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Monday, July 23, 2012

Facts You Must Know Before You Invest In The Stock Market

Almost everyone knows someone that has done really well in the stock market, as well as many others that have lost substantial sums of money. If you want to be a stock market success, you need to cultivate a talent for picking the smart investments from the ones that will only benefit someone else. Your odds of success can be drastically increased by doing research and applying the great advice from the above article. If you're an active trader, always be sure to have easy access to your trading account, even when not around your computer or when the site is not up. Many online stock companies offer the option of faxing or calling in trades. Just keep in mind that some companies charge fees for these types of trades, so only use them when you have to.

Earnings Growth Despite what many people use as their stock strategy, it is not prudent to be greedy when investing in stocks. Greedy people usually wind up with empty pockets. It is a wiser policy to have a firm goal for how much profit you want to make on a stock and sell it once you have achieved that goal. Try and get stocks that will net better than 10% annually, otherwise, simpler index funds will outperform you. To estimate what return you'll receive, research the expected earnings growth rate then add it to the dividend yield. So for example, with a stock that has a 12% earnings growth and that yields 2% could give you 14% return in the process.

The New York Stock Exchange, the world's largest stock exchange by market capitalization
The New York Stock Exchange, the world's largest stock exchange by market capitalization (Photo credit: Wikipedia)
You will need to create a plan and have effective strategies for a good stock portfolio. This plan has to have goals for when you should sell a stock and at what price you should purchase more. Also, it should contain a well thought out investment budget. This will allow you to make your choices with your head and not your emotions. Don't get emotionally invested when you trade stocks. Never hold on to a falling stock longer than you should. In addition, avoid throwing money into a poorly performing stock, which is known as a value trap. Trade smart by using your head instead of your heart.

Buying a stock is also buying ownership in a company. Some people purchase what they hear is good, but do not forget that when you purchase a stock, you're purchasing a part of the company. Therefore, it is essential that you do your research into a company to make sure your investment decision is wise and that you aren't taking on more risk than you are comfortable with. When your aim is to build a portfolio that maximizes long-range yields, your best bet is to choose strong stocks from a number of different industries. Although, on average, the entire market has gains each year, not every part of industry will increase in value from year to year. Your portfolio will grow more if you have investments in multiple areas. On a regular basis, reevaluate your investments so that you can reduce the impact of losses from declining industries and increase your position in the ones which are gaining.

If you would like to pick your own stocks but also want a broker that provides full service, consider working with one that will offer you both options. This way you can just dedicate half to a professional and just handle the rest of your investments on your own. This division allows you to have the help of a professional and complete control over your stock actions.

Don't invest too much in a company where you are an employee. Although you may feel a bit prideful about owning stock from your employer, there's risk that comes with doing this. Should something go wrong with the company, you are looking at losing both your portfolio and your paycheck at the same time. However, if employees can buy company shares at a nice discount, it can be worth investing some of your money in the company. Invest in large companies that offer consistent stock profits initially. Buying stock in large companies is less risky than investing in smaller companies. Once your portfolio is established, you can add some diversification with smaller or mid-sized stocks. Remember that a smaller company has the potential to offer speedy growth, especially if it is considered 'hot', but it also has a higher risk of loss.

Again, there are plenty of people who get rich from the stock market and plenty who have lost everything they own. This is something that happens frequently. Luck can have a role in your success, but the more you know about investing, the better you will tend to do. Learn how to make wise investments that result in gains for you by following the advice you just read.

About the Author

William Tan is a full time investor and trader. He writes regularly for a popular investment portal covering various investment vehicles from forex to personal financing and even on bankruptcy. The question what is the best way to invest money is addressed in many of his articles and writings.
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