The answer to the question, “what are the best stocks to invest in?” depends on a combination of factors. An investors personality, available capital and risk tolerance are all factors that should be taken into consideration, as well as investment objectives, domestic and foreign economical strength, and market sentiment.
Although it may seem daunting to assemble a portfolio yourself, by learning the basics of diversification, dollar cost averaging, dividend reinvestment, and capital preservation you can effectively compile and manage a successful investment fund.
But, what if you have done the personality analysis and you don’t quite fit into a neat little descriptor? What if you want to grow and preserve wealth, but also want to risk a little to splurge on a luxury item? Is it possible to have it all in one portfolio? Absolutely, but it requires research, a commitment to spending time on your investments, and the ability to take losses and gains when the time is right.
What Are The Best Stocks To Invest In For A Balanced Portfolio?
A balanced portfolio is one that offers growth and stability, two seemingly opposing objectives. The idea is to amass a collection of securities that have room to grow, but that also pay stable dividends while you wait. By reinvesting your dividends, you can effortlessly increase your position in the stock, increasing your dividend pay out as you go. Reinvesting dividends is a win-win situation.
Dollar cost averaging is another successful tool as it allows you to skip the agonizing process of attempting to time the market. When you implement this strategy you increase your position in a security gradually over time, effectively lowering your cost-per-share by buying at various price points spread out over a set amount of time.
This strategy is an important mental one as well, as it is psychologically easier to invest $100 a month than it is to commit $1200 all at once. This strategy doesn’t work for particularly active traders, as brokerage fees from buying and selling alone would eat away at profits.
High quality, blue chip companies that have a history of steady growth, and pay increasing dividends should make up the majority of your portfolio. The exception to this is if you are very close to retirement, or expect to need the money within five years, in which case a portfolio made up of even the highest quality stocks may still be too volatile.
Always keep in mind that how long you expect to hold your securities is also an important consideration when investing in stocks.
What Are The Best Stocks To Invest In When You Want To Have A Little Fun?
While saving for the future is crucial, and should be your number one investment objective, even the most committed investors deserve to splurge now and then. In fact, it is psychologically necessary to reward yourself now and then.
Setting up a fund to treat yourself is also an excellent way to get your “excitement fix” for investing in the stock market. While watching your retirement portfolio accumulate over time could be likened to watching paint dry, having an account with which to gamble with, however, adds excitement and interest, without risking money needed for future expenses.
The importance of doing research into these momentum, or penny stocks, is much the same as less volatile stocks. Although the guy at the dry-cleaner may mean well, his advice is no substitute for good old fashioned research.
Do you happen to know that a company is coming out with the latest-greatest new technology? Researching market demand, as well as cost and profit projections are important steps to take before committing any capital – even “fun money”.
And perhaps, the best piece of advice is knowing when to lock in profits. Knowing when and how much money to take off the table is an important skill in building wealth. Have your limits, and stick with them. Utilize stop-loss orders, as well as trailing stop orders to lock in profits at your predetermined levels. Kenny Rodgers said it best, “you’ve got to know when to fold ‘em”.
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