Top Tips for Investing in Shares

Top Tips for Investing in Shares

by David Redmond on 14 Feb, 2011

With the many fluctuations the financial sector goes through, buying stocks and shares has remained a profitable way for people to invest their money. If the right stocks are selected the return on investment can be quite substantial. This will not only increase the value of the initial investment but could also provide a regular income through dividend payments.

It is important to remember that a regular income is by no means guaranteed. Stocks and shares can still be risky as their value can fall just as much as it can rise. In order to avoid a bad purchase that could lose you money rather than provide you with a profit, several factors should be considered before purchase.

The first thing that should be determined by anyone who is about to invest in shares is why exactly they are buying them. Not many amateur investors actually think about this but it is an important question to ask. Are you buying shares to provide an income? If so, you must decide what level of income you desire and you must research the past performance of any shares you intend to buy to see if they could possibly provide you with your expected level of income. When considering this as your desired outcome, there is less reason to consider issues like corporate governance.

Some people buy shares in order to gain access to a company’s Annual General Meeting in order to gain access to board members and ask them questions. If this is the reason you are investing in shares then past, present or future income will be irrelevant and you should never buy more than the minimum needed to gain access to an Annual General Meeting.

If you have made a decision as to why you are buy shares, it is imperative that you then comprehensively research any potential purchases and spend time considering their possible impact. This might seem obvious but far too many first time investors buy on a whim and end up with a diminishing investment.

Many factors should be considered, both big and small. What is the financial history of the company? Do the reported profits point towards any particular trend? Is the current share value near, or at its lowest/highest point of the year? Why is this?

These are just some of the questions that should be asked before making an investment in shares. As with any financial purchase, it is important that no stone is left unturned and all questions are answered before you go ahead with the deal.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.