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Things To Consider Before Purchasing Stock

Investing is great, but before you make a mistake, make sure you've thought of all the things to consider before purchasing stock.

By Riley Raul ReesePublished 6 years ago 5 min read

Investing in stocks is something that everyone who wants to grow their money should do. This much is a given. Just about everyone who has ever really managed to enjoy a wealthy lifestyle has stocks because it makes their money work for them.

However, investing in random stocks and hoping for the best is foolish. Doing this is a great way to lose money faster than you even thought was possible. It's a common financial mistake that almost everyone who's just starting to invest in the stock market does.

To actually make money in the stock market, you need to do due diligence in each investment you make. There are tons of things that can go wrong with stocks, and even more that can go wrong when you thoughtlessly invest in companies you know nothing about. That's why there are so many things to consider before purchasing stock.

Not sure what to think about? Consider these points below.

One of the biggest mistakes people make when investing in the stock market is to gamble away money they can't afford to lose. If you can't make ends meet and buy shares of that stock at the same time, you already know you shouldn't make that choice.

Sadly, this is one of the few things to consider before purchasing stock that most people never really think about until they have to finish paying bills. (It's happened to me; I know that feeling!)

If you can't buy a full share of the stock you want, investing in one of the best mutual funds or one of the top S&P 500 index funds might be a better option. You can do this by using an online broker like TD Ameritrade or Vanguard.

What do you know about this stock?

Another one of the most important things to consider before purchasing stock is what you know about the company. Have you heard about it before? Has it shown signs of mismanagement? Does the P/E ratio seem a bit off?

I liken this concept to inviting someone into your home. If it's a random stranger, you don't know if they'll steal from you or do something messed up to you. You'd want to make sure you don't suffer a loss, and you'd do that by learning a bit about them.

The same concept applies with stocks. Just like you wouldn't want to invite a random stranger you didn't know into your house, you wouldn't want to invite a random stock into your portfolio without checking it out first.

If you're looking to start investing, it's easy to get swept up in the hype or to feel totally lost. If you're not sure which stocks to pick, or what you want to put your money into, it's okay to look at what expert investors would consider doing.

An app like ClosingBell will help you learn about what experts would say are things to consider before purchasing stock—not to mention what they'd suggest doing in terms of investments.

Is this stock sustainable?

We do not live in a world of infinite resources, nor do we live in a world where things are stagnant. If a company is reliant on a resource or a pool of customers that won't be there in 10 years or 20 years, that's not a sustainable stock.

More often than not, this is one of the most pressing things to consider before purchasing stock for long term investment. However, most people never really think about the big picture until the stock price starts to reflect a company's inability to stay current.

Make no mistake about it; investors have a huge impact on how ethically a company behaves. If you are what we call a "conscientious investor," you like to have your money make a statement about the kind of world you want to see.

If you want to see a change in the way the world works, one of the most important things to consider before buying a stock is what the company's code of ethics is like. Apps like Motif allow you to invest in stocks and funds that speak about your own personal beliefs.

Does the company have serious problems they need to address?

You should never invest in a company that's got serious foundational problems, primarily because it's a sign you're okay with losing money. Companies that are dysfunctional will typically fold up and get bankrupt within a matter of years.

Though it sounds obvious, you really don't want to invest in a company that has serious issues they need to correct. Most companies will not be able to fix major problems once they start. It's sad, but true.

If you want to profit, you'll look for promising companies that are on an upward trajectory.

Dividends are small payouts that companies give to individuals who invest in them. Usually, they're paid out annually, bi-annually, or quarterly. This sounds like a small detail, but it's a huge perk that often goes unnoticed.

Among major traders, finding stocks that have dividends is one of the bigger things to consider before purchasing stock in any company. It's a way to guarantee that you will, at the very least, see *some* money back even if the stock isn't doing well.

Some refuse to spend money on stocks unless a dividend is involved in it. That's not a bad idea. Apps like Stockpile allow you to find stocks by dividend yield, if you're inclined to choose that route.

What's the point where you would sell off your shares? Or where the price would be too high to be worth it?

You should always keep these two things to consider when purchasing stock in the back of your mind. Knowing these two things will show you the way your investment plan will play out.

Knowing when you would feel like you need to start selling to avoid full loss before you buy the stock is the key to reducing panic selling. Knowing when you'd be willing to sell because you've made enough profit also allows you to maximize profits. After all, it's not like timing the market ever really works.

If you're totally new to investing and don't have much time to learn about the stock market, then one of the smarter things to consider before purchasing stock is whether you should just let someone else do it.

People who panic-sell or just don't really want to take time to do the work to learn about stocks shouldn't try to do it. In this case, a robotic advisor like the Betterment app will probably be a good option to consider.

Finally, is the stock price worth it?

You should never buy a stock just to hope that the price will continue to move up. It might not. One of the most important things to consider before purchasing a stock is whether or not the stock really is worth what people are paying for it.

If a company is ailing and shutting down stores left and right, you might not want to invest in its premium-priced stock. On the other hand, a great company at a lower stock price? Absolutely worth it.


About the Creator

Riley Raul Reese

Riley Reese is comic book fanatic who loves anything that has to do with science-fiction, anime, action movies, and Monster Energy drink.

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