How to look for stocks and what to watch out for
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Many money movements we make require that we do our homework first.
When you’re saving for a big purchase, research tells us it’s important to know the difference between a traditional savings account and a high yield savings account. (Hint: The latter makes your money grow faster.)
Or, when purchasing a new travel credit card, we are naturally inclined to look for cards with the best welcome bonus first.
And when it comes to investing our money in the market, doing our research is just as crucial. You don’t have to be an expert to start buying stocks, but the more you know, the better your investment journey will be.
Here’s what to keep in mind when researching stocks.
Start with yourself: what is your tolerance for risk?
People ultimately buy stocks with one end goal in mind: to build wealth. But it is important to note here that wealth is not guaranteed. Investing in individual stocks comes with a lot more risk than, say, buying bonds or putting your money in index funds.
When you start looking for stocks, start by knowing how much risk you can take or your tolerance for risk. Can you comfortably endure large financial losses? Financial experts generally recommend that you only invest money in individual stocks that you can afford to lose, and since returns on investment are usually maximized over the long term, only invest the money that you cannot afford to lose. will not need in the short term.
So, the money that you want to use for a down payment on a house over the next year, or for your child’s college education over the next 15, is best placed in different types of accounts – think of an account. High Yield Savings and 529 Account, respectively.
Do you want to invest with less risk?
Look to invest your money in low cost index funds that offer automatic diversification, so less risk. Two popular examples are the Vanguard S&P 500 ETF (VOO) and the Schwab US Broad Market ETF (SCHB).
You can also hire a robot advisor to do the work for you. Using your risk tolerance and time horizon, a robo-advisor platform like Betterment, Ellevest or SoFi Invest® will create a personalized investment portfolio on your behalf.
Then, on stocks: what does the company do?
Warren Buffett once said, “Never invest in a business that you cannot understand.
It might sound obvious, but it’s worth remembering that you need to understand what the business does, or the products they make, before you buy it. After all, as an investor, owning your stock means owning a part of that business.
Before betting your money on a software company that specializes in data security and analytics, for example, make sure you understand how the world of cybersecurity works.
How does the business make money?
Understanding the company’s product is one thing, but understanding its finances paints a bigger picture an investor should see. A business can be innovative, but is it making money which in turn will make you money? Take the example of technology companies. You may understand and love the product (and even use it yourself), but how do they monetize their huge user platform?
To immerse yourself in a company’s finances, check out its annual reports. Publicly traded companies offer free annual reports to the public so that current and future shareholders can see the performance of the company and see what it has done.
You can usually find a company’s annual report on its website, under an “investor relations” tab. Googling for the company name and “investor relations” is also a shortcut that will get you to the right place. On this webpage, you can also find information about the company’s quarterly earnings calls, which anyone can tune into, as well as access the company’s analyst coverage.
Has the company historically performed well?
A company’s historical performance isn’t a single reason to buy (or not buy) its shares, but it can help provide insight into what to expect.
Google Finance and Yahoo! Finance allows investors to search for historical data, such as price charts that go back decades. Users can also compare historical stock data with each other.
Note that past performance does not guarantee future success – just because a company has performed well in the past does not mean that it will continue to do so in the future.
Ready to start?
reviewed over 12 online brokers that offer commission-free trading and narrowed down the top six platforms for all kinds of investors: TD Ameritrade; Invest ally; E * TRADE; Avant-garde; Charles Schwab and loyalty.
These six offer the widest range of investment options, user-friendly technology, quality customer support, and educational resources. You can read more about our methodology for selecting the best $ 0 commission trading platforms below.
At the end of the line
Before you jump into the complicated and risky world of stock market investing, take the time to get your feet wet by doing your research beforehand.
First understand your tolerance for risk, then move on to understanding what publicly traded companies do, what products they offer, how they make money, and how they have performed in the past. Experts generally suggest that individual stock selections only make up around 5-10% of your overall investment portfolio, with the rest going to less risky investments.
To determine which $ 0 trading platform offers the best services to consumers, Select narrowed down the offers to a list of 10 initial platforms. We then analyzed and compared each based on the following factors:
- Minimum Account
- Account types
- Account and advisory fees
- Customer service
- Available investment expenditure ratios
- Selection of investments
- Trading fees
- Technology available, including mobile platforms
- Educational tools and resources
After reviewing the above features, we have based our recommendations on platforms offering the widest range of investment options, robust educational tools and resources, user-friendly technology, and fees and ratios. lowest spending. We also looked at each company’s customer support structure, available lines of communication, and application reviews.
Note that with all trading platforms there is no guarantee that you will get a certain rate of return or that current investment options will always be available. To determine the best approach for your specific investment goals, it is recommended that you speak with a reputable fiduciary investment advisor.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.