A Few Things You Should Know Before You Invest for the First Time

A Few Things You Should Know Before You Invest for the First Time

If you want to be smart about your finances, you need to not only save money but actively work towards growing it. One of the best ways to do that is by investing in stocks. If you’ve never done that before, it can be pretty daunting, so with that in mind, here are a few things you should know about investing in stocks:

What Percentage of Your Portfolio Should be in Stocks?

There is no definite rule to answer this question, but it’s fair to say that the younger you are, the more of your money you can afford to risk by investing in stocks. As you approach retirement age, you should look to have only 110 minus your age as a percentage in stocks for optimum results, but obviously, if you’re more or less risk averse, you can play around with this number.

What is the Optimum Number of Stocks to Buy?

Again, there are no hard and fast rules about how many stocks you should invest in, but if you’re investing your cash in individual stocks like wm stock, for example, the figure that has been bandied around is 15. Ideally, these should all be in different sectors because the more diverse your portfolio is, the better – if one industry takes a hit and all of your stocks are in that sector, you could be in real trouble – so take care to not put all of your eggs in one basket, so to speak.

Dividends are Less Risky

Speaking generally, stocks that pay their shareholders in dividends tend to be safer than those who do not. That being said, just because stocks offer a high dividend, it does not mean that they will outperform others, so you really do need to do your research (as always) before you choose to invest in any particular stock.

How Profitable are Stocks?

It’s hard to say because every investment is different and some will do way better than others. But according to research, over the past 25 years or so, the S&P 500 gave investors an average return of 9.28 percent per year. This might not seem like a huge amount,m but when you consider that it can be as many as nine times the amount of interest you’d get if your money was parked in a bank, it’s easy to see why investing in stocks is such a good idea.

Here’s a huge post from SureDividend.com about S&P 500 stocks and how to use them to find investment ideas.

It’s Best to Invest in What You Know

Obviously, you don’t have to, but many financial advisors will tell you that it’s always a good idea to invest in industries and individual companies that you know something about. If you know what they do and you can follow their progress, it’ll be easier for you to spot any warning signs that you might want to move your money elsewhere.

Help is Always Useful

On the subject of financial advisors, it’s never a bad idea to have one help you take your first steps on the road as a new investor. You may not always want or need one, but when you’re new to it all, they can be a pretty valuable resource.

Good luck with your investments – I hope they all pay off big time!

Image courtesy of Pixabay.

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