Investing your money into stocks can be a terrific way of building up your wealth over a long time period. However before you just go out there and start buying a bunch of random stocks you should know that there are better ways to go about it. Below are some ways of increasing your return from the market.
1. Use Financial Ratios
Fundamental ratios are ratios that you can use in order to see how strong a company is fundamentally and how it compares to the price that you pay for their stock. These are ratios that take into consideration things like the earnings of a company and the debt that the company has. They can be great indicators on how strong the company actually is and what the chances of it growing in the long term are.
Thus you are increasing your potential return by weeding out weaker ones.
2. Diversify
Even if you pick a strong company there is still unsystematic risk involved in it. You never know for sure what is going to happen to the company. It might go under criminal investigation tomorrow, or their product might have gone out of fashion.
There is simply too much uncertainty out there to invest into one company. If you want to be safe then you will have to buy multiple stocks in different companies. This way if one company tanks you still have others which will hopefully make up for it.
3. Reinvesting Dividends
The process of reinvesting dividends is called drip investing and it is many times more profitable than just holding onto stocks in the long term. Instead of just receiving the dividends and spending it those same dividends can be reinvested back into the stock which will add up over time. This force is called compound interest.
Not all companies will have a drip investing program, however if you find a company that you would like to invest into for the long term and they offer a drip investing program I would take advantage of it.
1. Use Financial Ratios
Fundamental ratios are ratios that you can use in order to see how strong a company is fundamentally and how it compares to the price that you pay for their stock. These are ratios that take into consideration things like the earnings of a company and the debt that the company has. They can be great indicators on how strong the company actually is and what the chances of it growing in the long term are.
Thus you are increasing your potential return by weeding out weaker ones.
2. Diversify
Even if you pick a strong company there is still unsystematic risk involved in it. You never know for sure what is going to happen to the company. It might go under criminal investigation tomorrow, or their product might have gone out of fashion.
There is simply too much uncertainty out there to invest into one company. If you want to be safe then you will have to buy multiple stocks in different companies. This way if one company tanks you still have others which will hopefully make up for it.
3. Reinvesting Dividends
The process of reinvesting dividends is called drip investing and it is many times more profitable than just holding onto stocks in the long term. Instead of just receiving the dividends and spending it those same dividends can be reinvested back into the stock which will add up over time. This force is called compound interest.
Not all companies will have a drip investing program, however if you find a company that you would like to invest into for the long term and they offer a drip investing program I would take advantage of it.
About the Author:
For more information about the stock market visit Shaun's site about investing money into the stock market. This article, Ways to Get More Out Of Your Investments is available for free reprint.
0 comments:
Post a Comment