Motley Fool Australia

How to make money by investing in ASX 200 shares

using cash in asx share portfolio represented by one hundred dollar notes flying freely through the air
Image source: Getty Images

Everyone wants to make money in the sharemarket. ASX 200 shares have been volatile in recent times which can make it hard to see where and how to invest. 

The S&P/ASX 200 Index (ASX: XJO) jumped 1.5% higher last week and now could be a good time to buy.

Here are a few of my top tips that I think can help Fools make money by investing in top-quality shares today.

How to make money by investing in ASX 200 shares

1. Decide on an investment strategy

The average “retail” or individual investor can be their own worst enemy. Too often I have sold out of strong ASX 200 shares because I’m worried about potential losses.

People tend to be loss averse but risk-seeking. Those two concepts don’t really match up because you need to take some risk to get strong returns but don’t want to see your investments fall.

The best way to combat this is by creating your own investment strategy. I like to set targets for when I would buy and sell a particular ASX 200 share. That could mean if it gets to a particular price target I sell and if it falls more than 20% I sell, or I’m only allowed to invest 5% of my portfolio in small cap shares.

It doesn’t really matter what the rules are as long as you stick to them and get out of your own way!

2. Buy for the long-term (don’t gamble!)

I think this is really critical. One of the mistakes I made early on in my investing journey was chopping and changing too much.

 Of course, not all of your investments will pan out. There will be ASX 200 shares that rocket higher like Afterpay Ltd (ASX: APT) and those that crash and burn.

The key is to try and minimise the losers while giving the potential winners time to run. Buying and selling over short time horizons is a good way to lose a lot of money in tax and transaction costs.

Rather than constantly buying the next hot stock, I think it’s best to have a diversified portfolio of growth and dividend shares across a number of sectors.

3. Invest in high-quality ASX 200 shares

This follows on from the point above. Buying high-quality ASX 200 shares is the key to building long-term wealth.

It’s best to drown out the noise regarding the next hot tip from your friend or the local taxi driver. Do your research and invest in companies with a strong competitive “moat” around their business and real long-term growth potential.

There are a few ASX 200 shares that I’ve got my eye on at the moment. For non-cyclical exposure I like Coles Group Ltd (ASX: COL) while I think Transurban Group (ASX: TCL) shares could be a secret cash cow.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, COLESGROUP DEF SET, and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles…