The stock market can be a fun and exhilarating investment opportunity. Depending on your long-term financial goals, there are many different methods by which you can get into the stock market. No matter which stocks strike your interest or how much you have to invest, you really need to ascertain a solid understanding of the market fundamentals. Following are some great tips that can help enhance your investing knowledge.
Keep in mind that there is a lot more to a stock than an abstract asset that you can buy and sell. Owning a stock makes you part of the body that owns the company which issued it. Therefore, you actually own a share of the earnings and assets of that company. You can often make your voice heard by voting in elections for the company leadership.
Keeping six months of living expenses in a high interest account provides a lot of security. That way, if you are faced with a major problem like medical emergencies or unemployment, you will still be able to meet your monthly living expenses, such as your mortgage or rent. That should tide you over while you resolve those issues.
Once you have decided on a new stock to try, be sure to only invest a small percentage of your portfolio into that one stock. Therefore, if your stock eventually starts to crater, you will not have risked all of your money.
Try and get stocks that will net better than 10% annually, otherwise, simpler index funds will outperform you. 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. A stock whose earnings are growing at 12% that also yields 2% in dividends offers you a potential return of 14%, for example.
An online broker is a good choice for those who are somewhat confident with their stock trading abilities already. The trading commissions for online brokers will make it more economical than a dedicated human broker. You want to make profit, so cutting corners where you can is a good idea.
Remain within your comfort zone. If you are using an online or discount brokerage yourself, be sure you are looking only at companies you are familiar with. You probably have good judgement about companies in an industry you’ve worked in, but maybe not for companies well outside your area of expertise. Let professionals make those judgements.
Don’t overly invest in your company’s stock. While it can fill you with pride to own the stock of your employer, it’s way too risky to depend on it alone. If something bad occurs to your business, your salary and your portfolio are at risk. Having said that, if the shares are discounted for employees, there might be a bargain there.
You can sometimes find bargains with stocks that have taken a short-term hit because of bad news. The best time to buy stock in a company is when its stock price takes a temporary tumble; as long as the downturn really is temporary, the profits can be great. 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. On the other hand, a drop in stock value for a company that is being investigated for fraud is probably not temporary.
Investing in stocks can be both enjoyable and profitable, no matter how you do it. Whatever your investment plans might include, follow the tips that have been outlined here to improve profits and reduce losses in the market.