Forecasting Stock?
If forecasts on the stock market is dangerous, as an investor of his time buying and selling shares? The simplest answer is to ignore the price level to buy stocks when he invest savings, not to sell if he does not have to. And he must also own fixed-dollar assets because they sell an opportunity to review a lower-than-average prices and buy at higher than average to be opened without a prediction.
The rate of investment.
Currently Ignorethe question of the timing of share purchases, we assume that A has $ 1000 of new savings to invest on the first day of each month. With half of this, he buys shares of common stock, and the other half he uses to deposit into a savings scheme too. His savings are always equally between stocks and cash reserves divided. During the first year, he deposits $ 6,000 in the bank and pays $ 6,000 for camp to buy 120 shares at an average 10 shares per month at an average price of $ 50 per share. (For the simple representation of theCosts of buying and selling of shares, the income from investments, are excluded here.)
Now, let's take a look at a market or redemption values. On 1 January of the second year, the current value of his savings, other than interest, is the same as its cost. But the market value per share of stock has dropped up to $ 40, putting his 120 shares valued at $ 4800, $ 1200 or less than their deposit savings. This would decrease the price to its usual $ 500 monthly pay for purchasing 12 shares,compared to its previous average of 10 shares per month.
At this point, A decides the market value of his shares to his savings will equal, and that he was to buy his attitude in order to achieve this. So on the first of January he does not make any savings, but makes all of his $ 1,000 savings per month for the stock, making the total stock value up to $ 5800, compared with $ 6,000 in the savings. With the $ 1000 he buys 25 shares, 2.5 times as much as his former monthly average. Lateron if an increase in the price of its shares will exceed the value of his savings, he is like this to prevent by all or most of its new savings in bank deposits.
Action Plan.
Now we want to develop a plan A into action. First, an investor chooses a standard ratio that it is maintained between the market value of its common stock and his cash. The idea can be preferably applied to each ratio an investor.
To maintain a stable lifestyle for the family, some additional reservesaid $ 5,000 would be needed for personal emergencies outside of portfolio investment. When you start to save up to $ 1000 a month, he is a standard ratio of shares to $ 800 $ 200 fixed-dollar deposit to take over, but not including $ 5,000 in its reserve for emergencies. For the first 5 months, all his savings to go into this special reserve, thus completing its goal for an emergency. In the sixth month, he observed its standard money, he shall deposit $ 200 in cash and $ 800 in stock.
Elected with a standard ratio;he must not allow current stock market conditions, to persuade him to change the ratio. If he takes money, as is the falling share prices, and changes to another ratio when prices rise, he is slipping in forecasting. A default ratio has no chance of success, unless it takes for an investor, he parks his feelings out.
Purchasing under a standard money goes like this: If an investor has a new savings available to them before he finds out what the current valuesits total stock and his total bank deposits, not including an emergency reserve. It announced its new savings in what they are worth little compared to its standard money, as A has to save each month with its $ 1000.
Save any new situation.
If an investor has little or no new savings, he can gain the advantage of the standard money plan, by the same proportion, both the sale and purchase of shares. Suppose B is exactly equal to the annual spending his income, so that it no newSavings, nor is it to spend any capital. Its standard ratio is 1 to 1, and the current value of its capital shares this point, 2,000 shares at $ 10 per share totaling $ 20,000 and $ 20,000 in savings.
Then the value of a share will fall to 8 U.S. dollars, its total stock value of $ 16,000. To restore its value to an agreement with its standard money, he puts $ 2,000 of savings and buys 250 shares. This reduces his reserve to $ 18,000, and also raises its current stock valueto $ 18,000.
First, the value per share will increase to $ 10, just like the original figure, and his 2250 shares are from the current value of $ 22,500. Here, too, operate, its values, restoring its standard money, he sold 225 shares for $ 2250, and adds them to his savings account. This makes him, with 2025 shares at a value of $ 20,250 and $ 20,250 in bank deposits, its capital, in total than $ 500 higher than at the beginning. (For accuracy, should be deducted the cost of buying and sellingbenefit from this.)
Value Stock Price Movement and Gap.
A changeover between the old capital stock and deposits may not take place, while stocks worth far enough away from the standard related to the cost justify and change effort. Bought in the above example, B has, if retained its stock value was 20 percent below its value. And he did not sell, has to deposit its share value by 25 percent over the value of his bank. The desired gap can be provided automatically byEstablishment of a standard ratio for the sale of shares, which is different from the purchase money.
Ratio system requires discipline.
It helps you decide when the stock moves to buy as many shares in your stock, drawing from the available bank deposits. It also prompts you when the stock rising month, how many shares to sell in order to keep the money originally set.
This standard ratio Investing System has to be followed with discipline in order to achieve winObjectives. The buy low and sell dear apparently wearing here is how you see the combined equity and bank deposits grow in value over time.
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