Systematic Investment in Stock Market

As an Investor you are always on the look out to book profits through the stock markets. But volatility and uncertain is feature of stock market, making good investment returns is becoming difficult day by day. So what is the way out for Investors to make good profit? Should you stop Investing all together or should you look for a suitable approach for investing.

As far as our opinion is concerned, you should find a method of investing in stock markets that optimizes your returns and in bearish market conditions minimizes your losses. Systematic Investment in Stock Market would be the right solution for you. What is Systematic Investment in Stock Market? How can you go about it? And what all benefits you derive by doing Systematic Investment in Stock Market is our subject for discussion.

In the ongoing discussion we put forward the answers and solutions so that you can really profit from Investing in Stock Market. The idea is to provide a thorough understanding of the benefits and advantages of Systematic Investment in Stock Market. It is an investment methodology that can be readily used by most of the equity investors and it also helps in lowering the average cost-per-share of securities over a period of time.

Systematic Investment in Stock Market

Benefits of Systematic Investment in Stock Market

But before we move on to actually discuss Systematic Investment in Stock Market; it is essential we highlight another approach popularly known as Lump-Sum Investment. In Lump-Sum Investment, investors do a single lump-sum investment into the stock market and hold it over a period of time (say from one day to ten years) without making any further investment.

Another important concept that ought to be understood before we may move any further is the different market conditions. Basically, there are three types of market conditions. Up Markets, Down Markets and Flat Markets. Up Market condition prevail when stock prices generally rise over a period of time. Down Market come into picture when stock prices continuously fall over a period of time and Flat Markets exists when stock prices do not show any meaningful movement over a period of time.

And now the Systematic Approach. In Systematic Investment one does not do any initial investment in the stocks but rather invests a low definite sum of money (say $100/month) over a period of time (example: ten years). Here it is important to understand some salient points about the Systematic Approach.

Under Systematic Investment Approach, you can choose the set of stocks in which you want to invest. Also, it is not mandatory to invest regularly. You can invest whenever you see the market conditions are favorable for your set of investment goals. You can also decide the amount of money you want to invest. It is not necessary that you invest a definite sum always. It can be lower or it can be higher than your previous invested sum.

Another aspect of Systematic Approach is that you can take the advantage of law of averages which is applicable in this investment strategy. Essentially this is the main advantage of choosing Systematic Investment in Stock Market. It leverages against the very volatile market conditions when stock prices vary drastically over time. Thus, it helps to minimize losses or reduces cost-per-share that results because of uncertain and fluctuating market conditions.

Also, Systematic Investment can be directed through the purchase of stocks or you can even choose to invest through the purchase of Mutual Funds. In either case, you invest relatively small sum of money as compared to a Lump-Sum Investment Approach.

The Systemic Approach works better in most of the market conditions. Let us see how. As an example, let us consider a Down Market Condition. Systematic Investment works well here because as stock prices fall you are able to accumulate more shares at successively lower prices. So when the market rises, losses can be recovered swiftly with the rising share prices. And moreover, it is up to you to purchase shares or not to purchase shares in the times of falling share prices depending upon your level of risk taking ability.

In Flat Market Conditions also the Systematic Investor wins again. Here you acquire few shares when stock prices are high and more shares when stock prices are low. This reduces cost per share and the overall investment for you under Systematic Approach would turn out to be profitable. Whereas in comparison to the above market conditions, the Up Market Conditions are the most profitable for the Systematic Investor as stock prices continuously rises over time.

Mr. A has selected the buy stock of company XYZ he initially invested $100 when stock price was $20 per share so he bought only 5 shares. After few days or month, he saw his stock price was fall to $18 he bought another 5 shares of the same stock now he only invested another $90. After sometime he saw market is falling continuously and his stock too now his stock was at $15 per share he bought 10 more stock now his stock average is $17 when his stock will start moving upward he will start earning after his stock cross $17. If Mr. A had invested all his money at once at $20 then he had to wait long to earn from his investment.

Systematic Investment in Stock Market creates a winning situation for the small investors. You need to just stick to this approach of investment over a long period of time say at least 3-5 years but with systematic investment in stock can help you gain good money in short term too. As no approach can guarantee a profit or protect against a loss in a Down Market condition. However, Systematic Approach is by far the best approach as it tends to minimize the risk of investment and optimizes the return on your invested sum.

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