16.6 C
New York
Saturday, May 21, 2022

Here are 3 questions to ask yourself before you buy your next stock.

- Advertisement -
- Advertisement -

Bullish and bearish stock bull market

Important points

  • Investing your money strategically is important to achieve your goals.

  • By asking yourself the right questions, you can make better portfolio decisions.

When it comes to building an investment portfolio, the choice is yours. You can bet on index funds or buy individual stocks.

The advantage of index funds is that you can own a bunch of different companies with a single investment. For example, if you buy shares in an S&P 500 index fund, you effectively own 500 different companies.

Index funds are great because they take the guesswork out of investing and don’t require the same intense research as individual stocks. However, one clear disadvantage of index funds is that you can’t beat the broad market with them. This is because their goal is to match the performance of the market, not beat it.

If you have more ambitious goals, choosing your own stocks might be for the best. But before you add the next stock to your portfolio, ask yourself these important questions.

1. Can I see myself owning this business for 10 years or more?

It can take a while for a company’s stock to appreciate significantly or recover from a bad earnings report or bad news. That’s why you should generally only buy a stock if you plan to hold it for many years. If you’re not sure if you want to invest in that time frame, the stock in question may not be for you.

2. Does this company have an advantage over its competitors?

There are many companies that do a good job of generating income, maximizing cash flow and limiting debt. But that alone doesn’t necessarily make a particular company a good buy.

Before you add a stock to your personal investment mix, you should consider whether the company has something to offer that the competition doesn’t. Perhaps the company has a savvy management team or an unmatched ability to innovate. These are good reasons to choose one company over another.

3. Does this company contribute to diversity in my portfolio?

Strong diversification of your portfolio can help you accumulate a ton of wealth over time. Also, it can offer you some protection in times of market turmoil.

Index funds do a good job of diversifying. But if you’re more focused on individual stocks, the next time you’re tempted to buy one of these funds, consider whether it will help you build or maintain a good asset mix. For example, if you already own 7 or 8 health care-related stocks, you may not want to buy another health care-related company if you want to limit your portfolio to 20 total stocks.

ask the right questions

Buying shares should not be done on a whim. In fact, you should think about it a lot. By answering these important questions, you may regret your stock-buying decisions less and be richer in the long run.

The article 3 questions to ask before buying your next stock originally appeared on The Motley Fool Germany.

Read more

This article was written by Maurie Backman and was published on Fool.com on 3/6/2022. It has been translated so that our German readers can join the discussion.

Motley Fool Germany 2022

Source link

- Advertisement -

New Articles