Investing in the stock market is not for the unprepared. While putting money into stocks can be very profitable, it can also be very risky. It’s possible to lose all of your money if you don’t know what you are doing. In fact, the truth is, there is a risk of losing all of your money even if you do know what you are doing.
While there is a lot of potential risks involved in stock investing and everything seems stacked in favor of the big Wall Street investment firms and banks, it’s not all about luck for the individual investor.
There are hundreds of thousands of individual investors that make money with stocks by visiting the Trade Ideas Review website. To increase your chances of making money investing in stocks, it’s important to follow a few simple rules or stock tips.
It’s important to remember that making money in stocks can be done but it’s not easy. Everyone is looking for that quick, easy fix or secret that will allow them to turn ten bucks into ten thousand in a matter of weeks without any risk. It just doesn’t work that way!
1. Set Goals
You need to know what it is you want to accomplish. Are you looking to grow a retirement nest egg by investing a couple of thousand dollars in an Individual Retirement Account (IRA) every year for the next forty years?
Or are you trying to save money for your child’s college education five years from now?
Or maybe you want an immediate income that you can spend now.
These goals are very different from one another and how you approach stock investing should also be very different depending on the goal. If you have thirty or forty years before you need the money you can take more risks.
If you need the money next week you probably shouldn’t even be putting the money into stocks, no matter how good the company is behind the stock.
In order to set those goals, you’ll need to know the time frame you have for investing, how much money you’ll be investing and ultimately how much money you’ll need. Without these three things, you can’t properly invest in any stocks.
You must know your goals.
2. How Many risks Can You Stand?
How much risk you can or should take has a lot to do with your goals that were discussed above. But your own personal risk tolerance is important, too. If you have thirty years before you need your investment money back, but you can’t stand to see the value of your stocks take even a 5% dip, then you shouldn’t be investing in small market stocks that might lose 30% or 40% of their value.
The last thing you want is to invest in something that exceeds your risk tolerance so that you panic and sell it when it drops in value, only to see it rebound well past what you paid for it.
Let’s say you pay $10 a share and the value drops to $5. You don’t have a high-risk tolerance so you sell it. You’re left with only half the amount of money you had before you invested. A month later the stock is worth $15 a share. If you had invested $10,000 you would have $15,000 but instead, you have $5,000 because you invested in a stock that was too risky for you.
You must know yourself very well in order to invest in the right kinds of stocks.
3. Understand The Basics of Financial Statements
While you don’t need to know everything, it’s important to know the basic financial information with regard to companies and their stock prices. This means things like earnings per share (EPS). EPS is simply the profit the company made relative to its shares. If it made a million dollars in profit and there are a million shares outstanding, it’s EPS is $1.
Some other important financial numbers to research include return on equity (ROE), return on investment (ROI), earnings growth and price to earnings ratio (PE).
Never put all your investment money in the same stock, or even the same type of stock. In fact, don’t even invest in stocks that are all in the same part of the economy, such as healthcare.
Keep these simple stock tips in mind when getting ready to invest and you’ll be on the right track to making money from the stock market instead of losing it.