers handy and know who to call first when the right piece of real estate comes along. Don’t stop at one call - ring all the agents in your area regularly to check up on possibilities - let them know you’re out there and they’ll let you know what crosses their desk. A word of advice though - be serious. Time wasting purchasers get short shift from busy agents.

5. Look for the angles

Bargains are not always obvious and you must dust off a little dirt to find the gold seam. Try thinking outside everyone else’s square to see if you can make a go of a property possibility. For example, one agent in a near university suburb has built a formidable self-funding rental portfolio by identifying homes where additional bedrooms can be created for leasing on a per room basis to the student market.

It is also worth considering whether a property holds a value to you over and above the local market. Perhaps by purchasing your neighbor’s home you may suddenly find yourself with a potential development site ripe for rezoning to units - all for not much more than the cost of a standard residential dwelling.

Bargains may also be had by considering other angles for savings. Purchasing a home from a family member or buying the property you currently rent may circumnavigate the need for agents thus saving on commission. In the latter case you may also come to an arrangement where you are compensated for upgrades you have carried out on the property yourself.

6. Look for growth fundamentals

He who hesitates is lost when it comes to areas with all the elements of a future upside. Are there major industries or transport routes likely to boost a suburb’s profile? Perhaps a new bridge will drop potential tenants right at the door of a workplace or perhaps the local university is expanding its overseas student programme. If you are sure it’s worth a punt and can handle the risk, try your hand and there may be a pot of gold at the end of the rainbow.

7. Buck the market trend

Noticed that things have slowed in the area? Is everyone looking a little sheepish about property despite all the fundamentals being in place for plenty of positives? Are there fewer people at the auctions with even fewer competitive bidders?

Hello! Now is the time to put your hand in your pocket.

“There are great buys on the market now and no-one is touching them. I’ve got all these clients at the moment who want to watch the market for six months before committing and I’m like ‘You know what - everyone is holding back, and all of you are going to hit the market in six months and compete with each other!’ The time to jump is when everyone else is hesitating,” says Anderssen.

8. Stick with the basics

Bargains aren’t bargains if things go sour easily. Avoid main roads and adjacent rail lines. These things don’t sell in a soft market. The rule is a window of opportunity comes around to sell a dud property about once every seven years so avoid them like a biblical plague.

9. Beauty is skin deep

See beyond the façade and look for good bones. Michelle turned up at an open house to find her unit of interest was inhabited by some very disgruntled tenants.

“They obviously weren’t pleased that they were being kicked out and that the open house was on their Saturday morning. The stereo was turned up loud, they had collected about 50 empty toilet rolls around the pedestal and they even started shifting out a filthy mattress down the hallway past prospective buyers. The place was a pigsty,” she recalls.

“Plenty of people turned up their nose at the state of the property but all I could see was the massive size of the bedrooms, plenty of light from the numerous windows and the hidden surprise of a huge downstairs store room,” she adds.

Hers was the only offer of the day at $192,000. A new coat of paint, kitchen and floor coverings plus some general dressing with drapes etc. and Michelle had turned the hovel into a cool near city crash pad worth $250,000. Not bad in six months.

10. Work the conditions

“Quite simply, the less conditions you have in a contract, the more the vendor’s going to favour that contract,” says Anderssen.

By reducing the unknowns you can keep a step ahead of the competition. Don’t put yourself at risk but if there are instances where you can safely take out the finance clause, waive the cooling off period or forget about building and pest inspections then you could well find your self a step ahead of the competition.

“The more favourable you make that contract the less you’ll have to pay if say you’re up against somebody who wants to extend the settlement period or make it conditional upon getting something through Council or whatever,” adds Anderssen.

With this approach it can pay to ask the agent what the buyer wants in the contract. If you are flexible with your requirements and cater to theirs, it might swing the deal in your favour.

11. Look for out-of-area agents

There are instances where sellers are represented by agents who don’t know the area. They might be family friends or a long term business associates who the owner trusts with their valuable asset. While in most instances a professional agent will do their research, there are occasions where an overworked agent has taken on a listing beyond their specialty. Unfortunately for the seller, there is little substitute for local knowledge.

Keep an eye on the listings to see if agents and areas are mismatched. Sometimes an underdone internet listing or unconvincing newspaper advert can be a heads up that the agent doesn’t know his stuff in the suburb. See if you can read a little deeper.

12. Long listing can equal big savings

An overconfident vendor can be their own worst enemy. In most markets, appropriately priced properties sell within a reasonable time frame. When markets are rising, sellers may confidently list there investment at a price above the local market and wait for it to catch up, but when things stagnate these properties will sit and if the seller isn’t flexible, they will burn off potential deals.

If you feel a property is overpriced, keep an eye on it. If the market isn’t particularly hot and you start seeing the home appear week after week with no joy, particularly if the list price keeps reducing, try your hand. The frustrated home owner may just feel the need to get the darned thing over and done with.

There are no guarantees in the property game but you can help make your own luck. The strategies above, particularly in combination, can give you the firepower needed to get a steal.  Lay the bait for bargain, keep a keen ear to the ground and you may just throw your net over the deal of a lifetime.

Have you had success by implemeting these and other tactics?

PD

So, you need to get rid of your house and you need to do it as fast as possible. Whatever the reason, be methodical, reasonable, and most importantly of all, don’t panic. This may not seem like the best time to try and sell your house your house, but if you follow this sound advice, it is very possible.

I am about to disclose to you the five biggest mistakes homeowners make when selling their home. I’m also going to address some proven home-selling tactics that will assist you in selling your home fast.
The Top (5) crucial mistakes impatient homeowners make
1)    Making small price reductions over and over
Nothing indicates desperation more than multiple incremental price drops. The longer a property continues to remain on the market, the more enabled the buyers become. Instead, research the market value yourself. Find out what your house is worth by looking at similar properties in the neighborhood and price it well below them. The most looked at houses on the market are the newest and the cheapest. If there is a way that you can come in first in both categories, you will more than likely have yours under contract in a very short amount of time.

2)    Hiring the cheapest but not the best Real Estate Agent or Broker
There are many ways of finding a good Real Estate Agent. Personal recommendations from friends and colleagues are often one of your best sources. Top notch Real Estate Agents charge a premium for their services, and rightfully so. So don’t sign up with cheapest Real Estate Agent and get stuck with a lemon. You want someone with experience, personality, enthusiasm and drive, and most importantly, someone who will give you the attention you need and ultimately guide you and your potential buyers through the entire process with courtesy and professionalism.

3)    Waiting for a better market
Good luck. If you decide to wait, you are joining the ranks of the other million homeowners who have also decided to wait. Trust me, when everyone decides to sail at the same time, you are probably too late, and have already missed the boat. If you need or want to sell now, then by all means, sell now. There will never be a better time than the present.

4)    Showing your house before you get rid of your stuff
You would not try to sell your car without first washing it and vacuuming it out, would you? Let me make it perfectly clear. When it comes to all of your stuff that you have collected over the last thousand years, trust me, it may be your prized stuff, but everyone else sees it as junk. Trying to sell your house when it is full of junk is definitely a bad idea. Potential buyers will not see charming family memories; they will see an overcrowded house that appears smaller than it actually is. Your potential buyer does not want to see your house; they want to see their house.

5)    Do not be over confident
The seller gets a few showings early on and they are suddenly filled with courage and confidence. The first offer does not seem so great, so you naturally assume there are bigger and better offers to be had. So with a great amount of confidence, you talk yourself into rejecting the first offer. This is a big mistake. Treat every offer you receive, as if it is your last. If you do not take this advice, trust me, your competition will.
For more information on selling your home, visit Americas Housing Educators at www.americashousing101.org

Yes, the finance industry is the foremost expert on 3 letter acronyms, and IPO is another example. Standing for Initial Public Offering, it basically means offering shares to the public for the first time, usually with a prospectus that details the investment offer.

IPOs are often described as flotation, going public or listing. Prior to an IPO, enterprises that sell shares to investors are considered to be privately held. The IPO allows investors to liquidate some or all of their interest in the particular entity when it becomes a public company.

Selling Stock
An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO.

Companies fall into two broad categories: private and public.
A privately held company has fewer shareholders and its owners don’t have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. Did you know that IKEA, Domino’s Pizza and Hallmark Cards are all privately held?

It usually isn’t possible to buy shares in a private company. You can approach the owners about investing, but they’re not obligated to sell you anything, and probably won’t anyway. Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as “going public.”

This form of investing can be relatively high risk, but at the same time, if you know much about a company looking at an IPO, and you do your due dilligence on the business, it could give you returns far exceeding many other investments in this category. Once again, do your research and never invest in anything you don’t know much about.

That concludes the simple series of investing in shares. There are many websites dedicated to shares and books on investing. Warren buffet has a very down to earth look at investing and it obviously works, considering he is the second richest man in the world by doing this. I hope this series helped you.

PD

One of the reasons shares are bought is to receive an income. Each time the listed company has profits at the end of each year, they pay a share of the profits to their shareholders, which is called a dividend.

I know this is not rocket science for many people, but you would be surprised how many people don’t understand different parts of shares. Wikipedia’s definition of a dividend sums it up quite well:

Dividends are payments made by a corporation to its shareholders. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

These dividends can be paid franked or unfranked. Franked means that the shares have had the tax paid on the earnings already, and unfranked means the tax hasn’t.

So many people invest in shares, in fact nearly every Australian worker has some form of shares at the moment, through superannuation. If you haven’t gone to the extent of actually purchasing shares yourself, then there are a few things you will need to understand before taking ‘the plunge’.

To help you with the basics of understanding shares, I’ll run a short post series. If you have any feedback or suggestions on what you would like to hear more about, please post a comment below and I’ll post the information for you.If you go to the ASX website, and click on shares to search for a company, you will find the following facts: This first post is about Price Earnings Ratios (P/E ratio).

What Does Price-Earnings Ratio - P/E Ratio Mean?
A valuation ratio of a company’s current share price compared to its per-share earnings.
Calculated as: Price-Earnings Ratio (P/E Ratio)

For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).

The Eearnings Per Share is usually from the last four quarters (also called trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four.

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

The P/E is sometimes referred to as the “multiple”, because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, that would mean that an investor is willing to pay $20 for $1 of  current earnings.

It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.

I hope this post helped you understand the P/E Ratio, and be sure to keep an eye on the next post.

PD

With all forms of investing being hit hard over the past 12-18 months, the more traditional forms of investments are starting to look like they are on the rebound again. They say the market has recovered well before the media ever gets hold of it. So here are 5 things that you need to know before moving into investing. I am not a professional adviser in this area, so if you have technical questions, or need ‘advice’ on investing in particular companies, please consult a professional stockbroker or sharemarket report.

1. You own a part of the business

When you invest in stocks, you do not invest in the market (despite what you think). You invest in the equity shares of a company. That makes you a shareholder; you now own a small part of that business without having to go to work there. The good news is, since you own part of the company, you are entitled to a share in its profits. The bad news is that you are also expected to bear the losses, if any.

That is why investing in shares is risky. If the company does well, you benefit. If it does not, you lose. There are no guarantees whatsoever.

2. In the short-run, the price of the share can wildly fluctuate

Let’s say the company fixes the price of each share at $10. This is called the face value of the share.

When the share is traded in the stock market, this value may go up or down depending on supply of, and demand for the stock.

If everyone wants to buy the shares, the price will go up. If nobody wants to buy the shares, and many want to sell them, the price will fall. The value of a share in the market at any point of time is called the ‘price of the share’ or the ‘market value of a stock’.

So you might have paid  $15 for a share which is now quoting at $12. Don’t panic and sell. If it is a solid company, the share price should eventually rise.

The prices will get influenced by the market sentiment and the general direction of the market. As a result, you may see short-term slumps.

3. Always invest for the long-term

The best way to make money is to buy low and sell high. This means you should buy the share when the price is low and sell it when it is high.

That is why you must buy in a bear market. This is a term used to describe the sentiment of the stock market when it is low and the prices of shares have generally fallen. The best time to sell is in a bull market, when the sentiment is high and the prices of shares are rising.

But it is very difficult to time the market. In fact, no one can do it. If we could, we would all be millionaires, wouldn’t we? That is why, when you invest in the market, it is best to invest for the long-term. Hold on to your shares for a few years before you think of selling them.

Companies increase their sales and book higher profits over the years. This will eventually reflect in the share price, so ignore the short-term slumps. Once you decide that you are in for the long haul, you can ride over the bear and bull runs with no stress at all. Over time, the price of your shares will appreciate.

4. Decide how much you want to invest

Always remember one basic rule in finance — if something gives you higher returns, that’s usually because it carries a greater risk.

That’s the reason why not-so-good companies will pay you a higher rate of interest for your deposits. The same reasoning goes for stocks too — they give higher returns than, say, bank fixed deposits because they are more risky. So the amount of money you invest in the market depends on your capacity to bear the risk.

If you are young with a steady job, you can invest a larger proportion of your income in the stock market than, say your parents who are close to retirement. If you have a lot of debt to repay, avoid putting too much of your money in stocks.

It’s best to decide how much of your savings you will allocate to stocks, and stick to that plan. Don’t get swayed by how much your friend is investing.

5. Don’t rely solely on ‘good advice’

A smart investor should never invest buy shares of companies he doesn’t know much about. Relying on ‘advice’ from friends is not always a great idea. Do some groundwork yourself.

It doesn’t matter who is buying the stock or who is recommending it. Steer clear of such ways of making a fast buck. These tips will land you in that brown creek with no paddle.

When you hear of a ‘hot tip’, dig further. Take a look at the company’s profit and loss statement, which would have been audited by chartered accountants. Do some basic calculations on your own. The Earnings Per Share (net profit/ number of shares) and Price/Earnings ratio (market price/ EPS) should give you a fair understanding.

These tips should get you started. Tread cautiously though. If stocks intimidate you, consider a diversified equity fund. A mutual fund manager will research many companies before investing in their shares. This way, you can participate in the stock market even as you leave the research to professionals.

PD