To make money over time, and outpace inflation, investing in common stocks is probably the best way to go. The returns you can see on your investments may surprise you. However, to yield large returns, you first need to understand how the stock market works and gain some knowledge of the various companies whose stock you can buy. Keep reading to learn the essentials for success in the stock market.
Be sure to use free resources to check out the reputation of any potential brokers. Avoid investment fraud by performing a thorough background check on any investment broker you are considering.
Creating a long-tern strategy is the best way to make the most money when you are investing. You will also have more success if you set realistic goals, instead of trying to forecast something that is unpredictable. Have the patience to hold on to your stock investments for as long a period as needed, sometimes years, until you can make a profit.
After you have chosen a stock, it is wise to invest only 5 or 10 percent of your investing funds into that particular stock. By doing this you protect yourself from huge losses if the stock crashes.
Look at stocks as owning a piece of a company, instead of paper that is shuffled around. Carefully evaluate and analyze a business when determining the value of the stocks you have invested in. You will need time to decide whether or not to invest in certain stocks.
A good goal for your stocks to achieve is a minimum of a 10 percent return on an annual basis, because any lower, you might as well just invest in an index fund for the same results. To project the potential return percentage you might get from a specific stock, look for its projected dividend yield and growth rate for earnings, then add them together. The potential return could be a possible 14% for a stock with 12 percent in earnings growth and a yield of 2 percent.
Don’t invest too much into any company that you work for. 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 anything should happen to the business, both your regular paycheck and your investment portfolio would be in danger. Conversely, if the company has a solid history and employees can buy shares at a discount, this could become a very lucrative opportunity for you.
Even if you plan on selecting and trading your own stocks, consult a financial adviser anyway. Stock choices are not the only thing your advisor can give you information on. They will sit down with you and determine your risk tolerance, your time horizon and your specific financial goals. This information will then be used to develop a personalized plan of action.
Stocks can be a profitable way to increase your overall wealth. However, the only way to get a substantial amount of money, is by being knowledgeable on the subject. Once you take this information and put it to use, you’ll be ready to succeed!