With the number of stocks available in the market, how do you decide which ones to invest one? To make a good investment decision, it is important to do some initial research and then keep track of how your investments perform over time. Make sure to check for these factors when deciding which investments to make:
1. The growth potential of the investment
Certain stock market investments will allow you to build a substantial corpus by the time you retire. Once you’ve made enough investments, you will be able to understand which stocks are undervalued and which ones are overvalued.
2. Market capitalization
Stocks can be large-cap, mid-cap, or small-cap, based on the value of the company’s outstanding shares. Large-cap stocks usually offer steady returns, while small-cap stocks offer bigger but unpredictable returns.
3. Industry and sector
A well-balanced investment portfolio will have stocks from different industries and sectors. Investing in stocks of different sectors will help reduce risk.
4. Risk
It’s important to consider your risk appetite and purchase stocks accordingly. Stocks of larger companies will offer lower but steady returns, while stocks of smaller companies may offer good returns from time to time but will likely be riskier.
5. Earnings
When deciding which stocks to purchase, it is important to compare the earnings of a company, relative to its size. Higher the earnings of the company, the better it is for you as an investor.
6. Dividend payouts
A number of companies distribute their earnings to shareholders in the form of dividend payouts every quarter. Investing in the stocks of a company that distributes dividends can be useful especially if you are retired and need a regular source of income. However, if a company does not distribute dividends and reinvests its earnings, it may be able to increase its value over time, which is also a good thing.
7. Financial news
Before zeroing down on stocks, make sure to check the news to know if anything big has recently happened to the company or the sector since financial news can hurt or help stocks.
The stock market is volatile, so ensure that you don’t cash in on your stocks if you lose some money in a market downturn. With the stock market, it really does help to stay invested for the long-term.