I’m a Financial Advisor: Here Are 5 Key Factors To Consider When Picking Stocks

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When it comes to preparing for retirement, there are several ways you can build your savings, and investing in stocks is just one strategy. While there are risks involved, especially if you don’t invest early in your retirement plan, you can build your wealth with stocks if you know how to play the game.
“Stocks are the only way to invest if you want to meaningfully outpace inflation and grow your wealth over time,” said Eric Franklin, managing principal and co-founder at Prospero Wealth. “Of course, the ‘over time’ piece is critical, as purchasing stocks comes with risk.”
He added that even investors who hold the S&P 500 for 10 years get negative results 6% of the time. Franklin added, “It’s only when you look past 15-year time horizons that the S&P 500 has historically been 100% positive.”
With so many options to invest in stocks, choosing the best can be overwhelming. To make it easier, GOBankingRates spoke with several finance experts who shared their tips on factors to consider when picking stocks.
Invest in Something You’re Passionate About
When researching stocks to buy, Argosy Wealth Management founder Eric Mangold suggested considering products or brands you have an interest in.
“About 15 years ago, one of my clients walked into an Apple store to buy an iPod,” he said. “He was so enthralled by the store, the overall vibe and the product that he immediately went home and bought a block of shares.”
Mangold pointed out that all stock-picking stories don’t end up as well as this one, but it all started because his client invested in something he had a passion for and used.
Don’t Get Emotional About Stocks
Another tip from Mangold is to not get attached to a stock.
“It may go up and it may go down,” he explained. “Where we see people get in trouble is when they hold on to a stock far longer than they know they should. It seems even harder when the stock has gone up to watch it go down and sell it. If you’ve made money, pat yourself on the back, and when it’s time to dump it, dump it and move on.”
Understand Your Investing Competition
Learning about the company and the other investors is vital, said Jason DeLorenzo, owner of Ad Deum Funds, a registered investment advisor.
“Once a company is selected,” he said, “understanding who else is invested in your company is more important than any thesis you have about the company itself.
“Ultimately, you are trying to grow your capital, and the security’s value is based on the quantity and frequency of the other investors. For example, a stable, large-cap company with a product that has inelastic demand, few competitors and a high entry threshold — like Nvidia — has different investors than a mid-cap company in an established sector with reliable quarterly dividends — like Verizon.”
Overall, DeLorenzo said it’s best to understand who is investing in your company, why they’re invested in it and what would cause them to sell their investment.
“If you can form a thesis around that,” he added, “it increases the likelihood you will ultimately grow your capital with your investment.”
Diversify
Look into investing in different stocks, Franklin said.
“If you broadly diversify across stocks and bonds, holding the S&P 500 with 60% of your invested assets and the Bloomberg U.S. Aggregate Bond Index with 40% of your invested assets, you get to a place where only 0.6% of five-year time periods are negative,” he said.
He also recommended having a small percentage of your funds (5% or less) in an account to invest in the companies you love and are interested in learning about.
Don’t Follow the Masses
It can be tempting to invest in a stock that’s trending, but Bruce K. Lee, founder and CEO of Keebeck Wealth Management, advised against doing so.
“Beware of the compulsion to follow the herd; it will lead you astray,” Lee said.
He also suggested resisting the appeal of market hype and short-term trends.
“Stay true to your investment principles, even if it means standing alone against the crowd,” he recommended.
Likewise, Lee recommended acting contrary to market sentiment and seizing opportunities that arise when fear grips the masses.
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