Find out how to make money through investing by building a high-quality, diversified portfolio
Are you interested in learning how to make money through investing? Here’s how:
Top blue-chip stocks are a key part of how to make money through investing
You can still look at top blue chips as the strongest and most secure stocks on the market. Just be sure you look at the stock’s qualities and not just at the “blue chip” label. That’s because some blue chips only get their reputation through a strong public relations effort or by being in the right industry or business situation at the right time and place.
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Learn everything you need to know in '9 Secrets of Successful Wealth Management' for FREE from The Successful Investor.
Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.
When assessing if blue chip companies are good companies to invest in, you need to ask: What are they doing to remain vital? These companies hold strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.
Stocks like these give investors an additional measure of safety in volatile markets. And the best ones—the top companies to invest in—offer an attractive combination of low p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.
Consider these five factors when learning how to make money through investing successfully
Watch for these six factors to find stocks offering strong investment value:
- 5- to 10-year history of profit. Companies that make money regularly are safer than chronic or even occasional money losers.
- Industry prominence if not dominance. Major companies can influence legislation, industry trends and other business factors to suit themselves. Minor firms, on the other hand, don’t have that power.
- 5 to 10 years of dividends. Companies can fake earnings, but dividends are cash outlays. If you only buy dividend-paying stock picks, you’ll avoid most frauds.
- Geographical diversification. Canada-wide is good, multinational is better. There’s extra risk in firms confined to one geographical area.
- Manageable debt. When bad times hit, debt-heavy companies go broke first.
- Freedom to serve (all) shareholders. High-quality stock picks must be free of excess regulation, free of dependence on a single customer, and free from self-dealing insiders or parent companies.
Approach technical analysis the right way while learning how to make money through investing
Use technical analysis to support—not determine—your view of a company. Look at chart readings as one tool among many, but don’t look at the chart for a prediction of what’s going to happen. Look to see if the pattern on the chart seems to support your view of the stock, based on its finances and other fundamentals. But remember that the stock market follows a multitude of factors to varying extents, and the most important or influential factors continually change.
Always maintain a diversified stock portfolio—and avoid the temptation of trying to pick hot stocks or sectors. Different investors may be more comfortable holding a larger or smaller number of investments in their portfolios, including stocks or exchange-traded funds (ETFs).
Meanwhile, if you lack patience, you run a big risk of selling your best choices in the midst of a temporary downturn, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so at the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
Stick to your strategy
Top-quality stocks tend to lose less of their value in the kind of severe market setback we’ve experienced. For the best long-term results, Pat McKeough still thinks you should stick with his three-part program:
- Hold mostly high-quality, dividend-paying stocks.
- Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
- Downplay or stay out of stocks in the broker/media limelight.
If you stick with top-quality, dividend-paying stocks, you are much less likely to lose money over the long term. At the same time, the dividend income you earn can supply a significant percentage of your total return—as much as a third of your gains. Additionally, dividends are more dependable than capital gains as a source of investment income.
What is the best tip you’ve ever received for making money through investing?