Investing in the stock market is an exciting prospect, but getting started can seem a bit daunting. There is so much information out there, and you may be unsure of where and how to start. The good news is, getting started is easy. All it takes, at minimum, is opening an online brokerage account and funding it.
Before you get started, it is vital to determine your goals. Are you going to invest in stocks for short-term growth or long-term? How long are you planning on investing for? What is your risk tolerance? These are just a few of the questions you should consider before you begin.
Investing in the stock market can be an extremely profitable endeavor, but you stand very little chance of meeting your financial goals without a game plan. In this article, we will look at a few tips that will help you get started with investing in the stock market.
Learn to read financial statements
One of the best ways to learn about the stock market is to read company financials. All publicly-traded companies post their financial statements, earnings reports, and quarterly reports on their websites. These reports give investors a peek into the company’s financial health, helping them learn what its goals are, what its revenue sources are, and whether or not the company is worth investing in.
Understanding how a company generates its revenue is arguably more important than understanding the company’s stock price. Revenue is the lifeblood of a company and helps them keep the business running. Investors that understand these factors have a better understanding of where the company is going, thereby, helping them make sound decisions.
Follow the market news
Investors need to follow news outlets such as Plus500 to gain relevant insights. Stock market investing can be an intimidating prospect, especially for someone with little experience. One of the best ways to ease into the stock market is to follow news stories and information on how the companies are performing and what impacts the underlying performance of equities all around the world.
Plus500 is a one-stop-shop CFD trading platform that provides extensive research and news analysis that will help you accelerate your investment decision.
Understand key valuation ratios
Valuation ratios are important because they help investors understand how much a company is worth, and these multiples can easily be compared with peers. Some of the most common valuation ratios include P/E (price-to-earnings), P/B Ratio (price-to-book), and EV/EBITDA (enterprise value to EBITDA).
These ratios give investors an idea of how expensive or cheap a company is. P/E ratios, for example, tell you how much a company is trading at compared to its earning power. A company with a low P/E ratio but has similar growth rates compared to peers can be considered undervalued and vice versa.
These ratios are extremely important but should not be viewed in isolation.
Invest in companies you understand
Investment mogul Warren Buffett has always emphasized investing in a sector that you are familiar with which can be a great way to make money as you are more likely to notice trends and changes in the industry.
Warren Buffett in fact stayed away from investing in tech stocks for decades as he found this sector to be extremely disruptive. An emerging player with a new product or solution can easily displace a market leader in a few years increasing investment risks significantly.
In fact, Buffett relied on companies that had wide economic moats, predictable cash flows, and robust balance sheets to successfully create long-term wealth. You can also use VectorVest, this is a stock price prediction website that can help you in investing.
Consider investing in index funds
Stock market investing is confusing, especially for someone unfamiliar with the industry. You need to identify a few companies that have the ability to beat the overall market consistently, which is pretty difficult.
Index funds, however, are a great way to gain exposure to the stock market. Index funds are passive, low-cost investments that track a particular benchmark, or index, and are available at cost-effective rates.
For example, a stock market index fund could track the Dow Jones Industrial Average, the S&P 500, or the NASDAQ. Index funds are far safer than active stock investments (due to significant diversification) and don’t require as much research. If you want to look further, consider an index from the Japanese stock market; take a look at the nikkei 225 live chart if you want to learn more about that. Index funds are also less volatile, meaning there is less risk of losing your money.
Focus on diversification
A stock market is a fickle place, and it can be challenging to predict which stocks will perform well over time. You may be tempted to put all your money on a few promising stocks but this is a high-risk game. You need to identify stocks across sectors that will lower overall risk.
The bottom-line
In order to maximize your returns, you must be smart about how you invest. Following these tips, and learning continuously, will help you make better investment decisions and increase your chances of making money consistently.
