Only Buy What You Understand

Only Buy What You Understand

As beginners in the market, we end up following the advice of the broker or tips are given on TV and start investing in these recommendations blindly. Little do we understand that we are actually risking our money by doing this.

One major rule of investment is that you should not invest in something that you do not understand. You should know what the company does to understand why you should invest in it. If you do not understand about a particular sector then stay away from it. There are thousands of other companies that you can choose to invest in and also companies that you understand.

Also, make sure that you understand the business models of these companies. Some companies will have a business model that is very straightforward and easy to comprehend. Stick to only those companies when you are just starting to invest in the market.

Are dividend-paying companies better than companies that do not pay dividends?

Many companies distribute the profits to their shareholders in the form of dividends. There are other companies that choose to reinvest the profits into the business. In most cases, you would see that the stocks that pay out dividends are less volatile and also defensive as compared to stocks that do not pay out dividends. Take care to understand that only because a company pays a high amount of dividends each year does not make it a good company to invest your money into. Reinvesting the dividend is also a very important method using which the companies make long-term wealth which in turn means a higher share price value for you.

Be careful when you chose the stocks to include in your portfolio

Pay attention to these red flags before you pick up stocks to invest into on this trading software. Do not invest in companies that:

  • Are in a loss
  • Whose share price is falling consistently
  • Those that are under some investigation
  • Those that have lots of debts
  • Those that have a dividend history which is very unstable

How much should be your expected profits?

Always have a longterm view when you start to invest in the market. The market could gain or make losses in a particular year, but when you see it with a long-term perspective you will notice that the returns from the market are mostly consistent. In the shorter time periods the returns could vary significantly but in the long term returns mostly tend to average out.