10 things to consider when you are Investing in the Stock Exchange
Investing in a stock is difficult as you cannot be sure of the outcome. It is difficult to understand that how much money should be invested in stock, what kind of stock you, should invest in and what are the faults you should avoid. By keeping this in mind, there are 10 factors which you should follow before investing in a stock. They are:
- You need to know the amount of portfolio that should be in a stock- there is no such rule that cannot be exchanged but in general, when you grow old and attain an age of retirement, you should protect your capital by reducing your exposure towards the stocks.
- Index fund v/s Individual stocks– in index funds, by purchasing one investment, you are allowed to invest in other stocks. Index fund is the best way to expand your portfolio and also helps to reduce the risk.
- The number of stocks you should buy– if you prefer to buy individual stocks, investing on 15 different stocks would be justified in order to expand your portfolio all across several different industries.
- Dividends or non-dividends– many shareholders are paid by the profits, the stock makes in the form of dividends, whereas in other case, the stocks use the profit and reinvest the money for the growth of the company. So, keeping this in mind, you must invest your money.
- Expectation of profit– a long-term view is advisable specially for the new investors. The profit and loss of a market is not constant and can fluctuate on any given year.
- Invest in a product, you have knowledge about- it must be kept in mind if a company cannot justify what it does, it is better not to invest money in that particular stock. You must invest only in those stocks of which you have the knowledge or can understand their working schemes.
- You must avoid risk– while investing, there are several risk factors that must be avoided. Avoid the companies which do not make profits, are under heavy debt or under Investigation.
- Volatility of the stock– the volatility of the stock can be known by determining at its beta, so that you have a clear knowledge about the stock, before buying it. The stocks beta works very reluctantly. If the beta is less than 1, then the stocks react less but if the beta is more than 1, then the stocks react more.
- Check history– it is not necessary that the past performances may repeat, but from past you get a brief idea about the patterns. Stocks with great profit in the past, tends the growth to keep it up, whereas, stocks with less profit restricts the growth.
- Common mistakes to be avoided- penny stocks must be avoided in order to prevent loss. Never buy a stock, by listening to others. Invest in a stock only if you have enough knowledge about it.
We hope these tips shall help you when you would think of investing in stocks. If there is something that we must have missed out, then let us know.