How to win in investing as a beginner
How to be a winner in investing, even if you don’t have much experience? When you’re new to investing, it’s always best to start small rather than putting all your hard-earned money into a single stock, property, or cryptocurrency. You must learn before you can earn. One of the most important principles to follow is diversification. You’ve probably heard this before, but today I want to explain it from a slightly different angle.
If you choose to invest in individual stocks, keep in mind that even the best investment managers in the world don’t win every time—they just win more often than they lose. That’s why even legendary investor Warren Buffett recommends index funds for most people. Putting all your eggs in one basket increases the chances of losing money. But when you diversify your investments, you increase the likelihood of having more winners than losers over time. The gains from successful investments help offset losses from others.
Diversification can take different forms. You can spread your investments across different asset types, such as shares, property, and fixed income. You can also diversify across markets, regions, and even different investment management styles. But today, I want to focus on another important way to diversify—through timing. This strategy is called dollar-cost averaging.
How Dollar-Cost Averaging Works
Let’s say you decide to invest $1,000 every month in a particular stock or fund, regardless of whether the market is up or down. Over a five-month period, the price of the stock fluctuates, but you keep investing the same amount each month.
Dollar–cost Averaging
- In the first month, the share price is $20, so you buy 50 shares.
- In the second month, the price drops to $15, allowing you to buy 66 shares.
- By the third month, the price falls further to $10, and you buy 100 shares.
- In the fourth month, the price rises back to $15, so you purchase 66 shares.
- In the fifth month, the price returns to $20, and you buy another 50 shares.
At the end of five months, you’ve invested a total of $5,000 and purchased 332 shares. The average cost per share is $15.06 ($5,000 ÷ 332). Now, if the share price is back to $20, your investment is worth $6,640 (332 shares × $20), giving you a profit of $1,640. If instead, you had invested the entire $5,000 upfront when the price was at $20, you would have bought only 250 shares. By the time the price returned to $20, your investment would still be worth just $5,000—meaning no profit at all.
This is the power of dollar-cost averaging. By investing gradually over time, you take advantage of lower prices when the market dips. It removes the risk of making a bad investment decision based on short-term market movements. Even if you have a lump sum to invest, spreading your investment over weeks, fortnights, or months can help reduce risk and smooth out market fluctuations. Since no one can predict whether the market will go up or down tomorrow, this is one of the easiest and safest ways to invest.
