Investing in stocks can be both profitable and tragic, depending on how you choose to invest your money. If done right it can prove to be extremely profitable and a great way to turn into a millionaire.
However, investing in the stock market is very risky since you can never guess where stocks will go tomorrow. Even big dogs like Facebook and Amazon face a beatdown from time to time.
It is important to be very careful when investing in the stock market. Here are seven things you should consider when making an investment in stock:
- How much to invest?
This is a subjective and personal decision, and there is no set rule as to how much of your portfolio should be in stocks.
The general rule is to invest in different stocks across different industries to increase your chance of a greater return and to properly diversify your portfolio.
However, only invest the money that you can afford to lose. Do not invest your savings and don’t ask for loans to invest in the stock market even if the outcome looks great.
The fact is that you can lose a large portion of your investment if things don’t go as planned. So don’t be in a hurry and take your decisions with care.
- What does the company do?
Is it a biotech company, digital advertising firm, or a holding company? If you are not fully intimate with what the company does or how it functions, it is best you don’t dabble in things you do not understand.
Go for companies and industries you are comfortable with and have enough data about to make an informed decision.
Google, Facebook, and Realty Income are straightforward companies that are easy to understand and invest in.
Also, remember that some big companies may not be available for you to stock in.
PowerJackMotion linear actuators, for example, is a big company that’s not traded on any exchange so you cannot invest in it.
- What is the company’s history?
Check the level of profitability by examining the quarterly and annual earnings reports i.e. the net income and the per-share earnings of the company.
You can use this information to judge the potential of the company. However, remember to always keep the future in mind. Plus, keep in mind that past performance is not always a good indicator of future performance.
- What is the competition?
Be aware of competition as it can help you understand potential threats. Takeovers and buyouts usually occur among competitors and they can have a major impact on stock prices.
- What are the risks?
Investment is a tough game to play since you can potentially lose all your money. Once you have rationalized your objective for investing in stocks – whether it’s for long-term benefits or a short-term profit – you can choose to take greater risks.
Understand the risks associated with investing in a specific stock before you make a move.
- What does the company’s leadership say?
Research the company thoroughly and know its goal. You want to invest in a company that aims to grow and be big. Ideally, pick a company that has a clear path.
- Be smart about it
Don’t follow rumors and don’t listen to others. Always take your own decisions. Only you are responsible for your money.