Through stock market investing, you can proactively use your money in order to increase your initial investment; in other words, you can make your money work to your advantage. Stock investments do not work in the same manner as savings accounts. Although both stock market investing and savings accounts both use the compounding principle, savings accounts are inactive ways of investing with a more narrowed focus on the safety of your principle investing amount as opposed to the subsequent return.
If you invest in a company’s stock shares, you in essence become a part owner of that company. If the company gives out profit dividends, you will receive your portion, which is referred to as a dividend income.
The Best Method of Stock Market Investing
First of all, you can easily eat away at your time by budgeting. So as an alternative to expense tracking, which can be quite complicated, you will simply use the financial strategy of paying yourself first. As a general rule, it is wise to split your intended investment amount by applying 30% to various blue chip companies and 20% to several high dividend yields.
Managing Your Portfolio
Another aspect of stock market investing is managing your portfolio. Begin by considering products and services used in everyday life. Take notice as to what consumers use on a daily basis and this will give you insight into the companies who provide these products and services. Learn about their business models as well as general information that pertains to them.
You should also take a look at their profit-loss statement and balance sheet, business profitability, on-hand cash, and the company director’s and auditor’s reports. Other factors to consider are the company’s management team, asset returns, equity returns, price to earning ratio, and their previous five years of credit history.
If all of these aspects appear to be in great shape, you should invest in that company. When it comes to choosing specific companies, look for those involved in industries such as oil and gas, energy, service sector, FMCG, pharmaceuticals, banking, biotechnology, insurance, entertainment, and IT.
Stock Market Investing Philosophy
Your stock market investing philosophy should be to have a small piece of ownership for 10-20 years in a company. This type of philosophy will bring you a great return over time. You should use approximately 5% of your funds for option trading, which is essentially a way to not only hedge your assets, but also earn speculative gains.
Other Stock Market Investing Tricks
There are other tricks you can use when investing in the stock market. Keep the amount of the savings you invest capped at 50%. Also, while it is imperative to engage in speculative investments, if you want to make significant sums of money, keep you investments equal to one-tenth of your portfolio. Never let personal greed influence your investing decisions. Selling under a state of panic is never wise. Always make sure you have a thorough understanding of the market’s current state, what companies you decide to invest in, and the reasons behind your investment decisions.