7 Things That You Need to Know About Stocks Before You Invest

What you need to know about stocks? Following are the 7 key things that you need to understand before you invest your hard earn money in the stock market:

1) Shareholders are the actual owners of the company and are entitled to a share of the company's profits in the form of dividends. To be a successful investor, you should look for companies that are major players in the industry and has good performance in sales and profits.

2) Don't make a stock purchase decision based on financial statements only. Note that financial statements (such as profit and loss account or income statement) can be manipulated to hide financial weaknesses.

3) Look for stocks with high dividend yields. In bear or bull markets, high dividend yield stocks are always considered a safer bet and they can accumulate dividends over the years.

4) The key to success is to find a good combination of stocks that will help you reach your long term financial goals and not the one that you purchased because your friends also purchased it. Do your homework before you invest in any company's stock!

5) Know Your Investment Risk Level. You should decide on how much risk you are willing to take in order to achieve your goal. Stocks are usually highly volatile and risky. If you want big rewards, you got to take big risks.

6) Diversity your portfolio across different sectors such as energy, financial services, consumer products, telecommunications, manufacturing, etc. This can reduce your investment risk and maximize your return.

7) A stock's P/E (price-to-earnings) ratio is one of the most important tools investors use. Never purchase stocks with a low P/E without doing some research on it. A low P/E ratio does not necessarily mean that the company share is undervalued. A stock may be trading at a low P/E because the investors are less optimistic about the future prospects of the stock.

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