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Although the decade began with a substantially down market, the leading stock market indexes have risen significantly. For investors, this is a good time to take stock of where we are and where we want to be, and plan how best to get there. What follows are a list of practical steps that can help all of us get our fiscal act together.
1. Assess
Periodically, it is a good idea to sit down and really figure out where you are with your finances. Pull out your banking and brokerage account statements, check your balances, and gather in one place all your fiscal information. Then take a good, hard look at what you see. If you have questions about the information presented on your brokerage or mutual fund statements, don’t ignore those questions. Speak up, ask questions, and get answers.
After learning where you are, figure out where you want to be. What are your savings goals? Are they long-term (retirement, college education for your babies) or short-term (down payment on a house, college education for your high-school age kids)? Your goals determine your own personal tolerance for risk. If you’ll need your money in the short term, more conservative investments are appropriate. If you’re saving for the long haul, you might decide to take more risks. Just remember – your risk tolerance is a very personal matter, based on your age and your personal savings goals. Your neighbor or your Uncle Fred may be much more conservative or aggressive than you are. But that doesn’t mean their investing strategy is right for you!
2. Invest for the long term
Before you invest, make sure you have enough money to eat and put a roof over your head. Pay yourself first – get rid of high-cost credit card debt. But the earlier you get a start on your savings goals, the less you’ll have to put away monthly to reach them. Historically, the investment that has provided the highest average rate of return over the long term has been stocks. But there are no guarantees of profits when you buy stock. Markets go up and markets go down in the short-term. That’s why it is best to think long-term when considering stock market investments.
3. Diversify.
There is no better way — over the long term — to distribute risk than to diversify your investments. It is true that in some years, single stocks or individual sectors will outperform a diversified investment strategy, at least in the short term. But don’t forget that investors who hope to gain fantastic returns by investing in a single stock or one sector have also assumed the higher risks of a more narrow investing strategy. While diversifying your investments won’t bring you sky-high returns in boom times, it also means that you won’t lose everything when the boom times bust.
One way to diversify is to consider growth stocks . And here is where a little work can pay off handsomely – be sure to pay attention to the company’s income and expenses. Over time, expenses and fees can really make a difference. On an investment held for 20 years, a 1 percent annual fee will reduce the ending account balance by 18 percent.
Another way to diversify is to make sure that your retirement funds aren’t all invested in your employer’s stock. Even if that stock is a good long-term prospect, it is risky to have your retirement security depend in whole or in large part upon the fate of any one company.
4. Know yourself
Be honest. Do you really have the time and energy to adequately research individual stock investments? Most of us don’t have the experience and expertise of Wall Street traders who read financial statements for a living. It is important to be realistic about your own time commitments. Talking to co-workers and watching TV is not good investment research! That’s why many Americans begin investing not with individual stock picks, but with a broad based, low cost index fund. That way you’re broadly diversified from the beginning. As you find more time and gain confidence, you’ll know whether you’ve got the desire or interest to select individual stocks.
5. Do your homework
You owe it to yourself to check out any investment and investment professional with whom you do business. A few simple steps can save a great deal of heartache.
Before doing business with any investment professional, take full advantage of the power of the internet to check computerized databases for disciplinary information. Then contact your state securities regulator to find out if they have any additional information.
Before buying any stock, check out the company’s financial statements on the SEC’s website. All but the smallest public companies have to file financial statements with us. If the company doesn’t file with us, you’ll have to do a great deal of work on your own to make sure the company is legitimate and the investment appropriate for you. That’s because the lack of reliable, readily available information about company finances can open the door to fraud.
Before purchasing any investment, make sure you read and understand all the disclosures you’re given. The federal securities laws require that you be given lots of helpful information, such as a prospectus for a mutual fund, but you’ll have to take the initiative to understand what you’re given.
It’s up to you to educate yourself to make sure that all of your investments match your goals and tolerance for risk. Don’t be afraid to ask questions – it is your money!
6. Protect yourself
Always remember that people who sell investment products make money by doing so. Which doesn’t mean that they’ll give you bad advice, but it does mean that you’ve got to take responsibility for evaluating any recommendations you get. We advise people to never rely solely on an analyst’s recommendation when deciding whether to buy, hold, or sell a stock. Instead, do your own research-such as reading the prospectus for new companies or for public companies, the quarterly and annual reports filed with the SEC-to confirm whether a particular investment is appropriate for you in light of your individual financial circumstances. Don’t buy any investment product you don’t understand. And remember, any investment promising high returns necessarily carries a high risk that you’ll lose your money.
Mom always told us there aren’t any quick and easy ways to get rich. But it is hard to remember Mom’s advice when your neighbor, cousin or friend passes along a great tip, especially when it involves a hot new company. So from all of us, just to you, here is a link to our best investment tip on an up-and-coming company. If you click to invest, we just know you’ll be enriched.
We’ve all seen investment offers that promise to pay sky-high returns for what are at best extremely risky propositions — and at worst are pure frauds. Here’s a list of red flags that we often find in many of the frauds we see.
- If it sounds too good to be true, it is. Mom was right! Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you’ll get substantially more could be highly risky. And that means you might lose money.
- “Guaranteed returns” aren’t. Every investment carries some degree of risk, and the level of risk typically correlates with the return you can expect to receive. Low risk generally means low yields, and high yields typically involve high risk. If your money is perfectly safe, you’ll most likely get a low return. High returns represent potential rewards for folks who are willing to take big risks. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” Don’t believe it.
- Check out the company before you invest. If you’ve never heard of a company, broker, or adviser, spend some time checking them out before you invest. Most public companies make electronic filings with the SEC. There are computerized databases to check out brokers and advisers. Your state securities regulator may have additional information. And by the way — if a supposedly upright firm only lists a P.O. box, you’ll want to do a lot of work before sending your money!
- If it is that good, it will wait. Scam artists usually try to create a sense of urgency — implying that if you don’t act now, you’ll miss out on a fabulous opportunity. But savvy investors take time to do their homework before investing. If you’re being pressured to invest, especially if it is a once-in-a-lifetime, too-good-to-be-true opportunity that “just can’t miss,” just say “no.” Your wallet will thank you.
- Understand your investments. Fraudsters frequently use a lot of big words and technical-sounding phrases to impress you. But have faith in yourself! If you don’t understand an investment, don’t buy it. If a salesman isn’t able to explain a concept clearly enough for you to understand, it isn’t your fault. Don’t make it your problem by buying!
- Beauty isn’t everything. Don’t be fooled by a pretty website — they are remarkably easy to create.
Remember — an educated investor is our best defense against fraud! For more information on how to invest wisely and avoid fraud, please visit the Best Growth Stock Market Report .
The term ‘growth stock’ has been a victim of occasional misunderstandings. Some apprehends growth stock as a name stock that has a lot of demand. There are others who think growth stocks are those stocks which sell at high earning multiples. But belonging to a popular company or having a name does not form a necessary synonym for true growth. More often than not it can be a stock which has gone past its period of growth. It is a natural tendency for investors to go too far with their preference for popular stocks. During the period of market excesses, there happens to be a popular misconception that growth stocks are always beyond the reasonable or acceptable price-earning ratio. This P/E ratio is considered to be the basic criteria to evaluate the stock prices.
Growth stocks and the ‘emerging growth stocks’ are actually well-managed companies which operate in industries whose earnings and dividends grow at a faster rate than the expected estimates. It does not get buoyed down by the inflation and the shaky condition of the over-all economy. Their extraordinary and positive growth momentum ought to be equally maintained both during economic affluence and economic poverty. Contrary to popular belief, growth stocks are not to be found in the traditional popular sectors. They rather belong to newer upcoming sectors like the telecommunications, health care, computers and bio-technology.
Major characteristic features of growth stocks include:
· They have a higher price/earning ratio compared to the market average
· They possess a substantial potential for long term price appreciation and its ability to remain above-average.
· Their price levels are volatile
· They conserve their capital for future growth. So, there is no dividend payout.
How do you ascertain that it is an emerging growth stock? For this:
· You need to shun those companies which are two down in the earning years during the past five years
· The company should have a minimum average of 20% revenue and a constant earning growth
· You are required to stay clear of those firms which have a return of average equity that is below 13%.
· Those companies whose debt is more than 30% of its total capital should be avoided.
An expert growth stock hunter will naturally know that he will not gain any excess return from investment truly and will try ‘blue chip’ stock representative of a main stream stock market index like, the Dow Jones Industrial Average and the S & P 500. He will rather explore the market to get hold of the next growth stock, that which may well become the next Google.
Before a potential investment there are several points which the growth investor must take into account. Does the company which he has zeroed on in, possess a stable management and whether its finance credibility is positioned for sustained growth. Then he must check whether the present economic environment will benefit the particular industry of which the company is a part? And above all, the value of the stock is very important.
To determine a sound entry price for a strong growth stock can be a difficult task. But to determine the success of an investment, it is the most important factor. An investor would ideally be inclined to buy into a growth company very early, because he would naturally like to garner enough profit from its persistent growth. But at the same time it is very important for the investor not to place a huge chunk of his premium on his apprehension of the company’s growth potential. For, doing so might limit his future profits from another possible sector.
At the starting point the investor needs to decide about his own investment preference. He can either be a ‘value’ or a ‘growth’ investor or he can be both. But it is always advisable to choose a primary focus. It’s important to note that growth and value investment are not contradictory options but are rather two different approaches to an identical situation.
An investor can decide his own inclination regarding which strategy appears the most appealing. Given below are the basic characteristics of growth stock investment :
- The average growth rates in revenue and earning of these companies are higher in comparison to the other companies.
- These companies cater to such industrial sectors which are continuously expanding. They are smoothly sailing through the current demographic and economic cycle.
- These companies do not pay dividends.
- These companies are characterized by such high growths that they often end up beyond the earning estimates.
- The continued growth of the company determines the holding period.
Growth investment is all about estimating and predicting the future. It is constantly in the investor’s thought that whether the respective company would maintain the same steady pace in the stock market . He must be extremely concerned about the company plans and policies like revenue, earnings, and sales and so on. He needs to keep an eye on the industry and the level of participation of the company in that growth. Some attentive reading done online and the financial press can immensely help the growth stock investor. Another notable feature of the growth stock is that it belongs to growth industries. A growth industry is usually related to some kind of technology. Next, the growth stocks belong to companies that are small to mid-sized. In fact a wide range of factors keep the large companies away from maintaining a steady growth rate.
You can find a narrative explanation of a company’s financial performance in a section of the quarterly or annual report entitled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” MD&A is management’s opportunity to provide investors with its view of the financial performance and condition of the company. It’s management’s opportunity to tell investors what the financial statements show and do not show, as well as important trends and risks that have shaped the past or are reasonably likely to shape the company’s stock future.
The SEC’s rules governing MD&A require disclosure about trends, events or uncertainties known to management that would have a material impact on reported financial information. The purpose of MD&A is to provide investors with information that the company’s management believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. It is intended to help investors to see the company through the eyes of management. It is also intended to provide context for the financial statements and information about the company’s earnings and cash flows.
