Every investor dream of receiving a good return on their stock investment. Afterall, nobody would want to invest with the intention of losing money. While there isn’t a formula for a guaranteed percentage return in the investing world, there are some rules to stick by to get a good return on your stock investment. Here are our five ways that will help you to invest wisely.
Understand your stocks
As an investor, it’s important to do your homework and make your own decisions for the stocks that you’re investing in. To start off, you can look at the company’s history of revenue and income, and analyze if there is a potential growth for the longer term.
When you buy stocks in a company, that also makes you an owner of a small share of the business. Thus, you should understand the business well enough to stay on top of the latest trend and news of the industry.
Buy low, sell high — at the right time
The best investments are the ones that can be purchased at a low price and sold at a high price to get the best return.
In order to succeed in this, identifying the right timing is key. It’s important for investors to not buy and sell stocks based on emotions just because of a short-term profit or fluctuation.
If you have a stock that has lost a lot of its value recently, it may not be the best time to sell it as a way to make a small return from it. Similarly, don’t fall into the trap of assuming that because a particular stock has been performing well recently that it will continue to do so.
Understanding the stock market trend and right timing will help you to handle this situation in the best possible manner.
Have a long-term perspective in mind
An understated rule in the investing game is to stick with stocks.
The chances of your stocks performing well are better when you have a long-term perspective in mind because of the longer time horizon.
While some stocks may bring you a good return within a period of a few years, some stocks take a longer time to grow steadily. Hence, the chances of overnight success are very unlikely in the stock investing world.
When you focus on investing long term in stocks that are growing steadily, that ensures a steady return and an extended period can eventually bring you a good return. This scenario can be portrayed in the idea of running a marathon versus a sprint. In this case, investing is similar to running a marathon which requires a long-term perspective in order to achieve the goal.
Diversify your stock portfolio
When you diversify your stock portfolio by making several investments, you are spreading your risk and this can protect you from significant losses if a particular business crashes. Invest in at least three to five different types of stocks, so that if one goes down, the other investments could make up for the loss.
The key rule is never to put all your money in a single stock.
Instead, you can invest in both stocks and bonds — and decide what percentage of your investment funds to put into each. It’s essential to keep in mind that beyond a simple diversification, there must also be a case for risk management when investing in stocks.
We mentioned this point earlier but it’s worth emphasizing again about not allowing emotions to overrule your rational mind when investing.
Don’t make an investment solely based on gut feeling without doing any research or rationally considering your decision.
This is a situation that all investors faced — as humans are emotional beings and we sometimes don’t make decisions that are in our best interests. One way to overcome this is by focusing on the bigger picture and the long-term goals without being distracted by the daily fluctuations of the stock market.
If you’re looking for more resources, check out these top financial and investment websites for the latest trends. We’ve also created an infographic to visualize the information in this article, so share them with your fellow investors!