What are the best stocks to invest in? This is probably one of the most asked questions that all investors and aspiring traders ask all the time. Its a legit question because it really is the crux of it all. We all want to invest our money wisely and we also want to protect our hard earned cash as well as possible. On top of that we also want to get the best possible returns. The “best” investment is really a relative term. We all have different risk tolerances and what you get as a return is something that fluctuated wildly across different investment strategies.
Most people just want to know “what stocks should I buy” and the problem with that is the fact that it strips you of the responsibility. No one will care for your money like you do and no one will have your best interests at heart like you. Get all the advice you can but in the end you have to make your own decision and take responsibility for where you invest your money.
When it comes to stocks, the risks are naturally higher. This does not mean that stocks are risky though. Its still one of the “best” investments you can make. Instead of giving you a list of good stocks to invest in, I’d rather spend some time sharing with you what I think you need to look at if you want to invest in stocks.
We’ll assume that you are not going to actively trade these stocks and that you are looking more at a long term investment. Stocks can be a great way to grow your nest egg really fast. Yes, there are more risk involved but if you compare it to the measly returns you get from most fixed term or fixed rate investments then its almost a must to start investing in stocks yourself. Investing for the long term is very different from trading and the criteria for picking stocks is very different. Here are some important things to consider.
1. Invest in companies, not stocks
For short term positions you really only care at the immediate health of a stock. Your intention is to only hold on to i6t for the short term and selling it again is your main priority. For long term investments your mindset needs to be very different. You are effectively investing in a company. As the company grows, so does your investment. From this point of view you need to think about it as investing in a company that will grow over time.
It also needs to be a company that is financially strong as this will help secure your investment in the long term. Instead of looking at a chart, start by looking at the company. All companies that are listed on public stock exchanges must publish their financial reports every year and they are obliged to be totally transparent in how they do business. This brings us to the second point…
2. Fundamental Analysis
Stock investors are broadly classified by being either technical traders or fundamental traders. Technical traders use graphs and technical indicators to help them make decisions. Fundamental investors look at the fundamentals of a company to make decisions. They look at the financial health of a business to see if its a good investment. This is what you want to do if you want to invest in stocks.
By looking at the company’s annual reports you can see their income statements and balance sheets and assess how healthy they really are. You can also see how the company stacks up against its competition and how its performing in its specific financial sector. There are a number of good indicators to look at as well. The PE ratio is a good one because it shows you what the price to earnings ratio is like. This will give you a good idea of how the company uses your investment. I highly suggest you read up on Warren Buffet who is widely regarded as the best fundamental investor. You will learn a lot from him about how to pick good investments with huge potential.
One of the great advantages of long term investments in the stock market is the fact that you can earn dividends from your stocks. Certain stocks pay dividends which is really a “cash” payout to investors based on the company’s performance. Are these the best stocks to invest in? Probably. It should not be your only consideration but dividends can be a very healthy thing for your investment portfolio because apart from gaining on the capital growth you also get a cash growth.
So, how do you find the best stocks to invest in? With so many stocks being traded publicly your best starting place is to look at companies and then go to their stocks. Read financial newsletters and read financial papers that discuss companies. You will be amazed at what you can find. You can also follow stock market experts and see what they have to say. In the end, you need to make the decisions though. Its your money. Its your investment. You are responsible!