Investing in company stocks and shares is something that a lot of people are interested in. It’s not surprising. After all, we have all heard the stories about people that bought a share in Facebook, only to find that it is now worth millions. We all hope that we will invest in the next Facebook, or the newest Microsoft or Apple. Of course, while we cannot guarantee that this will be the case, there are some ways you can give yourself a better chance of investing successfully and protecting your future. So, let’s take a look at the golden rules of investing in stocks and shares…
- Know what you want to achieve – A lot of people make the mistake of diving in head first without having a vision of what they want to achieve. Ask yourself, why are you investing? How much money do you want to make? What are your long-term goals? How much do you need to make to secure your future? Everyone’s investment journey is different, and you need to be clear about what you are hoping to gain from your investment in stocks and shares.
- Understand what type of investor you are – Another important step you need to take when investing in stocks and shares is determining what type of investor you are. What is your investment style? You need to work this out before you begin so you can make sure you go down the right path. This includes analysing your attitude to risk, as well as determining whether you prefer old-fashioned fundamental analysis or whether you are technically orientated, and so analysing charts would be better suited to you.
- Differentiate between big and small companies – There are pros and cons associated with both small and big businesses. You need to understand this so you can determine the best route for you. Investing in BA Boeing stock may seem tempting because it is a big brand, and so you assume it’s going to be performing well. However, this does not always translate into the best investment opportunity. The big blue chip names that are listed on the main FTSE 100 index appear to be reliable and steady, however, this often means that there is limited potential for them to surprise on the upside. On the other hand, smaller businesses can fly under the radar, which means you could end up with a higher share price than the market anticipates. Nonetheless, this does also mean that they are a lot riskier, so it is all about working out what is right for you.
- Spread your risk – Last but not least, diversification is a must for any person that invests in stocks and shares. Putting all of your cash into one business can be an extremely bad decision, but it can also be a very good decision sometimes. Nevertheless, it all comes down to one thing: it is incredibly, incredibly risky. This is why it is so important to diversify so that you spread this risk. You can reduce your exposure to market risk by spreading your money across numerous investments.