Posted in Finance
Investing in Safe Stocks
One thing that everyone can agree on when it comes to stock market investing is that it’s very tricky to do it right. Since no one can guess with any certainty what the markets are doing at any particular moment (or what they will do in the future), then investing in shares can be quite risky. If played right, the stock market can make you a nice profit over time, but if you are unsure or have less financial wealth to fall back on, then you should try and play it safe. The following are some ways that you can play your cards conservatively to ensure more steady returns on your investments.
Different stocks have different characteristics, and stocks with certain features have been proven to rebound faster following a market downturn, which will help minimise short-term losses. Choose stocks with the following characteristics: a high return on equity, share growth that provides stable earnings, low historical price earnings ratio and low debt to equity ratio.
Decide whether you want your stock investments to provide you with income or growth. Short-term investments can be turned around and cashed out quickly, giving you the opportunity to reinvest the principle. Long-term investments, on the other hand, grow at a slower pace, but the exponential increase in interest makes it worth the wait. If you are trying to play it safe, the long-term approach is generally the safer one.
Spread the Risk
By diversifying your investment portfolio, you can significantly decrease the amount of risk that each of your investments presents. Basically, having a diverse portfolio means that you hold a sufficient amount of stocks that, if a downturn did occur, you will have stocks to fall back on. Diversification among stocks is extremely useful in minimising your risk, and you can extend this safety net even further by holding a proportion of your capital in other asset classes as well, such as real estate, cash and bonds.
Limit the Investment
In case of an unexpected market crash (and be assured, they happen pretty regularly), you will need to make sure you have finances to fall back on. Conservative investors generally limit the money they put into investments to a percentage of their net worth. Generally, 20% is a pretty safe figure, but it always depends on how much risk you are willing to take, and what your net worth is. For some people, a percentage as low as 10% is all they are willing to risk, but you should choose your number based on how well you will be able to sleep at night should the market take a spill.
Do Your Research
When it comes down to it, safe investing is all about having some clue as to what you’re doing. This is why it’s so important to do your due diligence when it comes to deciding which stocks to buy. Before investing in any company, research them thoroughly to get an idea of the potential dividends. Only invest in companies that have a history of making money for stockholders and ones that have steady, long-term growth. Skimping on the research is often what gets investors into trouble, so you should also visit your financial planner frequently to get advice.