You are the average Joe trying to put a few dollar to work in the stock market or take more control over your investments. Stockbroking can be quite intense and stressful at times, calling for the need to arm yourself with multiples source of resources.
Here are 13 things about investing in stocks you may not have known.
- There is No Sure Thing
In stockbroking, there is storyline taken as gospel, for example, oil prices at $100 a barrel are here for the long haul, ESPN is immune to the shifting sands of the cable business, etc. this is just conventional wisdom. Stockbroking is all about timing.
People who best invest in stocks over the long term. For example, Carl Icahn, Warren Buffet, have placed their biggest bets on companies dwindling or during times of market stress. Long-term gains for stocks at large have conventionally been a safe bet, but individual companies are essentially riskier.
- Investing In Stocks Comes with Significant Risk in the Short Term
Listening to the stock news every day you hear about various numbers like the Dow Jones Industrial Average and the S&P 500 shifting up and down some amount. The stock market experiences a lot of up and down shifting.
Therefore, you can easily gain or lose as much in a single day on your investment as you would gain in an entire year. You can have periods that are far more shifting down than shifting up.
The stock market would make a lot of sense for those investing over the long term. It won’t make sense for those people who aren’t paying a lot of attention in the short term.
- You Need To Get Familiar With Failings
You may think you have a sixth sense for finding good companies, but that may not always be the case. You need to do a good homework. Start with checking of public companies records from entitled authorities. Records show everything from company finances to potential struggles and risk factors.
- Dividends are Your Friend
Even though dividend-paying stocks aren’t insusceptible from falloffs, they do offer a degree of insulation that others don’t, but beware of rich dividends that look too good. Often, they don’t last long. Too good dividends can be slashed at any time. The bulk of returns can come from dividends, not price appreciation. Therefore, don’t own a stock that doesn’t pay at least some of its profits out to shareholders.
- Taxes Can Bite Out Your Profits
You can have a great run on your stock with good returns, but from a tax perspective, your profits are dwindled by taxes. Selling stocks you’ve held for less than a year elicits a short-term capital gain taxed as ordinary income. Holding those same stocks for more than 12 months would drop the tax rates.
- No Perfect Metric
Both amateur and professional investors have their preferred dealings of growth and value, ranging from price-earnings ratios to dividend earnings and profit margins. But no single number separates good stocks from bad ones. A stock can look cheap at 10 times earnings only to go 5 times in a flash. A flashy tech startup can look pricey at 3-time sales only to jump up to 6 in a flash.
- Think Long Term
When investing in financial markets such as CMC Markets, think long term. Leave buying or selling shares based on a quarterly earnings report or an economic data point to automated stock platforms, not the average Joe. Better opportunities arise when a stock is dismissed by the market and suffers despite steady economic results that will yield a long stream of profits.
- There is no Telling the Difference Between Expensive and Cheap Stock
You cannot evaluate if a stock is a good buy or not, by the price of a single share. Triple-digit price might cost too much for a new investor with limited funds, but loading up to 100 $1 stocks does not translate into a good strategy. Invest like grocery shopping—you go with a list of things to buy instead of buying based on price tags.
- Different Brokerages Have Different Strengths and Weaknesses
Some brokerages have high fees on transactions but offer a ton of help to individual investors. Others offer lower fees but are very hands-off.
- Spreading Your Investments Across Stocks May be a Good Strategy But has Complications Too
To reduce risk when investing, one popular strategy is to invest stocks in a lot of different companies at once. But you are also reducing your ability to earn big returns.
- Know What You Need and What You Are Paying For
The brokerage industry is in competition, offering the newest and supreme trading options. But for an investor, know the type of buy or sell you’re entering. For example, a market order will be effected as soon as possible, whatever the prevalent market price.
- Digest Market News Carefully
Don’t be easily influenced by market news. For example, news that the Chinese stock market plummeted or GM’s investment to Uber rival Lyft. But is that any reason for U.S. stocks to plunge more than 2.5%?
- It May be Better to Start Out With Index Funds
It may be smart to start investing in index funds. Rather than paying high fees to try to beat the market, it would be a better approach to invest your money into index funds and allow them to just try to match the market with low fees.