- Opt for long-term investment
Stock investment is the best method of growing long-term wealth. The annual stock returns average at approximately 10% for the past few decades, but it is essential to note that some years will be down and others will be up. And for individual stocks, their returns vary.
However, if you are in it for the long term, your focus is on the total amount at the end of your investment duration.
Although the stock market has complex strategies and approaches, you do not need to complicate matters because many people succeed with stock mutual funds.
And when choosing individual stocks, ensure that the company is in it for the long term.
- Manage your stock portfolio and continue investing
It is not advisable to keep checking how your stocks are doing every day as it may frustrate you, but you can check in once in a while, meaning months. Ensure that you invest in stocks, ETFs, mutual funds, and index funds.
Don’t stop there; keep adding to your portfolio by making auto deposits every month. You can also opt to reinvest dividends and any other earnings from your investments.
Things You Should Understand Before You Invest in Stocks
- Invest in those businesses that you have a good understanding of.
- Avoid high-risk stocks until you have a good grasp of all the tricks of investing.
- Diversification helps minimize losses.
- Avoid low share price stocks, popularly known as penny stocks.
- Learn all the basic metrics and concepts for analyzing stocks.
Consider the Following Factors when Investing in Stocks
- Expected Returns
Like investing in real estate, before investing in the stock market, you have to factor in how much you are to receive, such as interest, dividends, and sometimes loss. If you want to minimize the risk associated with your investment, you must understand your investment timeframe, long-term or short-term.
Keep tabs on your investment portfolio periodically, especially if you are in it for the short term, to ensure that you are clued in when it’s time to invest.
If you are crunched on time, you can hire the services of Portfolio Management Services (PMS) or a Certified Financial Planner (CFPs) to monitor and map out your portfolio’s performance.
You can also analyze the company management and past performance. Also, look at their creditworthiness as it ensures you as an investor that the company can meet its financial obligations, minimizing the risk of defaulting on interest or dividends.
Read Also: How to start investing in Real Estate
- Revenue and earnings growth
With stock investment, you must perform in-depth research of the company you are looking to invest in. look at its revenues and understand how it is performing.
- Liquidity
Before buying any stock, check how long it takes for your investment to be converted into money. Liquidation can be done via the stock exchange or redemption on the maturity of the instrument. You can evaluate liquidity based on the following factors:
- Lock-in-period: This is the time that an investor has to wait before transferring or liquidating your investment.
- Cost of liquidation: These include brokerage fees, securities transaction tax, redemption charges, and any other hidden costs. And if you are investing in another country’s stocks, you must educate yourself on all the costs involved.
- Volatility
Volatility refers to the pace of fluctuations that an investment experiences. The higher the range and speed of oscillations, the higher the risk of winning or losing.
- Time Horizon
This refers to the time you expect to hold your investment before selling it, and several instruments, such as equity, debt, and derivatives, influence the time horizon. Equity instruments are perfect for long-term investment where regular income is not a necessity.
An investor is after the increase in value of your investments, thus holding it for a more extended period. Debt instruments are perfect if you want a regular and assured income as they generate a fixed periodic interest returns.
And derivatives have a trading cycle of three months after which they expire, best for short-term investment.
So before you decide on your time horizon, you must consider your:
- Cashflow requirement: Decide whether you want your investment to appreciate in value or if you want to receive regular income.
- Age profile: You have to look at your current income, future income streams, and retirement plan.
- Returns: If you want more returns, it’s better to hold your investments longer to get higher returns, especially with debt instruments.
Bottom Line
The best about investing in the 21st century is that there are many ways to do it. If you do not know how to go about it, don’t worry because there is tons of information on the internet.
Better yet, you have the option of doing it yourself, with a professional, or via your employers. Do not limit yourself because you do not have too much, you can start with as little as $100 and keep adding to your portfolio little by little.
