Stocks – Investment Strategy

Stocks are a common component of each investor’s portfolio. Your age, risk tolerance, and overall investment goals will determine the make-up of stocks you hold, the industries in which you invest, and the length of time you hold them.

What are stocks?

A stock, otherwise known as a share or equity, signifies a unit of ownership in a company.

Companies such as ANZ, Telstra and BHP are listed on the Australian Securities Exchange (ASX) — commonly known as the stock market or stock exchange. There are over 2,000 companies listed on the ASX.

Shares are a type of growth investment since they allow you the opportunity to increase the value of your investment, sometimes in a very positive way over time.

Dividends, which are effectively a portion of a company’s profit paid out to its shareholders, may be received if you own shares, depending on whether the company wants to return profits to shareholders, or reinvest in the profits in the company for further growth.

Be aware, the value of your shares may decline below the price at which you purchased them. Prices can fluctuate significantly from day to day, thus shares are best suited to long-term investors who are willing to ride out the ups and downs.

Shares, also known as equities, have traditionally delivered larger returns than other investments. Shares are regarded as one of the riskiest types of investment, but picking a winner isn’t impossible with the right research and advice.

Key Features

Benefits of stocks

The ability to increase your wealth in the short term and long term is one of the key advantages of investing in the stock market. The stock market tends to increase in value over time, despite the fact that individual stock values fluctuate on a regular basis.

Some shares pay out dividends as a source of income. While not all shares pay dividends, those that do, often do so on a biannual or yearly basis. Investors often earn from stock investments in stable organisations that show consistent growth.

 A stock market investment provides diversification for investors who want to invest in a variety of different investment sources.

Downside of stocks

There are some factors you should be cautious of when holding stocks.

It is possible the stock price could become worthless resulting in a loss of your investment. If a company does poorly, investors tend to sell, sending the stock price down.

If you are buying stocks on your own, you must take the extended time to research each company to determine how profitable you think it will be before you buy its stock. 

You’ll need to learn how to read financial statements and annual reports and follow your company’s developments in the news. You’ll also have to monitor the stock market itself, as even the best company’s price will fall in a market correction, a market crash, or bear market. The amount of time it takes can be too much for some people, in which it’s advised you speak to a moneylab financial planner who will be able to do it all for you instead.

The process can be emotionally draining, as stock prices rise and fall second-by-second. Individuals tend to buy high, out of greed, and sell low, out of fear. The best thing to do is not constantly look at the price fluctuations of stocks, and just be sure to check in on a regular basis.

How do I invest in stocks? 

What should you do? Well, definitely consider investing in stocks with your long-term money. It’s hard to beat the growth potential of stocks. But don’t do so blindly. Read up on stock market investing, so that you’re comfortable with what you’re doing and contact a professional who can advise you.

If you need help choosing the right investments, get financial advice. A moneylab financial planner will help you set your financial goals, understand your risk tolerance and find the right investments for you. They are the experts in finding the best type of investment to suit you and your needs. If you have an investment idea or are looking to boost your wealth, contact us, and we’ll develop the most effective investment plan catered to you.

 

Caution!

Investing without knowledge and understanding is just speculation and relies on luck. We recommend speaking to a professional about your financial goals and needs to ensure you make educated and composed decisions. Contact us today to speak to a financial advisor, who will help bolster your investment strategy and returns. 

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