You’ve likely heard that investing in stocks and bonds is a good way to diversify your portfolio. The stock market in particular is one of the best places to turn assets into wealth over the long term.
If you simply put money into regular savings account or invest in a certificate of deposit, you might not make enough in returns to stay ahead of inflation.
Picking stocks should not be an impulse decision. Looking for the best stocks to buy can be time-consuming and challenging, but research is crucial to investing success. When you purchase a stock, you buy a slice of a corporation. So evaluating a stock is the same as examining a business.
In general, you want to look for a company that:
- Grows revenues steadily
- Has viable plans for continuing growth
- Has a good position within the market
- Has a stock that is fairly priced
- Might pay out some of its earnings to shareholders as dividends
You can find this information by checking out the corporate web page and corporate press releases from the company; these sources should provide some insights.
Keep in mind that stocks might meet all of the qualifications of a safe investment one day, but not the next. Corporations are not always stable. Valuations change as investors bid up the prices of stocks, and even good companies go bankrupt.
Before investing in stocks, improve your chances of success. Follow these tips:
- Diversify – Invest in stocks from a variety of industries so that when one industry is having trouble, another one will be healthy, propping up your overall portfolio.
- Watch valuations – If you overpay, even the best stock is no winner.
- Tune out the noise – Avoid checking prices and news on your stock every day. It will make you crazy, causing you to doubt yourself and possibly to trade too much. Don’t let your own fears or the fears of others cause you to act irrationally.
- Invest for the long term – Don’t expect your stocks to increase in value immediately. Pick good stocks and hold for the long term.
Your work is not complete after you purchase a stock. Instead, you need to actively monitor the investment. Periodically, gather current information about the company. Visit the corporate website, look at company news and check the P/E ratio. Read what management is saying about the company.
Check the fundamentals of the stock every quarter. Look at the reasons you purchased the stock. Make certain your initial assumptions are still valid.
Don’t be afraid to sell if the stock turns out to be a big disappointment, if your initial evaluation was wrong or if the stock tumbles and doesn’t look like it will improve.
Over time, you’ll earn income from stock dividends and increase your assets with capital gains. And don’t worry — on occasion, all investors experience a loss.