Making an investment in the stock market is something many people will do at some time in their lifetime. There are steps you can take to learn more about your choices, minimize your risk, create a diversified portfolio and generally, invest with more confidence. Here are some tips that will help you to intelligently navigate the world of the stock market.
If you are the owner of basic stocks you should be sure to utilize your right to vote as a shareholder. Depending on your company’s charter, you could possess voting rights when electing directors or when there are proposals for large changes in a business, such as a merger. Voting normally happens during a company’s shareholder meeting or by mail through proxy voting.
Many people who are just starting with stock market investments purchase mutual funds. Mutual funds are usually low risk investments due to their diversification. The beauty of mutual funds is that you obtain a nice range of stocks, and you have a professional who is conducting all the research on the different companies in your investment portfolio.
Remember that individual stocks do not necessarily represent the entire market. A decent stock may soar while the overall market tanks, while a bad stock may plunge in value when the rest of the market is thriving. This is why it’s a good idea to diversify the types of stock you own, choosing stocks from a variety of companies in many different industries.
Before you invest money in the stock market, it is helpful to give yourself some practice. Choose several companies or funds and note the price and the date. Keep track of these picks and evaluate your reasons for wanting to invest. As you watch the companies over time, you will develop insight into how effective your ability to pick a good stock is developing.
Locate some undervalued stocks. This may be tricky since the entire market appears to be on the decline. Do a full search for those that have a lower price than their expected stock value in the coming future. If that company is solid, and if they show promise with a low stock price, they may be a good choice.
Do not turn down free money from your employer by ignoring the availability of matching contributions for your 401k investments. You must invest the amount needed to get the entire company match. Often, this match amounts to 50 cents for each dollar you invest up to a specified cap. A 6% investment on your part nets you 3% from the company. Few alternative investments will ever reach a 50% rate of return. Whether you decide to invest beyond the level of the matching contribution is a separate decision, but don’t forgo an important component of your compensation by not taking advantage of free money when it is available.
Since purchasing a stock is like becoming a business owner, you must have the mentality of one. Business owners are always concerned about their company’s profits, keeping track of their financial statements, and making sure their business stays afloat. You must be the same way when it comes to your stocks.
If you are nearing retirement or your investment goal, then your stock picks should be more conservative than average. Large cap stocks, dividend stocks, blue chips and any company with low or no risk of capital depreciation are all good choices. This is also a good time to start shifting out of the stock market and into bonds or other fixed income assets.
These suggestions should help you to become a more savvy investor. While there’s no guarantee you’ll become the next stock market mogul, a better understanding of investment basics will go a long way in making smart money decisions. Here’s hoping all your future investment choices will result in a healthy return!