Owning stocks proves to be among the easiest and profitable ways people can grow wealth over a long term duration. When you examine the Forbes 400 list, you realize that each member got to the point they are now because they own a block of shares in private and public corporation whether manufacturing, cosmetic, oil drilling or money management. While you may want to invest in stocks, you need to know a few pointers to help you invest wisely, intelligently, and profitably. Here is what you should know before you put your money in stocks.
Check the fundamentals of a company
When you invest in stocks, you are not buying stock but a company. You own part of shares of that company, hence you want to ensure it will be growing, making profits, and attaining long term success. Do a little research on companies you have identified as potentials for stock investment.
You want to pay close attention to elements that make a company’s financial statement such as earnings, debt, sales, and equity. The earnings and sales should be higher than the previous year. The debt needs to lower or be about same as the previous year. The debt should be lower than the asset value of the company while its equity needs to be higher than that of the previous year.
Do some financial measures
Prior to investing your hard-earned cash in stocks, you want to check the ratios that help gauge whether a company has a sound financial footing or not. The price-to-earnings ratio also referred to as P/E ratio needs to be under 20 for large cap stocks, while for all stocks whether growth, small cap, or speculative, it should not go beyond 40.
At times, you may be overwhelmed by the price of shares in stocks. Some stock shares trade at hundreds, and if you are investing a small dollar amount, you want to optimize it. In such a scenario where the share price is high, you want to consider fractional shares of company stocks. It ensures that you do not have money resting in your account underutilized in any given time. Fractional shares allow you to buy shares at any price and any time regardless of your investment capital. You can also consider investing in direct stock purchase plans. Using these and other tips when investing in stocks can allow you reap good returns from your investment.