An SIP Towards Financial Nirvana5 min read
When we finally understand the need to invest and decide to do the same in the stock market, either directly in stocks or via mutual funds, there is still a long way to go before we make our first investment. First, we need to choose a reliable platform/broker to transact, then wade our way through the KYC process to open a trading and demat account, and then pick a stock or fund to invest in after going through the whopping theoretical ‘gyaan’ on fundamental analysis, financial planning, and so on and so forth.
While everyone in the market has a unique style of participating in the market, there is a common and attractive investment strategy. I am referring to waiting for the right time to invest, more commonly referred to as timing the market or predicting the market to invest.
Timing the Market: The Art of Mastering Perfect Moments
Market timing entails making decisions to buy or sell stocks based on current market conditions and forecasts of future market movements. Buying at a market dip or buying low and selling high are common strategies in this regard. Far more money has been lost by investors trying to anticipate market corrections than by the corrections themselves.
But there is one fundamental problem with this strategy – it does not tell us the quantum of low or high returns, and actual returns would depend on the numerical specifications, like:
- How low is low enough for me to buy, or how high is high enough for me to exit my holding?
- Is a 2% drop enough for me to invest, or should I wait for 5% or more, like 10%?
- How much money should I commit every time there is a drop?
- What if the price goes even below 10% after I invest or bounces back up from negative 7% before I even get a chance to invest?While the former scenario, where we invest and the price goes further down, gets us anxious and makes us book losses, the latter makes us wait for long durations with no investments, again getting us all anxious.
Why is market forecasting so popular among investors?
The strategy of predicting the market’s ups and downs looks more appealing when we start out our investment journey, as we intend to get more units or stocks at a cheaper price to be able to maximize our gains. This could be attributed to a certain bias, also known as the Dunning-Kruger effect, which makes us overestimate our capabilities in areas where we are relatively new.
The timing strategy is buttressed in our minds once we are able to somewhat correctly predict the lows and highs and book a profitable trade with skill or luck (mostly the latter). The deeper problem manifests itself when we try to replicate this again and again with the same strategy. We end up booking huge losses more often than meager profits.
While it is known industry wide, that less than 90% of retail traders are not profitable, there are exceptions. But what we need to understand is that, while it is not impossible to become a profitable timer of the market, it takes immense time, effort, and skills to be able to do so.
What are my alternatives to market prediction?
An alternative is to gain an understanding of the technical indicators and technical analysis, which again requires some amount of experience apart from theoretical knowledge. You might wonder if there is an easier route for investors than having to go through the entire cycle of learning, applying, and rectifying.
The second alternative, systematic investment plans, or SIPs, offers a worry-free strategy for investors like us. In contrast to predicting the market, SIP involves investing a fixed amount at regular intervals, regardless of market conditions.
How does the SIP strategy fare vis-a-vis predicting the market?
Let’s look at how a SIP strategy appears against predicting markets on a couple of important parameters, as shown below.
Overall, we can clearly see that trying to predict the market can be a high-risk, high-return strategy that requires a significant time commitment and near accurate market predictions. Meanwhile, SIP can be a low-cost, low-risk strategy that can provide steady returns over a longer duration, saving us a lot of time (and sleep) in the process.
Well, we all have heard about the Mutual Fund SIP, and almost all of us are investing through it, but very few know that there is a way to build your own stock portfolio through SIPs in stocks. Yes, you’ve heard it right. You can start investing in top-quality stocks at your will, taking full control of your entry and exit with no lock-in period at all.
Here’s how you can start a Stock SIP in Paytm Money
- Once you have finalized the stock that you would like to invest in, search and tap on it to open the company details.
- Tap on Start SIP below the chart. You can do a monthly or a weekly SIP and choose the SIP day and enter the number of stocks or amount that you want to invest.
- Swipe to start an SIP, and you will get a confirmation with the details. Refer below to the gif.
If you want to start SIP on multiple stocks of your choice at once, you can check our new stock SIP product blog- Know your Stock SIP.
Disclaimer: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. This content is purely for information purpose only and in no way to be considered as an advice or recommendation. Paytm Money Ltd SEBI Reg No. Broking – INZ000240532. NSE (90165), BSE(6707) Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019. For complete Terms & Conditions and Disclaimers visit: https://www.paytmmoney.com . The securities are quoted as an example and not as a recommendation. Brokerage will not exceed the SEBI prescribed limit.
