Today I was having a discussion with one of my collegue and I showed him the ETF strategy I was working on. After showing, he asked me what is the target you are looking for. I said might be doing it for 3 to 4 years to see if I can double or triple my investment. Then he argued that this type of investment looks good in papers but doesn't work in real life.
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His argument was if you have an amount, you can invest and get 20% to 100% profit which is better than repeated 6% Profit. Now let's go through some pros and cons of having repeated 6% Profit or having huge profit.
6% Profit
Let me tell you I am following this strategy from last 5 months itself. So it is again new to me but I have gone some of the advantages and disadvantages which can help people to decide if it is for them or not.
Advantage
The biggest advantage is that your money is divided into smaller chunks and thus getting 6% profit is relatively easy and thus you are not blocking a lot of your money. Keeping in mind that you divide your total money into equal parts and then invest every part into different ETF it Stocks.
Now since it is a small amount getting it executed is quite easy and thus you get the profit regularly.
Disadvantage
You have to keep track of when the 6% target is hit. Also the profit amount is less so you doesn't feel like you have earned much. I know in one trade you might not feel, but when you do it repeatedly you will see the real potential.
Another disadvantage is the fees associated with one sell. When you sell you have to pay Rs 16 as DP charges. So when you have small chunks, the profit you will get is less as compared to when you have big amount. These are some of the problems associated with 6% repeated profit booking.
Huge profit from One Trade
I have some shares which I have kept for long hoping it will give me good profit. But the problem only few out of a lot gives me the kind of profit we are looking for. So let's go through the advantages and disadvantages.
Advantages
The advantage is that the profit would be huge and you can see that your portfolio has sky rocketed because of one trade. One trade profit would be too high and thus you have to do a lot of 6% trades to actually beat that.
Disadvantages
The biggest disadvantage is that there are 100s of stocks and finding one stocks which can give you 10x returns is quite rare. So not everyone can able to get a huge return from all the stocks and thus finding one is quite a task.
If a stock goes down you have to wait for a lot of time or have to book a loss which is not the case with 6% profit. As in 6% profit you have a lot of different shares and thus if one goes down there are some shares which can give you that 6% profit. Also there will be opportunity cost when you invest in a wrong stock.
So after looking at the advantages and disadvantages it is upto you to decide which one you liked. For me personally I like the 6% profit because that gives me continously profit booking opportunity and thus I don't have to select a great stock from a list of stock. Any stock at any point of time will surely give 6% profit.
So let's go through a chart where I start with 15K each month and getting 6% profit and thus keeping half part of the profit as well as compounding half part will give me some great profit.
