Despite the fresh memory of the 2008 stock market crash it still possible to make money by investing in stocks. In order to make money by investing it is necessary to learn to do fundamental analysis of potential investments. In stock investing this involves finding the intrinsic value and margin of safety of a stock. In addition, successful investors learn how to diversify a stock portfolio, how to pick growth stocks, how to pick dividend stocks and how to how to manage risk in investment.
Safe Investments versus Profitable Investments
To make money by investing it is necessary to consider both what are safe investments and what is a good investment , from the viewpoint of potential profits? The ideal investment fits both criteria. The work of the investor is to find stocks that are under-priced but which hold the promise of good long term yield. The anticipated return on investment of a stock is commonly referred to as its intrinsic value. The factors that guarantee that a company will not go bankrupt during an economic downturn are collectively considered to be a stock’s margin of safety. Safe investments have a good margin of safety. Profitable investments need to have good intrinsic stock value. In both cases the best way to make money by investing is to find these stocks before the market does, buy them at a low price, and wait until the company makes money and the market drives the stock price up.
First Steps to Make Money by Investing
Investors should set aside money for investing. A good rule of thumb is to have sufficient savings set aside for six months of expenses. This is after you pay off any credit card debt! Anything over a ten percent return per year can be considered a good investment on a safe stock. If you are paying eighteen percent interest on credit card debt you are losing ground. Pay off your credit cards and put aside enough money for a rainy day fund. Then you will put aside a fund with which to make money by investing.
Next decide what your goals are. When you make money by investing are you going to save it for retirement, spend it on your children’s education, or take a long trip? Your goal in investing will help you determine your investment timeline. A long term investor can take more risk with his investments, or at least part of them, than someone who needs his investment capital in just a couple of years.
Before considering about investing in dividend stocks versus growth stocks, oil stocks versus pharmaceutics, or consumer goods stocks versus biotech put some money aside for a rainy day and decide just what your goals are.
If any of us had a crystal ball we would find the absolutely best stock picks, buy the stocks, forget about them, and watch our money grow. However, not all of today’s good investments will be good in ten years. Good investments during good economic times may turn bad during a recession. Consumer goods stocks that are “ho hum” investments in good times can be life savers during a recession. In learning how to invest , a smart investor diversifies his stock portfolio so that he can make money by investing in good times as well as bad.