The stock market has always offered great potential for growth over the long haul, which made it an attractive investment opportunity for many. It usually helps investors diversify their portfolio by allowing them to buy shares in more than just one company. Stocks can also be a lucrative investment even in tumultuous market conditions. Find out below which are the top 5 factors you need to consider before investing in stocks!

  1. A short-term investment in stocks can be risky

Take a look at the renowned S&P 500 stock market index. You’ll see that it goes either up or down 0.5% – 1% every day. With such movement, your investment can win a lot but it can also lose just as much over a short period of time. Historically, the stock market has the tendency to grow at a rate of about 7% per year – sometimes even more. You want a company to make you money, not take it away from you, right? In this case, consider investing in a stock for the long run and come up with a solid plan on how to make the best out of this investment over the years.

  1. The investment is simpler and more secure with an online broker

We live in an era where high-tech makes every aspect of our lives easier. In order to invest in stocks, you don’t have to suit up and go to Wall Street; you can do it from the comfort of your own home, through an online stocks broker. However, make sure you choose the right one! TradeFW.com is an excellent choice for both beginner and experienced traders. It provides support for all your investment decisions, a stock trading application that makes it easier for you to manage your portfolio, as well as an overall professional and secure trading environment. The brokerage services you opt for, especially as a newly stock owner, are extremely important – because they can determine the quality of your investments.

  1. A thorough research about the company you’re investing in is essential

If the company makes profit, you make profit! Let’s say you own an iPhone and you find Apple Inc. a stock worth buying simply because you’re satisfied with its services. Don’t jump right in! Just because a company is praised internationally, that doesn’t make it a solid stock. You need to have an exhaustive knowledge of many aspects: the complete list of services/products they offer and how well they sell; how they make money; the company’s position in its field in comparison to competitors, and so on. The information is there, you just need to find it. Download their financial reports (income statement, cash flow statement, balance sheet); check how well they performed over the years, and make sure to check the P/E ratio or the PER. This ratio is used to value the stock and to find out whether it is overvalued or undervalued. The Beta coefficient, which can typically be found on the same page as the P/E ratio, measures the company’s stock volatility and how it has acted over the last five years. These two tools are extremely valuable and can paint a clear picture of what you can expect from that particular stock.

  1. There are many ways you can invest in stocks

There are three main types of investment you should know as a beginner: individual stocks, exchange traded funds (ETFs), and mutual funds. We already discussed about individual stocks, which allow you to own part of a particular company. On the other hand, exchange traded funds or stock mutual funds, allow you to own different parts of varied stocks. They can be a great way to limit the risk and reduce volatility in your portfolio through diversification. So can be mutual funds, which represent conjoined funds invested in different stocks from specific sectors or industries. There is more than just one way you can invest in the stock market, so make sure you pick the one that suits your capital and goals.

  1. You have to pay taxes on stocks – but they aren’t a reason to worry

Yes, you’ll have to pay taxes, but they aren’t as scary as you’d think! You normally have to pay taxes on your gains and dividends, which are much lower than your normal tax rate. There isn’t a fixed number we can discuss about, as it all depends on the investment, as well as on the broker you’re trading with. For your peace of mind, you can check with a tax professional first.

Conclusion

The stock market enables you to share in the success and failures of a company and keep up the pace with thriving industries. It is an exciting market that can bring you high returns, but if you want to be the “wolf of Wall Street”, you need a lot of patience! Good luck!

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