Making an investment in the stock market is something many people will do at some time in their lifetime. There are steps you can take to learn more about your choices, minimize your risk, create a diversified portfolio and generally, invest with more confidence. Here are some tips that will help you to intelligently navigate the world of the stock market.
Beginner stock investors would be wise to make themselves prepared to lose a bit of money on some of their trades. Often times, new traders panic at the first dollar they lose and quickly sell off their stocks before giving them a chance to recover on their own.
Do your research. Before buying any stocks, thoroughly research the company. Study its financial history and how the stocks have performed over the last ten years. Earnings and sales should have increased by 10% over the prior year, and the company’s debt should be less. If you have difficulty understanding the information, talk to a financial advisor or broker with a good track record in stock investing.
Familiarize yourself with past performance of each company that you contemplate investing in. Although past successes aren’t definite indicators, companies that do well often also do well in the future. Profitable businesses tend to expand, making profits more possible for both the owners of the business and the investors, like you!
To increase your profits in the stock market, create a sensible plan and avoid picking your stocks emotionally. The benefit of developing a strategy that you can use to guide your stock choices will make it less like that you will make an emotional buy. Acting on a hot tip with out doing research is a dangerous way to invest.
Invest in stocks that are damaged, but steer clear of damaged companies. If the bad news is something fixable, that can be a great opportunity to jump in at an attractive price. Just be sure the bad news is only temporary. A company that missed an important deadline due to a fixable error, such as a material’s shortage, can experience a sudden, but temporary, drop in stock value as investors panic. Companies that are struggling with the fallout from a scandal may be unable to recover, and their stocks will not rebound.
Check your portfolio regularly for winners and losers. Water the winners with reinvestment and weed out the losers by pulling them. If you cash out your earnings from the winners and ignore the weeds, the weeds will grow and eventually be the only thing you have left in your portfolio. Any money not needed for five years should be in your portfolio.
Choose the best broker for your needs. There are two kinds of brokers, the first being a traditional or ‘full service’ broker. They will work personally with you, offering investment advice and handling your portfolio. The second type is a discount broker who will execute your orders, but won’t offer any sort of advice. While a traditional broker charges a higher commission, they are often the best choice for a first time investor.
These suggestions should help you to become a more savvy investor. While there’s no guarantee you’ll become the next stock market mogul, a better understanding of investment basics will go a long way in making smart money decisions. Here’s hoping all your future investment choices will result in a healthy return!