Saturday, October 26, 2013

Taking Stock of your Stocks


nowing how to invest is as much an art as it is a science. It's knowing how to do the math and understanding that what goes down, can go up. There is an element of risk involved, essentially a gamble on the value of a company and it's assets, and the hope that that value will rise over time, but if you're really willing to pursue success in the stock market, then it's important to know that it can be done. One of the things that you really have to do now and then, though, to maintain a truly successful portfolio, is to reevaluate your stock positions and determine whether or not the performance really is in line with your personal retirement goals. If it turns out that they aren't, then perhaps it's time for a change.

When you invest with a company, whether it be your retirement savings or the spare cash you've got sitting in a savings account doing nothing, you pin your own hopes to the company's ability to prosper. It isn't an easy thing to do. One of the worst things you can do, though, is become complacent with your investments. When's the last time, after all, that you gave the financials of the companies in your stock portfolio a good going over? You're probably quick to see when a company tanks, but do you really see when it's underperforming? If you're like most people, you probably only cast a glance in that direction every so often, if at all.

If you’re not a professional-level investor, or one of those people who spends their entire day betting on stocks, then how do you figure out whether your investment accounts are performing to snuff? Well, the first factor you have to take into account is your age. Generally speaking, the closer to retirement you are, the safer the investments you want. If you’re held your investments in relatively safe, underperforming equities, then chances are you’re not making more than 1%-3% on your investments, which is pretty rotten. After all, the historical average of stock market investing is more in the neighborhood of around 10%, and there are a slew of investors out there who have realized gains far exceeding that, simply because they knew when to buy and when to sell. It’s all in timing! 

When you take stock of the stocks you’re holding, regardless of whether they’re big companies or small, whether they’re the hot new thing on Wall Street, or a company that’s been around the block a few times, even if they’re part of a stock fund that’s administered for you by a brokerage, look at two things at least once per year. The first is the company’s financial report, and the second is analyst recommendations. Neither paints a complete picture, but together, they can give you a pretty good idea of how the investment is performing. If the financials are a little overwhelming for you, (which they can be,) then don’t be afraid to ask your accountant or one of the bankers where you do your investing for advise. They can’t tell you to buy or sell, obviously, but they can tell you how healthy your investment is, and that can be extremely helpful.  

Analyst recommendations are helpful, but should not be taken as the ultimate final word in a profitable investment. Often, the best thing about recommendations is that they tend to condense the balance sheet into something far more accessible for average investors.

So, do you like the performance of your portfolio? If not, then its time for some changes. Look for some companies that are doing well, but are undervalued, and you’ll probably find yourself beating the historical stock market average before long. You might just be surprised by what you find!

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