Almost everyone knows a person who has made lots of money through stock market investments. However, at the same time, these people know a person who has also lost a lot of money through these investments. The key is knowing where you should place your investing money to benefit yourself, instead of lining someone else’s pockets. You will be more successful at this if you do your research and use information, like the facts in this article, to help you.
Keeping things simple is applicable in all areas of life and especially in stock market investing. Your philosophy of investing should be easy to understand. The stocks you pick should be things you understand. Do not take on undue risk, much like you avoid blowing your whole paycheck on lottery tickets. Keep things simple.
A good rule of thumb is to invest a maximum of 10% of your total earnings. This way if the stock does go into rapid decline at a later date, the amount of risk that you have been exposed gets greatly reduced.
When you’re purchasing stock, you’re really purchasing part of a larger company. It’s important that you view it this way. This makes your investment seem more tangible and you will inevitably be more careful. Know the company’s financial statements backward and forward, and understand their strengths and weaknesses. This will help you to choose your investments with care.
Try and earn at least 10% a year since you can get close to that with an exchange traded fund. If you wish to project your expected return from any particular stock, add the projected earnings rate to the dividend yield. Stocks yielding 4% and which have a 10% earnings growth rate may produce a return of 14%.
If you’re comfortable doing the research yourself, use an online broker. The trading commissions for online brokers will make it more economical than a dedicated human broker. Since profits are your goal, lower trading and commission costs definitely help.
Don’t over allocate your wealth in your own company’s stock. While it may be nice to support your business by holding plenty of company stock, you will want to diversify your portfolio more. 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.
Damaged stocks are great investment opportunities, but stay away from damaged companies. A company’s stock price might be going through a temporary downturn, and that makes it a great time to get in on a good price, but just be sure it is in fact only a temporary setback. When company’s miss key deadlines or make errors, there can be sudden sell offs and over-reactions which create buying opportunities for value investors. However, if a company finds itself in the middle of a financial scandal, it might never recover.
Stay away from any stock advice that you did not ask for. Pay careful attention to your financial adviser, and even closer attention to any recommendations they personally invest in. Don’t listen to anyone else. It is impossible to know the bias that may come with unsolicited advice, so don’t rely on others to do your own “due diligence” research.
Don’t put all your eggs in one basket when it comes to investing. There’s plenty of other asset classes like real estate, gold, bonds and mutual funds to diversify with. Prior to investing, think of all options, and the best way to protect yourself, if money allows it, is by investing in many areas.
Beginning stock traders should start with cash accounts instead of marginal accounts. It is less risky to start with a cash account because the losses can be controlled. These accounts are also best for an initial education of the market.
Have an open mind when looking at a company’s stock price. Do the math and evaluate the price against the potential returns when it comes to the price of a particular stock. While a stock may not look like a good buy at $50 one day, it could drop within days and be a bargain at $30.
You should invest in large companies at first. Beginners should start with a portfolio of larger corporation stocks that have a lower risk but may yield smaller profits. Once your portfolio is established, you can add some diversification with smaller or mid-sized stocks. Smaller companies may grow quickly, but these investments are more risky.
Many stocks pay dividends and should therefore be added to your portfolio. This way, even when your stock loses some value, you will still get the dividends that can compensate for some of the loss. The dividends will end up being a bonus if the price of the stock happens to rise. Dividends also give you a reliable source of periodic income.
As noted above, everyone has heard of someone who has made a killing by investing, as well as, others who have lost it all. People are always going to suffer ups and downs within the stock market. Luck can have a role in your success, but the more you know about investing, the better you will tend to do. The following tips are designed to help you make those wise, informed decisions, so you can enjoy the financial rewards of success in the stock market.