Getting started in picking stocks to invest in with precision, you have to first have an idea of your investment goals, and your level of risk tolerance. In this post we are going to break down what those mean when it comes to investing in stocks, and help you create a plan for picking the right stocks for you with precision.
What are some key investment goals people have.
You can use the following article to brainstorm some stock investment goals:
Picking an investment goal is a big decision. There are many factors to consider in order to be successful at investing. It can be hard to know where to start when you have so many options. When picking your goals, there are three things you should keep in mind.
1. Your Available Capital
Your available capital is a big factor in determining which investments you will be able to afford to make. For instance, if you have a large amount of cash, purchases that are expensive or of high risk will not be a good use of your funds. However, if you are young and don’t have many commitments yet, you may want to invest in more “expensive” investments.
2. Your Time Horizon
Your time horizon also has a big effect on how you should invest. If you only have a few years until you plan to use your money, it will probably be best to put your money into something conservative and secure. On the other hand, if you have a large amount of time until you plan to use your money, you have the option of taking on higher risk in order to potentially earn a greater return.
3. What is the Right Level of Risk
There is a right level of risk for any investment. In order to find this, you have to first identify what you are planning on using your money for. Conservative investments are great for long-term goals, such as college or retirement. If you plan on using the money in the near future, however, then a risky investment is probably not a good idea.
These three factors work in tandem, as I mentioned. For example, if you don’t have a lot of money, but have a lot of time until you need it, then investing in a high-risk stock might be the best option for you.
How to use these three factors to pick a stock.
To determine which stocks are right for you, there are three steps:
1. Brainstorm a list of potential investments.
2. Weigh the factors to determine which of your investments are best.
3. Create an investment plan and stick to it!
Now let’s talk about what is your level of risk tolerance and how you want to proceed.
What is my level of risk tolerance?
There are generally two approaches to investing – you can either take on a lot of risk or a little. The problem is that most people think that they are all or nothing, when, in fact, it’s not as extreme as that. There’s a middle ground. The best way to decide what your risk tolerance is, is to examine your age and your goals.
For example, if you are a 20-year-old with $5,000 sitting around, a lot of stocks are probably out of the question. You should either consider the stock market or put it in something like a money market account. However, if you are retired and have a decent amount of money to spend, you can take more chances with investing.
How to determine which stocks are right for you based on your risk tolerance.
1. Figure out how much risk you want to take.
2. Consider your goals and the time until those goals.
3. Brainstorm a list of stocks with differing levels of risk.
4. Weigh the factors to make your final decision.
At its core, stock picking is all about risk management. It’s the idea that you have to manage the downside risk of losing money on your investments and up-risking your gains. The difference between success and failure in picking stocks, is that you have to know how much risk you can handle, and then make sure to pick investments that fit your goals.
The first step is to figure out how much risk you want to take. There are two models that people do when deciding how much risk they want to take on. There’s the “buy low, sell high” model and there’s the “buy high, hold forever” model.
The buy low, sell high model is generally considered more risky and the buy high, hold forever model is generally considered less risky.
In general, I recommend you pick stocks that fall into the middle ground. If you take on a lot of risk, you might end up losing money. However, if you’re on the buy high, hold forever side of the spectrum, it can be difficult to turn a profit. If you want to make the most money, it’s best to take on some risk. You can always down-risk your investments later, and make sure to stay within a certain manageable range of risk.
Once you have developed your plan with this guidance, it is just a matter of using the right tools to get started picking the right stocks for you with precision.