Top Tips For Investing In The Stock Market.
There is money to be made in stocks. So whether you have a ‘do it yourself’ 401k pension plan or perhaps just some surplus cash that you want to have work for you, here are some top tips to reduce the risks of loss and improve the chances of gain. The topmost tip of all tips is to never risk more than you can afford to lose and remember that stocks are a long-term investment when investing for retirement. The nature of stock value is long slow appreciation with regular sudden slumps as in 2008.
A second top tip is to not invest in stocks or anything else for that matter if you have some outstanding debts. It is a far better investment to pay up these before getting into stocks. This is especially the case if you have unsecured credit card balances where the interest rate is very high. A third top tip is to keep personal control of your stock trades in order to save paying large amounts in fees to brokers. Remaining flexible and able to get out of the stock market when you believe the slump is about to happen is the best way to make money and avoid losses. This is an important element of a successful stock trading strategy along with buying particular stocks for profit.
Which stocks, of the thousands quoted on the New York Stock Exchange, are best for the small investor? Stick with large companies but not the largest most widely held companies. These Dow Jones Industrial average companies tend to have smaller price fluctuations than those in the Russell 2000 or NASDAQ composite. Use your common sense and pick stocks that you understand. Look for those companies whose products or services you personally use and like.
When it comes to actually doing the trade there are 3 specific profit signs to look for.
- Do not buy stocks when the price is at it’s highest. Use your broker trading platform graphs to show the stock price trend over the last 3 years. Any stock where the price is one-third below its peak has room to make profit.
- Do buy stocks in the last quarter of the financial year of the company. This is so that you don’t have more than 3 months to wait for the dividend payout.
- Do set a profit target and stick to it. So for example, calculate the total cost of your trade for the stock ‘Acme Dynamite’. This will be the number of shares you buy times the buying price and remember to add on the costs of dealing twice (once when you buy and once when you sell). Then say you want a 10% profit, which is not unrealistic when trading stocks; you simply add ten percent to this total. Then divide the profit target figure by the number of shares to find the price at which you will sell the stocks and realize your profit. With all stock trading platforms you will be able to automate the selling transaction so if the price rises suddenly and you aren’t sitting on your PC watching you can realize your profit without actually pressing the buttons yourself.
A further top tip is to not put all of your stock trading funds into just one stock or even one stock market sector. For ease of reference the Stock Exchange displays stocks in groups or sectors such as ‘industrials’, ‘food’ or ‘pharmaceuticals’ for example. Stock prices within sectors tend to move in the same general direction. So it is a wise investor who spreads the risk by trading in a variety of stocks at any one time.
Stock prices in general can go down as well as up and so can individual company stock prices. The aim of the strategy outlined here is to reduce the risks of holding a stock at the wrong time or at the wrong price. You could of course wear a blindfold and choose to buy stocks at random like ‘pinning the tail on the donkey’ at a children’s party. However a top tip is to do the necessary research into the performance and background of each stock that fit the three profit criteria above.
Stock prices are very much influenced by sentiment and emotion. So it is important to read the press releases and reviews around any potential stock. Most companies will have solid performance records and pay annual dividends much higher than the rates of interest available on a standard bank deposit account. When press commentary on any company begins to sound negative it is a warning sign that says move on to a different target buy.
Internal quality failures such as product recalls are very damaging to a company’s reputation. When they are serious enough to attract media attention then it is probably the tip of a weak management iceberg. So again the top tip is to move on to other more promising stock purchases.