Tips and tricks of DIY investing
Buying stocks can be scary, so first learn as much as you can
WITH the internet making it simple to find financial information, it’s now easier for those interested in investing to do so.
While the idea of DIY investing is attractive, making sure you pick the right stocks is a scary prospect. What if the company tanks? What happens if the market crashes? How do you know if this share is cheap or expensive?
For starters, you must familiarise yourself with market movements and behaviour, and must have a grasp of investing.
So before you rush to buy shares, go to the internet and visit investing blogs, read newspapers and follow news sources online to keep up with developments in the stock markets.
Having goals will also help you decide which shares you should choose.
If your aim is to earn an income from your investments, then you will want to look at dividendpaying companies.
Apart from checking on the size of the dividend, you must investigate the dividend yield. This is the return you get for every rand you spend buying a share: essentially, it measures the return on your investment.
Those who want to preserve the capital they invested should buy low-risk shares. Blue-chip companies offer a somewhat stable investment option.
But remember that nothing is guaranteed when investing in shares.
Investors whose main aim is to grow their capital will be looking at taking a little more risk. That means looking at companies with bigger share-price movements.
One way to balance your portfolio is to pick shares across all three types of categories.
When it comes to individual stock picking, it’s good to look at what you and the people around you consume.
Carly Barnes, brand manager at EasyEquities, an online trading and investing platform, says: “If you take a look around at the brands and companies that already exist in your world — the ones you believe in, trust and are happy to give a chunk of your salary to each month — you’ll find you’re actually way more informed than you think.”
A lot of good-quality shares are in companies that make products you rely on every day.
Once you’ve informed yourself about the stock market and decided on your goals, you must work out your investment strategy.
“Historically, investors have seen the best success when they take a kind of hybrid approach, using fundamental research to assess which companies they should focus on, and technical research to judge the best timing for their investment,” says Barnes.
A popular rule in investing is “buy low, sell high”. Those who went on a share-buying spree in 2009, when share prices were low, are in a fantastic position right now. In other words, do not pay a lot for a stock that has already reached its peak: it will give you very little return in the long run.
Avoid having a portfolio consisting of a single company’s shares, or one that is concentrated in one industry.
Diversifying your investments helps spread the risk — so that if a particular company (or industry) dips, the rest of your portfolio can carry you.
A person who had invested in companies that rely heavily on commodities would have seen a severe dip in the value of their portfolio in the past three years.
Although keeping tabs on a company’s performance might give you insight into how it’s run, you should never assume this indicates how the company will perform in future.
Investing in shares should never be seen as a way of making a fortune overnight. It requires a lot of patience. If you keep shares for years and years, you will be able to ride out market dips and can expect greater returns on your investment.
Buying into the stock market is risky and you can lose money. So it’s important to arm yourself with as much information as possible. And for your own protection, you should invest through a registered financial services provider.