Kevin O’Leary, a Shark Tank investor, is fond of a figure that demonstrates that the majority of the S& P 500’s returns throughout the years have come from dividends rather than price appreciation. That’s why he claims he’ll never invest in a company that doesn’t return at least some of its profits to shareholders.
6) There Is No Such Thing As a Perfect Metric
Professional and novice investors alike have favorite growth and value indicators, ranging from price-earnings ratios to dividend yields and profit margins. However, there is no single figure that distinguishes between good and terrible stocks. A stock that appears cheap at 10 times earnings can easily go to 5 times in a heartbeat, while a promising tech startup that appears expensive at 3 times revenues can quickly jump to 6 times in a heartbeat.
7) A $100 stock isn’t cheap, and a $5 stock isn’t cheap either.
When determining whether a stock is a good investment or not, the price of a single share is not the correct number to use. While triple-digit price tags may be out of reach for a rookie investor with limited finances, stockpiling 100 $1 stocks isn’t always a superior approach. Instead, consider investing to be similar to grocery shopping: there’s a reason you go to the store with a list rather than merely picking what to buy based on price tags.
8) Taxes Can Eat Away At Your Profits
The FANG companies — Facebook, Amazon.com, Netflix, and Google (Alphabet) – had a fantastic year in 2015, with gains ranging from 34% to 134%, but from a tax standpoint, any investor who bought last year and is looking to exit wants them to keep growing. That’s because the one-year mark serves as a dividing line for the IRS.
Selling stocks held for less than a year results in a short-term capital gain taxed as ordinary income. That might entail giving Uncle Sam anything from 25% to 39.6 percent of your earnings. However, if you retain those same stocks for at least a year, the tax rate reduces to 15% for most tax rates.
9) Understand what you require and what you are paying for.
The expanding brokerage sector is a hive of rivalry to provide the most up-to-date trading alternatives, but the fundamentals can be found elsewhere for most investors.
Make certain you understand the type of buy or sell order you’re entering. A market order, for example, will be executed as soon as feasible, regardless of the current market price; a limit order, on the other hand, will only complete the transaction within the price parameters you’ve specified.
10) Take Market “News” With A Grain Of Salt
The first trading day of 2016 saw many stories, ranging from a sinking Chinese stock market to G.M.’s stake in Uber rival Lyft and breaking ties between Saudi Arabia and Iran. But is that rationale enough for U.S. stocks to fall more than 2.5 percent (as they did before rebounding from their lows)?
As an investor, the news flow that drives the market’s day-to-day gyrations should be regarded as intriguing reading rather than a reason to make or change strategy.