There are numerous benefits to investing in shares. If you invest in the right shares at the right time, you can benefit from the growth of a company. Many shares pay a portion of their profits to shareholders on an annual basis in the form of dividends.
In this guide, we’ll cover nine share tips to help you get the greatest benefits from your shares with the smallest possible risks. Read on to learn practical advice for investing intelligently and safely in companies you know and trust.
Are you completely new to investing? Enroll in our Investing Fundamentals course to learn the basics of investing your money, from analyzing and understanding risk to constructing a diverse, stable portfolio.
Know your strategy: short or long term
Before you invest in any shares, you’ll need to have a strategy. Think about whether you’d like to invest your money for the long term or the short term, and select your investments based on this criteria.
Shares follow the same principle as any good business: buy low and sell high. If you think a business is undervalued in the short term due to a recent event – an oil spill or PR disaster, for example – then a short term investment could be a good idea.
On the other hand, if you believe that a company is undervalued due to poor recent management or changes in the market, you’ll need to plan for the long term. Before you invest in any shares, think about their value in both the short and long term.
Don’t let hype get the best of you
The numerous stock market bubbles that have occurred over the past century are testaments to the fact that many investors let hype overtake logic when choosing which shares to buy.
Hype can be deadly, especially when it interferes with the market as a whole. The technology stock bubble of the 1990s is an example of hype creating share tips for companies that simply weren’t worth as much as the public thought they were.
Avoid letting hype dictate which shares you purchase. Instead, take a logical and straightforward approach to investing based on value. Learn more about rational investing in our course, Strategies for Mastering the Stock Market.
Diversify your portfolio to reduce risk
If you’re investing for the long term, your share portfolio should be balanced to stop a shift in market conditions from reducing its value. This means investing in shares from a wide variety of industries, from technology to energy to insurance.
While it’s always best to invest in companies you know and like, spreading out your share portfolio to cover multiple industries cushions you from risk. While your gains might be reduced, your losses will also be significantly reduced as well.
Keep your expectations realistic
If you’re given a share tip with promises of 200% returns, turn around and walk in the other direction as quickly as you can. It’s easy to get swept up with promises of incredible returns, but these rarely happen with well-known, mainstream shares.
Sure, there are exceptions. If you’d bought Apple shares in the early 1990s, you’d have generated a four-figure return on investment. Amazing returns happen, but they’re difficult to predict and even more difficult to plan for as an investor.
When you start investing in shares, keep your expectations to avoid being let down by the companies you invest in. You won’t become wealthy overnight, but over time your portfolio could increase significantly in value if the market performs well.
Managing your expectations is one of the most important aspects of investing. Learn how to develop the right mindset for long-term investing success by enrolling in our course, Investing Fundamentals: How to Develop an Investor’s Mindset.
Choose good business over good people
Talented people tend to build good businesses, but even the most talented team will generally fail to turn around a sinking ship. Because of this, you should focus most of your share investments in companies with good business models, not good people.
The market, as a whole, constantly reacts irrationally when failing companies make changes to their management. In almost all cases, it’s better to buy shares in rich yet inefficient companies than to buy shares in failing companies with bright leaders.
There are exceptions to the rule, but for the most part, it’s true. Look at the core of a company when you buy shares – its revenue, long-term performance, and market – and not just at the competence or prestige of its management.
Do you need help identifying companies that are worth investing in? Learn how to distinguish good companies from bad by enrolling in our course, An Introduction to Stocks, Futures, Forex & Options Markets.
Don’t just invest in shares
Shares aren’t the only thing you can invest in. As well as buying stock in companies, you can invest your money in commodities, foreign currencies, bonds, and even the old fashioned savings account.
While shares offer good earnings and simple, straightforward investing, they’re far from the only option available. In certain conditions, shares can be a far riskier and less lucrative option than other types of investment.
Don’t let shares dominate your investment portfolio. Learn the basics of building an excellent portfolio in our Investing Fundamentals course and use many investment options to build your fortune – not just one.
Ignore 99% of what the media says
The 24-hour news cycle means that financial news stations end up spending more of their time speculating than offering any real advice. Unless there is a massive shift in the economy, you can confidently ignore 99% of what the media says about shares.
In fact, you’re generally better informed about which shares are worth investing in if you don’t watch financial television than you would be if you did. Tune out from 24-hour financial news and focus on the big picture instead of obsessing over details.
Keep your investing strategy simple
When your share portfolio is made up of hundreds of companies, it’s easy to forget why you invested in each one in the first place. Keep your investment strategy, and your portfolio itself, straightforward and simple so making decisions is easy.
A good rule of thumb is to only invest in as many companies as you can recall from your own memory. If you need to refer to your portfolio to know which companies you’re investing in, you’re probably spreading yourself too thin.
Are you picking your first shares? Learn more about selecting good companies to invest in with our blog post on the stock market for beginners.
Learn to recognize the signs of a bubble
Days later, the legendary businessman sold off all of his stocks. His reasoning was simple: if a shoeshine boy – someone completely disconnected from the markets, was offering financial advice – there had to be a bubble in the making.
Kennedy’s intuition was right, and the market crashed soon after his fateful shoe shine. Other share bubbles have occurred throughout history, most notably in the late 1990s during the Silicon Valley investment boom.
Being able to recognize a bubble is one of the most important skills you can possess as an investor. When everyone is suggesting a stock – calling it a ‘sure thing’ – it’s an excellent time to cash out and plan for a rocky future.
Do you want to learn the secrets to identifying a bubble? Our course, Stock Market for Beginners, covers the fundamentals of investing in shares and knowing where the market will be heading based on past and current performance.