#1 – If You Want A Return That Goes Beyond The Pace of Inflation, Stocks Are Your Best Option
Since World War II ended the average return on large stocks has been close to 10% annually. At that pace you are well ahead of inflation. You are also ahead of the returns on real estate and bonds. Because of this stocks are the smart option when saving for things such as retirement.
#2 – You Can’t Look At Price Alone To Determine The Value Of a Stock
Price alone will not tell you how expensive a particular stock is. This is because the value of a stock depends on earnings. For example, a $100 stock can be considered cheap depending on the projected earnings of the company. If they are high enough $100 is a great price for a stock. On the other hand, a $5 stock can be considered expensive due to the dismal earning potential of a particular stock.
#3 – Stocks Are Much More Than A Piece Of Paper
When you buy stock you are buying ownership in a company. The company is owned by its shareholders. Each share you purchase represents a claim on both earnings and assets in the company. The better the company does, the more money you will make.
#4 – Position Your Portfolio For Long Term Growth By Investing In Different Industries
As the saying goes, you never want to put all of your eggs in one basket. This same concept applies to your investments. If you want your portfolio to continue to grow over the long term, it is vital you hold stocks in different industries. This way if one of your stocks goes into the dumps, you will always have others you can fall back on. Having a diversified portfolio is the key to long term success.
#5 – Avoid Rapid Fire Trading
While the cost of trading has dropped quite a bit, there are other costs you must be aware of when making trades. The two main ones are the mark up by brokers and the higher taxes that come along with short term trades. These two things stack the odds against the trader.
If you want to be a successful trader you need to pay close attention to the fluctuations in stock prices. If you work a full time job this can be very difficult to do. It is even more difficult if you are the type of person who is reluctant to take risks. If you lose a substantial amount of money in a short period of time it can really take you over the edge. That’s why it is so important you avoid any rapid fire trading. Instead you should buy and hold on to good stocks.
#6 – Don’t Be Fooled By A Great Track Record
Just because a stock has a great track record doesn’t necessarily mean it will be a strong performer in the future. While a strong track record is a good thing, you have to understand companies can sometimes fall off and have lower than projected earnings. When deciding what stocks to invest in, look at more than just the track record.