| Investing in the ASX Share Market - Don't Trade Without This |
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| Written by Dave McLachlan |
| Monday, 15 February 2010 11:04 |
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So you want to increase your wealth by investing in ASX Shares? Start out on the right foot and you could eventually supplement the income from your job. But make one of a few fatal mistakes and you could see yourself right out of the market, never to trade again.
So you want to increase your wealth by investing in ASX Shares? Start out on the right foot and you could eventually supplement the income from your job. But make one of a few fatal mistakes and you could see yourself right out of the market, never to trade again. What do I mean? Let me give you an example: Let's say you started putting $150 a month into ASX Shares in 1980. That's around $5 a day. It earns an average of 15% per annum over the years including dividends. If you re-invested all your returns, today it would be worth over one million dollars - $1,038,490 to be exact. But not everyone makes it that far. In fact statistics show that over 82% of traders lose a large portion of their capital and never trade again. If you are investing for the long term, your odds are slightly better (although 2008 scared a lot of investors out as well). But the thing is - now they miss out of the rest of those gains, on that million dollars that we discovered. So here is the important part - what you need to know when trading ASX shares. It is often the most overlooked part of trading or investing: It's your Trading Plan. In fact, don't trade shares without one. But finding a trading plan can be a daunting task. Where do you start? Well, one man's trading plan is another man's ruin. In other words, we are all different - and we all invest differently. But there are a few solid ground rules that will make your job easier. So having a trading plan should definitely involve the following: 1: Your Rules for Buying and Selling - these are the rules you have tested that determine when you buy and when you sell a share. Whether it is buying for fundamental reasons, like company earnings or book price, or whether it is for technical reasons like crossing a trend line or Dow theory it doesn't matter: so long as it suits you. 2: Your Money Management Rules - this is where you decide how much of your portfolio you will invest in one share. And also how many positions you will spread your portfolio across. As a guide, between 6 and 12 positions is usually optimum. Any less than 6 and you risk not being diversified enough. Any more than 12 and you risk being unable to out-perform the market (the best portfolios are often slightly focused). With those essentials you will be well on your way to more success in ASX Shares. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Get more from your ASX Shares with a free course on trading and investing. There's also free research on Australian Stocks - all at www.asxmarketwatch.com . |