No matter what you are investing in, it's a good idea to look for value.
We're always told to “buy low and sell high” when it comes to investing. What that advice boils down to, however, is simply this: Look for good value. When you are investing, and looking for solid returns, one of the most important things you can do is look for value. What's hard, of course, is looking for value.
Look for Something Priced Less than It's Worth
The key to finding value is trying to purchase something priced less than it's worth. Of course, this means that you have to figure out which items are undervalued. One way to do this is to look at intrinsic value so that you can figure out, fundamentally, what an investment might be worth. This can apply to stocks, bonds, commodities, currencies and any number of investments. There are different ratios you can use to help you figure out whether something is a good deal, and you can delve into the price history to look for patterns related to when you might see a dip that represents a good opportunity.
The bottom line is that you need to feel as though the investment is poised to head higher, not based on what others are saying, but on your own grasp of the situation, and what you think is a good value. When looking for value, you have to do a little research legwork to make sure you understand what is happening.
Use Dollar Cost Averaging in Your Quest for Value
Many of us don't have the time, energy, or inclination to add investments one by one to our portfolios. In such cases, it's still possible to invest in a value-conscious way. Dollar cost averaging can help you buy portions of one investment regularly. This helps you build your portfolio in a reliable manner, as well as helping you take advantage of price dips. When something happens to send an investment lower, you automatically buy extra shares of it. You basically pick these shares up on discount, and get them for a better value. (The flip side, though, is that you buy fewer shares as the price rises.) Over time, you can see a decent return if you follow a dollar cost averaging strategy.
Many people like to use low cost and no cost index funds and ETFs?in dollar cost averaging, since it helps provide a measure of diversity to the portfolio, and the market movements are tracked, as opposed to the stress associated with tracking individual investments. For many average investors, a strategy that incorporates dollar cost averaging to regularly buy shares of a solid index fund or ETF can provide reasonable growth and peace of mind.
No matter what you are investing in, and no matter your style, you want to be able to look for value in your investments. A good value can include something that you don't have to actively manage, but offers the potential of decent returns, and it also includes your ability to spot investments that are underpriced relative to their true value.
Image source: Markvonrosing via Wikimedia Commons