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| *Ostroff, Fair and Company>>>Investing |
What should someone look at when they are about to invest in stocks or other investments? |
What should someone look at when they are about to invest in stocks or other investments? It depends on your ultimate goal. If you're looking to invest in individual stocks for the thrill, you need to treat it like a job and be diligent in your research. I suggest taking a look at the company's balance sheet. You're looking for things such as levels of debt, cash on hand, hard assets, and anything else that would shed light on the company's financial health. You can use these numbers to calculate certain ratios that will allow you to compare the company to others within its industy (P/E, current, DTI). Also, do some research on the company's business practices, the overall outlook for that particular industry, and the strength of the current management. If, however, you're investing to save for something specific, such as retirement or college, I suggest taking a more pragmatic approach. Asset allocation is the best strategy to ensure a solid, consistent return over time. In this case, you're selecting an asset mix that is appropriate for someone your age. Younger persons tend to have more money invested in equities, whereas older persons tend to favor bonds and cash/cash equivalents. The point here is that your mix changes as time progresses, becoming more conservative as you near your goal to reduce the amount of volatility. Also, take a look at the fees, which, if large enough, could erode your real return. Mutual funds charge a % of the amount you invest, and may charge a % when you take a distribution. Stock brokers charge per trade. Some financial planners charge a flat fee, whereas some charge a % of assets. Your ultimate goal is what's most important. That will determine what you should do. I suggest speaking to a financial planner or advisor before taking a particular course of action. Wow! What can I say about the answers before?!! I really don't know! The four things you should look at are: how much money you have to work with (don't forget that there is also a cost to invest money, like to buy something), your time commitment, your goals, and your tolerance for risk (ex. how would you feel if your investments went down 15%?). Depending on your answers to those questions, your portfolio could go in different directions as far as what you invest in. Companies like Scottrade, ETrade, Charles Schwab, etc. are "do it yourself" firms, so they don't have people to give you advice. Fidelity only touts their own funds so don't go to them unless you specifially are looking for Fidelity Mutual Funds. Stocks! There are over 14,000 different stocks to choose from. I always laugh when people say that they have it figure out as far as how to buy, when to buy, etc. If it was that easy, everybody would be a millionaire. Portfolio Managers, managers who buy and sell stocks within a mutual fund, do not always know what they are doing, but they are the professionals who have that distinct pleasure of doing it. Unless you have the time to do it yourself - to learn, to commit, to risk money, etc. don't do it yourself. If you work and/or have a family, that is a big commitment in itself. Leave it up to the professionals to handle it for you. Going back to one particular answer...small cap stocks?! Small cap stocks carry the most risk in comparison to mid cap or large cap. Large comanies, like GE are less likely to go out of business than Happy Sandwiches down the street. It's pretty easy to think about...go with established companies before going with small. However, you have to get the right mix of small, medium, and large companies under your belt. I would research these terms: asset allocation, diversification, and modern portfolio theory. These are the fundamentals to building a good portfolio of investments. Anybody that tells you differently does not know anything. Ibbotson/Ibotson (I can't think of the spelling) has really good charts that many advisors use to show clients. Look them up too. There are many more things to look at if you buy stocks, such as technical analysis (stock performance, averages, stock charts, etc.) or fundamental analysis (good management, good company story, balance sheet information). Different investment pros use one or the other and sometimes use both methods to analyze a stock. I could go on for a while, but that sums it up. See how intricate it can get?!! I am a former financial advisor and currently am in banking. You should focus on two aspects: the assets that you will be buying (your asset allocation) and the costs you pay for the investment. This will determine most of the risk and return of your investment. For a free book on retirement investing, click on my profile and read my info to get my website. I have a free downloadable book in PDF format. First you'll need to understand some basic principles of investment and understand which type of investment suits you. To achieve excellent returns on your investments it is important to adopt the right investing strategies. Below is kind of a checklist that I use when considering whether to invest in a company...not all my investments have all the following attributes but I like to invest in companies that have most of them. 1. Is in an industry expected to grow faster than the market avg. 2. Has stable management 3. Has an earning growth rate near or higher than the P/E ratio 4. Has increasing cash flow from operations 5. Insiders are buying more shares on the open market 6. Has little to no long term debt 7. Is buying back shares http://www.smart-investments.org/best-st... |
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