As a beginning stock investor, if you follow some simple rules and an investment plan you will find the stock market is not a risky investment.
Are you interested in investing, but don’t know where to start? Does the idea of risking your money scare you? Continue reading this article and you will find some ways to ensure that the money you invest is put to it’s best use, which is a great way to make you the profits you desire.
Knowledge is key to any endeavor you plan on undertaking. You probably already know that there is a variety of stocks available. Compared to bonds, commodities, real estate and certificates of deposit, stocks might seem like a singular venture, but within the stock world there are many options. Common divisions within the stock market include specific sectors, growth patterns and sizes of companies. Stock investors routinely discuss things like small and large caps and growth versus value stocks. It is good to learn the terminology.
One of the main pieces of advice to stay away from a risky investment is to not let greed or impatience control your decisions when it comes to investing in the stock market. Buying low and selling high is a common phrase because it makes sense to buy a stock when there’s a higher chance that it will rise in price, even if you have to wait for a while. But knowing when a stock is overvalued or undervalued is key to understanding what buying low really means.
You should also know the risks of different types of investments. Stocks are generally riskier than bonds for instance. Riskier investments generally have higher payoff potentials, while less risky vehicles tend to provide lower, more consistent returns. Understanding the differences between these vehicles can allow you to make the best decisions about what to do with your money, in both the short and long terms.
You should compare stock prices to a number of factors in order to truly assess the value of any stock. If you are trying to determine whether or not a stock price is over or under-valued, consider the price to earnings ratio, cash flow and related factors of a company. Also analyze the sector or industry the business is in, as some sectors grow slower than others.
Keep in mind that the value of a stock involves much more than simply its price. It is possible for an expensive stock to be undervalued, and for a stock that is worth pennies to be severely overvalued. When deciding whether or not to invest in a particular stock, there are several other factors to consider that are more important. The price of a stock should be only one small part of the decision.
All of these ideas should be part of your investment plan. Of course you will want to outline the money you have available to invest in your plan,. but you should also write down some strategies, the types of companies you are interested in, and why. By initially writing these things down in your investment plan, when you re-check your plan after each yearly quarter, you will be able to remember the decisions you made and why, and then change course if needed.
In terms of risk, you can adjust your margin of safety based on the reputation, profitability, and size of a particular company. While businesses like General Motors or Johnson & Johnson are hardy and tend to stick around, there are certain companies that may do very well for a short while before crashing. Keep this in mind when selecting stocks. If you are risk averse, then you want to stay away from startups, no matter how enticing the investment may seem to be.
And it is important to remember you should also have a rainy day fund before buying in the stock market. For this fund you might be thinking of an interest bearing investment option. You should also keep at least six months worth of expenses in it. In the event that you lose your job or are involved in an accident, your regular living expenses will be covered. The rainy day fund should be liquid, meaning the money is in a money market account or savings account with good interest so that you can access the money when needed. If all of your money is in the stock market, it is not liquid.
The information in this article is just a starting point, so put these tips to use and continue to learn as much as you can as you build your investing strategy. While profits will continue to grow for you, staying on top of the latest knowledge and strategy for investing will help you succeed, and stay away from risky investments.