When it comes to investing in stocks, there are many things to take into consideration.
At the moment, what you tend to see happening a lot on the stock market is herd mentality.
For example, if you witness other people buying a certain stock, you will follow the mentality to buy, pushing up its price. And if you witness other people selling, vice versa, you will tend to sell.
Generally, this is not a good approach. You must understand the stock, the company behind it, its track record, and many other factors.
What should you know about the stock market before you invest?
The stock market is an open market allowing you to take part in the financial returns of a public company, like McDonald’s Corp.
This allows you to buy shares in a company.
There are many stock exchanges around the world. Some of them are:
· The New York Stock Exchange
· The NASDAQ Stock Market
· The London Stock Exchange
· The Australian Securities Exchange
· The New Zealand Stock Exchange
When buying shares on the stock market, you can make money on dividends earned through the shares you have brought within a company. This is provided the company has stated what their dividend yield is.
How is the dividend yield calculated? This is done by dividing the annual dividend against its current share price.
For example, if a company’s share price is $200, and the dividend payment is $4, then the dividend yield would be 2%.
Some companies may choose to increase the yield. This happens according to how well the company has been performing in regards to its profit.
The other way you can make money is by simply selling your stocks after the share price has climbed higher than what you originally brought it at.
How do I successfully pick stocks?
When purchasing a stock, there are a number of things you need to take into consideration.
Firstly, you have got to look at what the company specializes in, what services they offer, who their competitors are, as well as what countries they operate in.
For example, Company A sells beds to Australia and New Zealand. Meanwhile, Company B sells beds to the United States.
The potential for Company B may be greater due to the population of the US being larger than Australia and New Zealand put together. This may make it a better choice for your portfolio. However, for the sake of diversification and lowering your risk profile, you might want to consider buying both Company A and Company B.
Secondly, you should also work out what the P/E (price-to-earnings ratio) is.
If a company has a P/E of 35, that means that the investors in the company are willing to pay $35 on every $1 earnt.
This P/E of 35 may be expensive and overvalued compared to, say, another company with a P/E ratio of only 15. Generally, you have to exercise caution with high P/E ratios.
However, if a company is growing rapidly with lots of room for expansion, this could be a positive attribute.
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They have a paid product called , which provides you with premium research on stocks that have the potential to blossom and help you build wealth.
Is investing in the stock market worth it?
History answers that question in itself.
Since the late 19th century, people have observed how the value of money has decreased over time due to inflation.
Lately, banks have also been lowering their interest rates. In some parts of the world, interest rates have even plunged into the negative. Banks even have negative interest rates.
Meanwhile, share prices have soared, particularly in the last 20 years.
Here’s a good example of how it has happened. Let’s just say you invested US$1,000 into Microsoft in the early ‘90s. You would have received a 1,500% return today, along with dividend payments.
That US$1,000 investment in Microsoft gave a better result than simply allowing US$100,000 to sit in the bank in a term deposit.
This makes the stock market well worth considering. Provided you understand the risks involved, there’s never been a better time to get started with investing and building wealth.