Investing in Stocks

Someone posted in my blog that his father has invested in stocks for many years, and have made losses. After investing for a lifetime, he has not yet recovered his invested capital.

This is possible. If the investor bought the wrong stocks, it is possible to lose the entire capital.

Here are my tips for investing in stocks:

1. Invest in a well diversified fund
2. The fund should preferably be bencharked against the market index (comprising of the quality stocks).
3. Choose a low cost fund.
4. Invest for the long term (so that good and bad years are averaged out).

If you adopt this formula, you will make a good return. This will be higher than investing in bonds or an insurance fund.

If you make a study of the market index over the past 30 years, you will find an average return of about 6% to 8%. The capital gain shown on the stock market index may give a lower return, but you have to add about 3% to cover the dividend yield.

Generally, it is good to invest in an insurance fund, as it is well diversified. The drawback is the high upfront and annual charges that is taken away from the yield of the fund. This reduces the yield considerably. If you can find an insurance fund that operates on low expenses, it is also a good option.