What Stocks Should I Invest In?
Before deciding: What Stocks Should I Invest In? We need to know how active you want to be, how long you want to stay in an investment, and your risk tolerance.
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To summarise, if you are an investor who wants to, or is able to, be more active in the markets, you should pay closer attention to economic cycles, earnings reports, and fundamental changes in equities. But, if you don’t want to be too active due to work or other obligations, knowing all of the above isn’t necessary for your investing decisions, and your focus can be much longer-term.
Additionally, in terms of risk appetite, do you like to take more or less risk? Those who prefer more will gravitate towards equities with the potential for more reward, whilst those who prefer less risk would gravitate towards companies with limited upside but reduced downside risk. Dividend-paying equities from long-standing, established corporations (blue chip stocks) are one example. On the other hand, someone searching for higher profits may consider investing in high-growth technology stocks.
Summary: What Stocks Should I Invest In?
Companies You Love and a Future You Believe In
The simplest answer to the question, what stock should I invest in?, is starting with something familiar to you. If you are considering investing in stocks but aren’t sure where to begin, it may be a good idea to consider investing in the brands you know, love and most importantly use. Of course, simply because you like a brand does not mean it will be a smart investment, but considering what people will be doing in the future might be important when making investment decisions.
Therefore, these are some questions we can pose to ourselves. We can wonder: What kind of cars do I like? Or which kinds of cars you see a lot of folks driving? Or, in the future, what cars could a large number of people drive? You may believe that electric vehicles, such as Tesla, will become more prevalent in the future, or that more people will drive them. You might wonder if people will continue to use Apple products, wear Nike clothing and trainers, eat Domino’s and McDonald’s, and so on. These are all possible companies that could grow in the future.
In fact there are countless stories of every-day people seeing a company that they know, use, or see active in their area growing and prospering and deciding to invest in it. Ultimately, making them healthy profits along the way.
When it comes to investing, investors are constantly looking ahead. What market segments do they envision expanding in the future? It might be electric vehicles, renewable energy, drone technology, cryptography, or cyber security. Smart Portfolios, which focus on similar themes as those stated above and many more, are a great resource for investors to check out on eToro.
You can either invest directly in those or research which companies are participating in each theme. For example, you may believe that drone technology will take off in the future, so you investigate eToro’s Smart Portfolio for drone technology and discover which firms, such as Boeing, Microsoft, Intel, and General Electric, have exposure to this area. If you wanted single stock exposure, you might perhaps decide on these and other particular stocks.
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Analysis: Fundamental and Technical
While deciding what stock should I invest in?, we can divide analysis into two categories: Fundamental and Technical.
Fundamental Analysis
Fundamental analysis is the process by which investors examine all available data to determine whether something is under or overvalued. Looking at a company’s earnings report and forward forecast is one thing investors may do to choose a stock. To put it simply, if a company has a positive earnings report and optimistic plans and aspirations for the future, you may consider this as an excellent opportunity to invest. On the other hand, if a company announces poor earnings for the previous quarter and is not optimistic about future growth, this may be a stock that investors should avoid.
Short-term investors will base their decisions on where we are in the economic cycle and the macro environment. For example, if we are on the verge of a recession, investors would examine crucial data parameters to corroborate this and may shift their investments away from riskier companies and towards more defensive ones that perform better in this situation. For individuals who want to stay up to speed on what is going on in the markets on a weekly basis, eToro Global Market Strategist Ben Laidler hosts a webinar with Sam North every Monday where they discuss what is now driving markets and what might in the future.
When deciding which stock to buy, some investors will employ technical analysis to try to time the market more precisely. On the eToro Academy, we provide a wealth of free tools, as well as weekly webinars where we explore prospective prospects.
Technical Analysis
Technical analysis is a method of investing or trading in which we examine prior price market data to try to predict potential results. Therefore, while past performance isn’t predictive of future results a fantastic adage is, ‘history doesn’t repeat itself, but often it rhymes’.
A few areas of technical analysis can be beneficial to investors. Understanding support and resistance, which are essentially market locations where buyers and sellers have previously entered or may enter in the future. Technical tools, candlestick and charting patterns are also worth investigating if you want to improve your market timing. Yet, if your focus is on the long term, having a limited understanding of technical analysis is not the end of the world. But, technical analyzers must be mindful of a few factors. They must ensure that other investors are looking at the same item they are, and they must also be aware of any fundamental developments, as fundamental analysis will trump technical analysis.
Diversification of Stocks
Diversification is another important factor to consider when selecting what stocks to invest in. We’re sure you’ve heard the expression “don’t put all your eggs in one basket,” and the same is true when it comes to investing. You don’t want to invest all of your money in one stock.
Remember, we cannot guarantee that it will rise in value, but by diversifying your investments, you can lower portfolio risk. As a result, rather than investing 50% of your investment account in two stocks, we might choose to put 5 or 10% in each. If you invest 50% of your account in one stock and it underperforms, it will cost you far more than if you only invest 10%.
There is no magic formula for the ideal number of stocks to have in a portfolio, and what feels comfortable is entirely up to you. Please keep in mind that diversification can be a beneficial risk control technique.
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Remember Your Rules
When it comes to investment management, it can be beneficial to establish some ground rules.
To begin, remember why you entered the investment and how long you expect to stay in it. Once you’ve made your decision, we may put our regulations in place. The most essential thing to remember is that if your purpose for investing in a company has not altered, adhere to your strategy, particularly if you are a long-term investor. Nothing is worse than exiting an investment early and then discovering that it performed exactly as expected a few weeks or months later.
To avoid this from happening, you need to be clear about the investment to keep you focused on the big picture. These will be your ground rules. Firstly, is there anything fundamentally different about the company now? Has the long-term global macro situation changed sufficiently for you to exit your investment? Have comparable equities behaved in a way that suggests your investment may struggle? If you respond no to these questions, you may decide to stay in your current position.
Long-term planning and patience are essential qualities in any successful trader. As a long-term investor, the last thing you want to do is abandon an investment after two months for no reason other than the price hasn’t risen immediately. Be patient and keep your goals in mind.
To assist with this, we will discuss investment psychology and why it is crucial in the upcoming session. Don’t worry, it won’t be overly sentimental. We will discuss how to best manage our money and stay focused on our long-term goals.
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Risk Disclaimer: Please remember that this information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments. This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research.
Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.
