Looking to invest in ASX 200 stocks? Here’s what you should know

Follow us on Google News:
 Looking to invest in ASX 200 stocks? Here’s what you should know
Image source: Sharon Cottle, Shutterstock.com

Summary

  • The ASX 200 index, which includes the 200 largest stocks by float-adjusted market cap, has done well in the last 12 months, delivering a 24+% return (as of 18 June 2021).
  • Factors impacting the ASX 200 performance include economic events, corporate news, the Company’s earnings, interest rate and strength of the Australian dollar.
  • To invest in ASX 200, one can opt for ETFs or can directly purchase individual shares from within the index.
  • Key strategies to follow while investing include sticking to your investment style, studying charts and price actions, conducting technical analysis, and keeping oneself updated.

The S&P/ASX 200 or ASX 200 includes the 200 largest stocks by float-adjusted market cap. The benchmark index is designed to measure the performance of these 200 listed stocks.

The ASX 200 index was launched in April 2020 and is rebalanced quarterly to ensure that the included stocks fulfil the eligibility criteria of the index.

How can one invest in ASX 200?

Investors are attracted to the benchmark index as it contains the biggest companies in Australia. Another significant advantage is that it is a comparatively low-risk investment and designed for steady and long-term growth. The index also helps investors sense the position of the market.

Source: © Andreypopov | Megapixl.com

Although there is a difference between trading and investing, they help you get familiar with the price movement on the ASX.

Trading on ASX 200 is possible via CFDs or contract for differences. CFD is a financial contract that pays the difference in the settlement price between opening and closing trades. In this process, the person requires initial capital, which should be 0.5% of the trade size. CFD helps in speculating on ASX 200 rising or falling. 

On the other hand, if someone wants to invest in ASX 200, he/she can either opt for ETFs or directly purchase individual shares from within the index as per the market price.

INTERESTING READ:

Factors influencing the ASX 200 performance

Several factors influence the performance of the ASX 200 index. Some of them include:

  • Economic event: If a natural disaster or calamity like the COVID-19 pandemic occurs, the ASX 200 performance would be adversely affected.
  • News Report: Any big announcement by the constituent companies in the index would directly influence the overall index performance. The level of impact would depend on the size and nature of the announcement.
  • Earnings Announcement: If a member delivers a strong earnings report, it will significantly impact index performance.
  • Interest rate: Any decision related to the interest rate declared by the RBA directly influences ASX 200. In case of a higher interest rate, borrowing reduces and can impact earnings growth. This causes the stock price to fall on the ASX.
  • Stronger Australian Dollar: If the strength of the Australian dollar increases compared to other currencies, it will act as a tailwind for the index.

Key strategies to follow while investing in ASX 200 stocks

Every individual has his/her strategy to invest in ASX 200 stocks. However, some of the most popular strategies suggested by experts include:

  • Diversification across ASX 200 shares: Experts suggest that it is always wise to invest in multiple stocks instead of going for just one. Through diversification, investors can minimise their risk. Specific to the ASX200, one could achieve this by either buying select shares from the index across different industries or simply opting for ETFs.

Source: © 8vfand | Megapixl.com

  • Hold shares for a longer duration: Patience is the key here is as it is advisable to have a long-term outlook while investing in the stock market. Successful investors like Warren Buffet always go for long-term investment strategy.
  • Have faith in your investment strategy: In general, beginners tend to panic and get stressed out if their strategies don’t work and they start seeing losses. Investment gurus suggest that once an individual has finalised an investment strategy, he/she should not worry about the short-term results and continue with his/her strategy.

Although it is easy to get influenced by the day-to-day news or activities, one must believe in his/her strategy and ignore the noise. Sticking to your strategy would help you reach your long-term investment goals.

INTERESTING READ:  Keen on Penny Stocks? Here Are Five Trading Tips

Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.

Featured Articles

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK