There is a ton of information available in print and online when it comes to investing. Trying to make sense of it all can be confusing, frustrating and, at worse, ruin your portfolio with one simple mistake. What do you need to comprehend before you start investing? Below is some of the information that you need.
KISS (Keep It Simple Stupid) is a phrase that can definitely be applied when you are making stock market investments. Trading, making predictions or examining data points should all be kept simple.
Before buying stock, analyze the market carefully. It’s smart to study the market before making your initial investment. A good rule of thumb would be to keep your eye on the ups and downs for three years. This will give you some perspective and a better sense of how the market gyrates. This will make you a better investor.
Do not forget that stocks that you purchase and sell amount to more than mere pieces of paper. Stocks represent a collective ownership in the company that you have invested in. Realize that this gives you entitlement to both their asset earnings and claims. Voting privileges are sometimes granted by stock ownership.
If you own common stocks, take advantage of your voting rights as a shareholder. You may also have a voice in whether a company may make other changes which will affect shareholder value. Voting takes place at the annual meeting for shareholders or via proxy voting, either through mail or email.
Once you have narrowed down your choices of stocks, you should invest no more than 10 percent of your money into a single option. This way, if the stock you have goes into free fall at a later time, the amount you have at risk is greatly reduced.
The return you desire should influence the type of stocks you purchase, for example, if you need a high return, look to stocks that are doing better than 10%. To get an idea of what the return on an individual stock might be, find the dividend yield, as well as the stock’s projected earnings rate of growth and then add them together. For example, if a stock yields 4% and the projected earnings growth is 15%, you should receive a 19% return.
Resist the urge to time the markets. Historical return tracking has shown that the most profitable results come from methodical investments on a regular basis over time. Decide the amount of money you can afford to put into the market. Then, start investing regularly and make sure you keep at it.
Recognize where your understanding ends and do not invest in companies which you do not fully understand. When investing by yourself, whether through an online or discount brokerage, you should only search for businesses that you have some understanding about. If you have first hand knowledge of your landlord’s company, it can be useful information for determining future profits, but an oil rig may be beyond your understanding. A professional advisor is better suited to these decisions.
Don’t over invest in the stock of the company you work for. Although some investment in your company is fine, do not let it be a major portion of your portfolio. If your portfolio consists mainly of the company you work for, like it was with many employees at the doomed energy giant Enron, you could possibly face financial calamity. A safe stock portfolio should be a mix of different stocks.
Make sure you are investing in damaged stocks, not damaged businesses. When there is a downturn in the stock value of a company, it is the ideal time to get a good price, but only do this if the downturn is temporary. For example, a downturn is probably temporary in the event that a reversible error occurred in the company’s supply chain. Any company which has been affected by scandal will take a very long time to recover, if at all.
Cash doesn’t always equal profit. The flow of cash is vital to all financial operations, from your life to your investment portfolio. You will obviously want to move your money around occasionally. That’s natural. But you also want to keep your investments healthy and viable, and that means not draining your stock. A good rule of thumb is to have six months worth of living expenses squirreled away somewhere.
When investing in stocks it is important to find a method that gives you results and stay with it. You can make your choice from companies in markets that show high profits, or choose ones that are well positioned with cash. The smart investor has a well-developed strategy, and you can create one that is right for your goals.
That’s all it takes! You know have a basic knowledge of investing and how to go about it. While it may have been fun not planning too much when you were younger, certain things require that you look beyond the next few months. Now that you’ve got the knowledge, why don’t you use it to your advantage.