What to Do When the Stock Market Crashes

Stock market crashes have happened several times throughout history, and crashes in the future are all but guaranteed. These sharp declines in share prices are a scary concept for most investors.

The good news is that although market downturns can be painful, thoughtful planning and execution of investments — even during these times — can yield positive results.

What Is a Stock Market Crash?

Market crashes and market corrections are often viewed as the same thing, but in reality, they’re very different, and that difference is important to understand when planning your moves. Market corrections are periods of downward movement of 10% or greater that happen over a series of days, weeks, months, or even longer.

Market crashes, on the other hand, are rapid, widespread declines in stock prices, marked by high volatility. While there is no official percentage decline that defines a crash, the declines are painful and dramatic — often 30% or more.

Market crashes generally take place when signs of a bear market are on the horizon, there’s a general feeling of overvaluation in equities, and economic conditions are questionable or in all-out financial crises. At these points, panic selling hits the market, and major indexes like the S&P 500 and the Dow Jones Industrial Average take dives.

Crashes were seen during the Great Depression and the bursting of the real estate bubble, but that’s in the general sense. Market crashes can also come out of nowhere, as was the case on Black Monday, October 19, 1987, when the U.S. market took the biggest single-day hit in history, and it happened out of nowhere.


What to Do if the Stock Market Crashes

While there’s no way to accurately time when the next stock market crash will be, there are some troubling warning signs for 2021 or 2022.

What should you do the next time Wall Street seems to go into an all-out panic? Follow the eight steps below:

1. Keep Your Cool

The first thing to remember when the floor falls out of the stock market is that it’s important to keep your cool. Emotion is the enemy of the investor, and emotional decisions can lead to significant losses far beyond what you should have to accept.

History tells us that market crashes are, for the most part, short-term movements that happen over the course of days, weeks, or months — or in severe crashes, maybe a year. Once the market reaches what investors perceive to be the bottom, stock prices begin to rebound, often leading to a long, drawn-out recovery filled with opportunity.

Some of the best examples of this are:

  • COVID-19 Crash. The coronavirus pandemic led to sharp declines from February through March of 2020, but by the end of March, prices were already beginning to rebound. Investors who stayed the course enjoyed a swift, V-shaped recovery, and the S&P 500 began recording all-time highs again by August 2020.
  • The Great Recession. The Great Recession was one of the worst market crashes in history. However, even during this drawn-out stock market crash, prices only declined for about six months, from August 2008 to March 2009. The bottom in 2009 was followed by the longest bull market in history, which spanned more than a decade.
  • Black Monday. The Black Monday stock market crash led to the worst single-day losses in U.S. stock market history, but stock prices reached the bottom in less than a month.

The fact of the matter is that the market is known for upward and downward fluctuations, and some are better or worse than others. Seasoned long-term investors have learned to ignore these fluctuations because longer periods of bull market activity more than make up for the declines in the vast majority of cases.

That means a market crash isn’t a time to panic — it’s a time to think strategically.

2. Don’t Run From Opportunity

It may seem counterintuitive, but a market crash is one of the best times to find long-term opportunities in the market. Stock market declines will happen, but as the great value investor Warren Buffett would point out to you, it’s best to buy when the market is fearful and sell when the market is greedy. That’s the basis of Buffett’s favorite investment strategy, value investing.

There are tons of investment strategies to use during bear markets. Rather than turning and running from the market, pay close attention to what’s going on within it. When opportunity comes knocking, be ready to answer the door.

3. Assess Your Asset Allocation Strategy

One of the reasons long-term investors don’t fret about a market crash is because when they put their portfolios together, they do so following an asset allocation strategy based on their risk tolerance.

Asset allocation strategies outline how much of your investment portfolio should be invested in asset classes like stocks, mutual funds, index funds, and exchange-traded funds (ETFs) and how much of your portfolio value should be nested in safer assets like bonds and other fixed-income securities.

When the market is crashing, it’s the perfect time to assess your allocation strategy and determine whether it falls in line with your risk tolerance. If your portfolio isn’t quite as protected as you thought it was, it’s time to mix it up and bring more fixed-income investments into the picture. On the other hand, if your portfolio is too conservative, consider looking for opportunities to add undervalued stocks to your portfolio.

If you haven’t paid attention to asset allocation at all, it’s time to start. A great way to adjust your allocation for the first time is to use your age as a guide.

For example, if you’re 25 years old, consider investing 25% of your portfolio in low-risk fixed income securities and the remaining 75% in stocks and similar vehicles. As you age, more of your portfolio should be allocated to safer investments because you have more time to wait out and recover from declines should they happen when you’re younger.

4. Assess Your Diversification Strategy

You likely grew up hearing the old adage, “don’t put all your eggs in one basket.” This adage is an important one to remember in various aspects of life, including investing. In fact, diversification is key in any long-term investment portfolio.

To diversify means to spread your investing dollars over a variety of investment opportunities. That way if one or more investments falter, gains among other investments in your portfolio limit the impact of the blow.

When the stock market crashes, it’s a great time to assess whether your diversification strategy is working in your favor or against you. When looking at your portfolio, ask yourself the following questions:

Am I Investing Too Much Money Into a Single Asset?

Properly diversified portfolios have 20 or more separate investments, with no more than 5% in any single asset and no more than 5% total in the entire group of high-risk assets like penny stocks and Bitcoin.

If more than 5% of your asset value is invested in any single stock, it’s best to divest your holdings until the 5% cap is reached. You can use the money you gain from the divestment to invest in other opportunities.

Am I Investing Across Sectors?

Investors tend to invest in sectors they’re comfortable with. This is especially true for beginner investors.

However, if all of your investments are in the tech sector, and that sector crashes, you’ll be left with significant losses. A well diversified portfolio includes investments across various sectors, especially those that are not highly correlated with one another.

Am I Mixing In Safe Assets?

Growth stocks tend to be the biggest gainers in bull markets and the biggest losers in market crashes. On the other hand, income investments generate slow, steady growth and tend to hold their ground in bear markets.

Assess your portfolio to see whether your money is diversified between different styles of assets to protect you during rough times.

5. Look for Undervalued Opportunities

During a stock market crash, prices fall dramatically — that’s a given. But, as mentioned above, value investors like Warren Buffett will tell you that it’s best to buy when the market is fearful and sell when the market is greedy, and for good reason.

When buying during or shortly after a crash, you’ll enjoy lower prices than you would when the bulls are running on Wall Street. Considering that investing, at its core, is about buying low and selling high, a crash is the best time to buy, but it’s important not to go crazy and start buying everything you see.

Instead, make a calculated effort to find the stocks that are enjoying the largest undervaluations, as they will become the stocks with the biggest potential for gains when the crash is over.

Finding undervalued stocks is as simple as paying close attention to value metrics like the price-to-earnings (P/E) ratio or the price-to-book-value ratio.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.

6. Practice Dollar-Cost Averaging

Dollar-cost averaging is the process of spreading large investments out equally over a period of time. For example, if you wanted to buy $5,000 worth of ABC stock, you could decide to make five investments of $1,000 in ABC every day, week, or month.

Spacing out your investments following a crash protects you from sharp declines should the crash not yet be over.

Let’s say you decided to make five $1,000 weekly investments in ABC, which traded at $20 per share on week one, $15 per share on week two, $17.50 per share on week three, $20 per share on week four, and $15 per share on week five.

In this case, your $1,000 each week would purchase 50 shares, 66 shares, 57 shares, 50 shares, and 66 shares on weeks one through five, respectively. At the end of the five week run, you would end up with 289 shares of ABC stock.

If you had invested all $5,000 in ABC shares on the first week, you would have purchased 250 shares. By dollar-cost-averaging, you ended up with 39 additional shares for your money.

Looking at this example from a gain/loss perspective, either investment would have declined because ABC stock dropped from $20 per share at the beginning to $15 per share at the end. But the $5,000 one-time investment would be worth $3,750 at the end of the five-week period, while the separate investments would be worth $4,335, giving you less ground to make up when the market starts to rebound.

7. Rebalance When the Storm Passes

Volatility is commonplace during crashes. Wide fluctuations in value will ultimately throw your portfolio’s balance out of whack as some asset prices change more than others. Once prices start to rebound, it’s time to rebalance your portfolio and make sure it still aligns with your investment strategy.

Rebalancing a portfolio is a relatively simple process. Start by making a note of what percentage of your investment dollars are invested in stocks and similar assets and what percentage of your portfolio is invested in fixed-income investments. Doing so will let you know if your allocation is still in line.

Next, look at each individual investment and determine what percentage of your overall portfolio value is invested in each one. If those percentages are higher than you’d like them to be, divest the assets until your allocation has reached a comfortable level. Use the money you’ve divested from these investments to buy other assets that are underallocated according to your strategy.

8. Consider Hiring a Financial Advisor

Most people have a drive to do what they can for themselves, avoiding costs associated with hiring professionals. However, showing up to the stock market during a market crash without knowledge of the inner workings of the system or without a financial expert is like showing up to court without an attorney.

There’s no harm in seeking professional help when you’re not sure about something, especially when that something is your hard-earned money. If you’re still nervous about investing during a crash after reading this guide, it’s wise to seek the assistance of an expert. SmartAsset has a service that helps you locate fiduciary advisors in your area or you could use a service like Vanguard Personal Adviser Services.


Final Word

Stock market crashes will happen from time to time; it’s the nature of the beast. However, by keeping your cool, adjusting your allocation and diversification strategies, and making wise decisions, these market declines can prove to be major opportunities.

As is always the case, whether the bulls or bears are running, it’s important to do your research and get a thorough understanding of what you’re investing in prior to making any investment decisions.

Source: moneycrashers.com

What Are Closed-End vs Open-End Mutual Funds – 5 Key Differences

Mutual funds gained popularity among the investing public in the 1980s and 1990s. They began as a way for large institutional investors to pool their money for a common purpose and spread the risk of losses inside a mutually-owned fund, hence the name mutual fund.

Today, mutual funds are a staple of most everyday Americans’ nest eggs and are considered a good way to diversify your retirement plan.

What you may not be aware of is that there are various types of mutual funds. The two main ones are open-end and closed-end. Understanding the differences between them can help you broaden and strengthen your investment portfolio asset allocation based on your investment risk tolerance.

What Are Open-End Mutual Funds?

Like all funds, open-end mutual funds — open-ended funds or OEFs — pool investments from a group of individual investors. The investment company, made up of a fund manager, professional traders, and analysts, will then invest the money pooled from the group of investors according to the prospectus for the fund.

Open-end funds are unique because they don’t have restrictions on the number of shares they can issue to new investors. Instead, when investors want in, these funds simply issue new shares and accept the investment directly.

There is a caveat.

These funds must buy shares back from investors who wish to exit their investment. As a result, the value of each share of these funds is based on the net asset value (NAV) of the fund, or the value of the fund’s assets, rather than on how much investors are willing to pay for it.


What Are Closed-End Mutual Funds?

Closed-end funds, also known as closed-ended funds or CEFs, and open-ended funds appear to be the same type of investment in many ways. They are built on the idea of diversification, pool investment dollars from a large group of individual investors, and are generally managed by a team of Wall Street pros.

But, when you dial into the details, you’ll find that OEFS and CEFS are actually quite different.

Closed-end funds trade on stock market exchanges, so buying and selling shares of these funds takes place in the same way that buying and selling shares of stock does.

Like any publicly traded company, closed-end funds have a fixed number of shares and can’t simply issue new shares because there’s demand. Moreover, closed-end funds don’t repurchase their own shares when an investor wants to exit his position.

From the date of its initial public offering (IPO), closed-end mutual funds trade just like stock for all intents and purposes.


Key Features

When deciding which type of fund is the best fit for your portfolio, there are several factors that need to be taken into account, with your financial goals being foremost.

It’s important to think about your time horizon, how your investing dollars will be used to achieve growth, and what factors play a role in the pricing of these assets.

1. Liquidity

Liquidity describes the amount of time it will take to turn an investment back into cash by selling it to another investor or back to the issuer.

If you’re looking to make short-term investments or think you may need access to your investing dollars from time to time, you’ll benefit from the ability to quickly turn your investments into cash.

If you have a long time horizon and use a buy-and-hold strategy, liquidity may be less of a concern for you.

Open-End Fund Liquidity

Open-end mutual funds are generally liquid assets because fund managers are required to hold a percentage of the fund’s assets in cash for any investors who want to redeem their investments.

As a result, if you want to exit an open-end investment, you’ll be able to do so at the end of each trading day by selling your shares back to the fund management company that issued them to begin with.

Closed-End Fund Liquidity

Closed-end funds aren’t always able to be redeemed at the end of the day. These are exchange-traded funds (ETFs) that are at the mercy of the levels of supply and demand among investors.

When a closed-end fund launches its IPO, it puts a prespecified number of shares up for sale, and it generally doesn’t issue new shares or redeem old shares. Instead, in order for one investor to sell a position in these funds, another investor needs to be willing to buy it.

If there are no buyers wanting into the fund when you’re ready to sell your shares, you won’t be able to sell. Instead, you’ll be forced to hold until a buyer comes along.

As a result, these funds have the potential to be less liquid than their open-end counterparts, especially if you invest in a smaller fund with low levels of trading volume.

2. Pricing

When investing, whether it be in stocks or investment-grade funds, share price is an important factor. After all, you don’t want to overpay and lose the opportunity to generate meaningful gains.

When it comes to closed-end and open-end mutual funds, it’s important to understand how prices are set for these investments and what that means for you if you have them in your portfolio.

Open-End Fund Pricing

The price per share of an open-end fund is based on its NAV at the end of each trading day. After the markets close, the fund’s NAV is divided by the total number of outstanding shares to get the share price of the fund.

For example, if a fund has a NAV of $100 million and there are currently 1 million shares issued, the price for each share will be $100 ($100 million divided by 1 million shares).

As a result of this pricing structure, open-end investments are known to experience lower levels of volatility, making them a safer investment when compared to closed-end opportunities.

Closed-End Fund Pricing

The pricing of closed-end investments works quite differently because they are exchange-traded assets. As with any other asset traded on stock market exchanges, the market price of these funds is determined by the law of supply and demand.

Supply is created by investors who want to sell shares of the fund, while demand is created by those who want to buy shares.

If the buying pressure outweighs the selling pressure, the law of supply and demand stipulates that the price of the asset must rise to curb demand. If supply outweighs demand, prices must fall to increase demand and create a balance.

Although the way closed-end investments are priced creates volatility and increased risk, it also creates opportunity.

There may be several reasons that supply outpaces demand. Sometimes it’s as simple as investors being unaware that the opportunity exists. In these cases, the price of shares of a closed-end fund can actually fall below its NAV — the value of the underlying assets it owns — meaning you’ll have the opportunity to buy in at a discount.

As a result, closed-end funds make it possible to boost capital appreciation by taking a value investing approach to mutual funds.

3. Capital Structure

The distribution of debt and equity within a publicly traded asset is known as its capital structure. One of the most important factors in this structure is how many shares are outstanding, which can either be a fixed or floating number, depending on the type of fund you invest in.

Open-End Fund Capital Structure

Open-end investments have no restrictions on the number of new shares that can be issued if a new investor or group of investors want to get involved. This means the number of outstanding shares will change on a daily basis as new investors purchase shares and prior investors redeem their shares.

This can create a challenge for fund managers that ultimately increases risk. If a fund becomes too large, the fund manager may decide the total assets have grown too unwieldy to make it possible to meet the fund’s objectives. This can result in the manager closing the fund to newcomers, leading to potentially lower prices and slower growth in the fund.

A fund growing too large can also increase the risk for investors if it means the team managing the investments may be stretched to their limits and more prone to mistakes.

Closed-End Fund Capital Structure

Closed-end investments trade on the open market with a specific number of shares available. Their capital structure is much easier to understand. Moreover, even as demand grows, the net asset value of the fund will remain manageable for the team at the helm.

On the other hand, the downside to this capital structure is that if demand for a fund is high, you’ll have to overpay in relation to the fund’s NAV in order to get involved in the investment.

4. Access

When deciding if you’ll invest in an open-end or closed-end investment, it’s also important to consider the accessibility of the investment. In some cases, funds can come with exorbitant minimum investments, resulting in less accessibility for everyday investors.

Buying and Selling Open-End Funds

The price of open-end shares is set by the fund manager at the end of the day, and you’ll often be required to meet minimum investment amounts to get involved.

Minimum investment amounts generally range from $500 to $5,000, with funds at the higher end of the spectrum being less accessible for new investors with relatively small investment portfolios.

Buying and Selling Closed-End Funds

Closed-end investments are priced based on supply and demand, with the minimum investment amount being no more than the cost of a single share of the fund.

The vast majority of these funds are priced from $10 per share to a couple of hundred dollars per share, making them far more accessible to newer investors with limited capital available.

5. Exposure

When you make an investment, you want 100% of your money to be put to work for you, exposed to the potential gains — or losses for that matter.

However, depending on which type of mutual fund you choose, the money you invest may not be 100% exposed to the assets you’re investing in.

Open-End Fund Investing Capital Exposure

To exit a position in an open-end fund, investors sell their shares back to the issuer. This means the company managing the fund has to hold a percentage of the fund’s assets in cash to the side so that it can afford to purchase shares back when an investor decides to exit their investment.

That cash set aside for redemptions can’t be put to work in the market.

Therefore, when investing in open-end mutual funds, a percentage of your investment will not be exposed to the underlying assets outlined in the fund’s prospectus, limiting your profitability.

Closed-End Fund Investing Capital Exposure

Closed-end investments provide 100% exposure to the underlying assets. That’s because these shares are bought and sold in the open market in transactions between investors, not between the issuer and investors.

Because there is no requirement for the issuer to buy shares back from the investing public, 100% of your investment dollars can be invested based on the objectives of the fund.


The Verdict: Should You Choose Open-End or Closed-End Funds?

Deciding whether you’ll invest in an open-end or closed-end fund is a decision that requires a bit of thought.

How comfortable are you with risk? Are you going to need access to your funds quickly? Do you find solace in being able to access those funds or would you rather enjoy a potential discount when you purchase shares?

You Should Invest in Open-End Assets If…

Consider open-end funds if you prefer investments that have high liquidity and, although growth may be slower, you’re more interested in assets that lack volatility. OEFs may be best for you if:

  • You Have a Shorter Time Horizon. If you aren’t planning on investing for the long haul or may need access to your investing dollars from time to time, open-end investments offer the perfect solution. They are generally redeemable at the end of each trading day, meaning you’ll have access to your money when you need it.
  • You Have Enough Capital to Get Started. Fund managers set minimum investment amounts for open-end funds ranging from $500 to $5,000. Investors in these funds need to have enough money to cover these minimum capital requirements.
  • You’re Risk-Averse. Volatility is exciting for some investors because it offers the opportunity for large gains over a short period of time. On the other hand, it also has a dark side because it increases the risk of sudden, significant losses. Investors with a relatively low appetite for risk will benefit from investing in open-end opportunities because they tend to experience far less volatility than their closed-end counterparts.

You Should Invest in Closed-End Assets If…

Consider closed-end funds if you enjoy doing the research to find undervalued opportunities and sitting on them until their values climb to more realistic levels. You might be a good fit for closed-end funds if you don’t mind moderate levels of risk in exchange for the potential to expand your gains.

Closed-end funds are best if:

  • You Enjoy Volatility. Although fast-paced fluctuations in the price of an asset will result in risk, it also gives you the opportunity to take advantage of discounts when funds are undervalued and cash in on big gains when investors push the values of the funds too high.
  • You Invest With a Long Time Horizon. Closed-end assets are riskier than open-end assets, which is fine for those with a long time horizon. The longer you plan on staying invested, the longer you have to make up for declines should something go wrong.
  • You Aren’t Worried About Liquidity. Closed-end assets are only able to be sold when another investor is interested in purchasing them. If there’s no buyer, you’ll be stuck in the investment until one comes along, making closed-end funds — especially lesser-known funds that are thinly traded — less liquid.
  • You Don’t Have a Large Portfolio. While open-end assets generally come with high minimum investment amounts, closed-end assets only require you to invest as much as a single share of the fund costs, which is often minimal. This makes closed-end funds well-suited for investors with relatively small portfolios.

Both Are Great If…

Some investors own a mix of the two types of mutual funds. These investors usually have relatively large investing portfolios and want access to the potentially market-beating returns of closed-end funds while hedging those bets with the safer open-end funds.

You might consider a mix of the two types if:

  • You Have a Mild Tolerance for Risk. If you want to get your hands on the increased profitability offered by the higher volatility closed-end funds, but aren’t willing to take this higher level of risk across your portfolio, a mix of both closed- and open-end funds will provide balance.
  • You Have a Relatively Large Investing Portfolio. In order to mix closed-end and open-end funds within your portfolio, you’ll have to have enough capital to do so. In general, you’ll need a portfolio with a minimum of $10,000 to properly diversify between the two.
  • You Want Some Liquidity. Say you believe you might need fast access to your money in some cases, but chances are you won’t need to access it all at once. In this case, open-end opportunities can make up the most liquid portion of your portfolio, while the rest of your portfolio can be invested in closed-end assets with a higher earnings potential.

Final Word

By now, you should have everything you need to decide whether an open-end mutual fund, closed-end mutual fund, or a mix of the two is best for your investing portfolio. Now, it’s time to act.

Keep in mind that mutual funds are each unique, offering different rates of return, expense ratios, and investment strategies. As a result, it’s important to do your due diligence by researching every investment opportunity prior to investing your hard-earned money.

Source: moneycrashers.com

13 Good Side Hustles From Home You Can Start This Weekend

If you’re looking to increase your income and you’re ready to take action, the side hustles covered in this article could all be started this weekend.

Some side hustles allow you to start making money immediately and others involve building a business with excellent long-term income potential.

Regardless of your situation, you’re sure to find something that’s a good fit for you.

Good side hustles from home

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make an extra $500 per month, and that’s realistic with a blog.

The downside to blogging is that you’ll need some patience. Growing a blog from scratch takes time, and most bloggers make very little money in the first 6-12 months. However, once you’ve gained some momentum, it’s a great way to make money online. 

Why You Might Want to Start a Blog:

  • Unlimited income potential.
  • Flexibility to work around your existing schedule.
  • You can start a blog on the topic of your choice.
  • Potential to make money on your own without the need for client services.
  • Easy and inexpensive to start.

How to Get Started

The first step is to decide what you’re going to blog about. While you don’t need to be passionate about the topic of your blog, it helps if you at least have some interest in the subject. Working on the blog will be a lot more fun if it’s something you enjoy.

Next, you’ll need to sign up for a web hosting account to get your blog set up. I recommend Bluehost for new bloggers because their prices are among the lowest in the industry, and it’s straightforward to get set up. The article How to Make Money Blogging as a Side Hustle is a great guide you can follow.

2. Start a YouTube Channel

Starting a YouTube channel is another enticing option that offers many of the same benefits as blogging. It’s a flexible opportunity that offers significant income potential. The difference is, you’ll be creating content in video format instead of written format. If you enjoy being on camera more than you enjoy writing, YouTube may be a better opportunity than blogging for you.

The highest-earning YouTubers are making tens of millions of dollars per year, and the numbers keep growing each year. As the amount of video content consumed by the average person continues to increase, the earning potential for YouTubers will also increase.

Like starting a blog, growing your YouTube channel will take time, and you aren’t likely to start making money right away. The most common way to monetize a YouTube channel is through the YouTube Partner Program, which allows you to make money from ads on your videos. You’ll need at least 1,000 subscribers and 4,000 watch hours to be eligible for the program. Those numbers may seem high, but many active YouTube channels can reach that level within a few months.

Why You Might Want to Start a YouTube Channel:

  • Unlimited income potential.
  • Surging demand for video content.
  • Less competition than blogging.
  • Can be a lot of fun.

How to Get Started

YouTube for Beginners is a course from Skillshare that was created by an experienced and successful YouTuber. It teaches everything you need to know to start and grow your channel.

3. Online Surveys

The first two options I’ve mentioned offer excellent long-term income potential but will take some time before you start making money. Taking online surveys is the exact opposite. You’re not going to get rich by taking surveys, but this is a highly flexible side hustle, and you can start making money immediately.

If you’re looking to make an extra $100 per month, or maybe a few hundred dollars per month, taking surveys could be a good option. There are several survey websites and money making apps you can use to start making money right away. Some of the best choices include:

Surveys are appealing because anyone can do this side hustle. You don’t need any particular skills or experience to make money in your spare time.

Why You Might Want to Take Online Surveys:

  • Extreme flexibility: take surveys whenever you have a few minutes to spare.
  • Anyone can do it. No specific skills or experience required.
  • Start making money right away.
  • Sites like Swagbucks offer lots of ways to make money in addition to surveys.

How to Get Started

Getting started is quick and easy. Create a free account at the top sites like Swagbucks and Survey Junkie, complete your profile, and begin taking surveys. Each site will have different rules regarding the amount of money or points you need to earn before withdrawing the cash or redeeming points. Swagbucks allows you to redeem points as soon as you have enough for a $3 gift card, making it one of the best options.

4. Flea Market Flipping

Good side hustles from home - flea market flipper

If you enjoy finding amazing deals at yard sales, flea markets, auctions, estate sales, or thrift stores, becoming a flipper could be the right choice for you. This side hustle involves buying underpriced items and reselling them for a profit.

Finding valuable items at places like yard sales and flea markets is pretty easy with a little effort. Many people are simply looking to get rid of their stuff, and you can find some great deals. Most flippers resell the items online through eBay, the Facebook Marketplace, Craigslist, or other similar sites and apps. 

Flipping is a flexible side hustle you can do whenever you have the time or need to make some extra money. It’s also possible to start earning a profit very quickly.

Why You Might Want to Become a Flipper:

  • Can be fun if you enjoy finding great deals.
  • Good income potential.
  • You can learn the skills quickly.
  • Great fit for people who don’t want to spend all of their time online.

How to Get Started

To get started, all you need to do is head out to some yard sales or flea markets this weekend and look for underpriced items to buy. It’s best to start with products that you know well. With a little bit of experience, you’ll get more familiar and more comfortable with a broader range of products. See this list of the easiest things to flip for profit as a guide for getting started.

5. Furniture Flipping

Most of the items you buy at yard sales or flea markets to flip will involve minimal work to get them ready to sell. You might clean up an item or make minor repairs, but in most cases, you’ll be making money primarily by finding things that are worth more than they’re selling for. 

Flipping furniture is different because it requires putting in several hours of work to restore the item before selling it. The idea is to find a low-priced (or free) piece of furniture that has the potential to be much more valuable if it is restored or refinished. Solid wood furniture is ideal because you can increase the value simply by painting or staining it. Upholstered furniture can be reupholstered for a completely new look, increasing the value relatively quickly.

If you enjoy working with your hands and turning something old and unwanted into something valuable, this could be the perfect opportunity for you. Learning how to repair or restore furniture is not that difficult, and there are plenty of YouTube videos that will teach you for free.

You can find items to flip at yard sales or drive around and look at pieces out for the trash. Once your item is ready to sell, the Facebook Marketplace and Craigslist are ideal for reaching people in your local area.

Why You Might Want to Flip Furniture:

  • Work whenever you have time or whenever you need money.
  • High demand for restored furniture.
  • Anyone can learn the skills.
  • Start making money quickly.

How to Get Started

To get started, you’ll need to find your first piece to flip. Take a look around your home or apartment, and you may already have an ideal item. Working on a piece of furniture you already own is a perfect way to start. It means that you won’t have to spend any money buying an item, and it gives you a chance to make a profit quickly. If you don’t have anything, head to some yard sales this weekend and see what you can find.

6. Investing

Over the past year, investing as a side hustle has become increasingly popular. Stories of part-time investors making huge sums of money have been in the news a lot. Of course, the stock market’s trajectory over the past year made that more manageable, but this is a side hustle you might want to consider if you enjoy personal finance and investing.

It’s critical to remember that investing comes with risk, and you shouldn’t invest money that you can’t afford to lose. However, there’s also a substantial upside if you have success with it.

Platforms and apps that are ideal for new traders include:

Of course, investing in the stock market isn’t the only option. You could also invest more passively in real estate or other types of alternative investments. Some platforms you might want to consider include:

You can also find plenty of alternative investment options here.

Why You Might Want to Start Investing:

  • Excellent long-term potential.
  • Opportunity for exponential growth.
  • Valuable skills to learn.

How to Get Started

To get started, decide which type of investing you want to do. This beginner’s guide is a good resource for anyone who wants to get started with the stock market.

7. Photography

Good side hustles from home - photographer

Are you a hobbyist photographer? Would you like to start making money from that hobby? 

There are several different ways to make money with photography, but we’ll look at two great options for getting started as a side hustle: client photo sessions and stock photography.

No matter where you live, there are people in your local area looking for a photographer. You could take photos of families, engaged couples, high school seniors, sports teams, and much more. 

Making some part-time money by offering photography services is relatively easy. Scaling it to a full-time income is much more challenging. If you’re looking for a way to make a few hundred dollars per month on the side and you have some photography skills, consider offering your services to others.

Another option is to upload your photos to stock photo websites like Adobe Stock, Shutterstock, and many others. You’ll be able to earn money every time a customer downloads one of your photos.

The stock photography market is highly competitive, so it’s not easy to make a considerable amount of money. But if you’re looking for a way to make a few hundred dollars per month, it’s very realistic. To have success, you’ll need to upload many photos and keep taking and uploading new pictures all the time. 

Why You Might Want to Become a Photographer:

  • Monetize your existing hobby.
  • Variety of ways to make money.
  • Potential to grow into a full-time business.

How to Get Started

Choose whether you want to offer services to clients or upload your photos to stock marketplaces (or both).

For client work, the best way to get started is with friends and family. Talk to everyone you know and offer a low price to begin to get some business. With a little bit of experience, you’ll get to build up your portfolio and benefit from word-of-mouth advertising.

To get started with stock photography, choose a platform you want to use. Ultimately, you’ll want to upload your photos to several different sites to maximize your income potential, but it can be helpful to start with just one, so it’s not overwhelming. Each stock photo site will have an application process to become a contributor. You’ll probably need to upload some samples, so get ten of your best photos ready to go.

8. Freelancing

You can offer many different services as a freelancer, including writing, editing, proofreading, web or graphic design, coding and development, marketing, and more.

Freelancing is a great way to make money because you can use the skills you already have to start making money quickly. You’ve probably developed some skills at a previous job (or maybe your current job), or even through a hobby.

The income potential with most freelance services is also outstanding, making it ideal for growing to a full-time income if that’s something you want to pursue.

Why You Might Want to Start Freelancing:

  • Lots of possibilities and many services you could offer.
  • Monetize the skills and experience you already have.
  • Excellent income potential.
  • Flexible working hours.

How to Get Started

My article How to Make Money Online for Beginners covers the steps to follow if you want to start as a freelancer.

9. Virtual Assistant

Working as a virtual assistant or VA is one of the best opportunities available in 2021. Many businesses are looking to outsource more work, and as a VA, there are numerous different services you could offer.

Many VAs do things like general administrative tasks, blog editing, moderate forums or Facebook groups, management of social media profiles, and much more.

Working as a VA is a very flexible side hustle that fits around your existing schedule. It’s something you could do part-time or work on growing your client base and turn it into a full-time business.

Why You Might Want to Become a VA:

  • High demand for talented and reliable VAs.
  • Work as much or as little as you want.
  • Monetize your existing skills.
  • Good income potential.

How to Get Started

Gina Horkey’s Fully-Booked VA is an excellent resource for anyone who wants to make money as a virtual assistant. There’s training for all aspects of running your business, and you’ll be able to learn from an experienced and successful VA.

10. Self-Published Author

Good side hustles from home - self-published author

If you like to write, you might want to consider becoming a self-published author as a way to make some extra money. With print-on-demand platforms like Amazon’s Kindle Direct Publishing (KDP), becoming an author has never been easier. There’s no need to send your writing to a bunch of publishers hoping to hear back.

Through KDP, you can sell e-books and paperbacks without the need to spend any money on inventory. The paperbacks are printed as they’re purchased, and Amazon handles all of those details.

You can write whatever type of book interests you, covering any topic or genre you choose. You probably already have some experience you could use to write a book that others would buy.

Why You Might Want to Become a Self-Published Author:

  • Make money doing something you enjoy.
  • Making money as an author has never been more realistic.
  • Completely flexible. Work whenever you want.
  • Potential for passive income.

How to Get Started

From First Draft to Bestseller is a detailed and thorough course that teaches how to make money as a self-published author.

11. Sell on Etsy

If you’re crafty, you might enjoy selling on Etsy. You could sell handmade or vintage items, or even design and sell digital products like printables. 

Selling on Etsy is a side hustle that may take some time to become profitable because you’ll need to work on getting exposure and growing your shop. The long-term potential is solid, but you’ll probably need to put in a lot of work early on. 

Why You Might Want to Start an Etsy Shop:

  • Monetize your crafty hobby.
  • Work around your existing schedule.
  • Excellent income potential.

How to Get Started

The course Building an Etsy Shop That Sells is an excellent starting point. Beginners will learn all of the necessary details related to getting started on Etsy.

12. Microtasks

The opportunity to make money with microtasks is very similar to taking online surveys. You’re not going to make a lot of money per hour, but what it lacks in income potential, it makes up in terms of flexibility.

Several websites like Amazon’s Mechanical Turk and Clickworker pay people to do small, simple tasks that take no more than a few minutes. Some survey websites like Swagbucks also offer a variety of tasks you can do for money or rewards. 

You can work on microtasks whenever you have some spare time, as much or as little as you want. And like surveys, anyone can do the work. You don’t need skills or experience, aside from fundamental computer skills.

Why You Might Want to Do Microtasks:

  • Extreme flexibility. Work whenever you want, as much or as little as you want.
  • Anyone can do it. No skills or experience needed.
  • Start making money right away.

How to Get Started

To get started, create a profile at a microtasking site like MTurk or Clickworker. The signup process is easy, and you’ll be able to start completing tasks very quickly.

13. Rental Business

One of the more overlooked side hustles involves renting out your stuff. There are many different things you could rent, including:

  • Tools
  • Baby gear
  • Car, truck, or bike
  • RV
  • Storage space 
  • Room or unit in your home
  • Parking space

With a rental business, you’ll be making money because of your assets, not because of the amount of time you’re working. If you have things that people are willing to pay to use, you might be able to make a decent amount of money on the side without working many hours.

Why You Might Want to Start a Rental Business:

  • Turn things you’re not using into income-generating assets.
  • Make money from your assets, not trading your time for money.
  • Lots of different things you could rent out.

How to Get Started

Take a look at the things you already have. Try to find anything that might have value that you’d be willing to rent out. You can use a website like Fat Llama to list just about anything for rent or use a specialized platform like RVshare to rent out a specific type of item. Use Airbnb to rent a room or vacation home.

Final Thoughts

If you’re interested in making some extra money outside of a job, why not take action right away? This article covers 13 good side hustles you could start this weekend, and most of them involve minimal startup costs or no cost at all.

Pick one that seems like a good fit for you and commit to taking action this weekend!

good side hustles from home to make extra money

13 Good Side Hustles From Home You Can Start This Weekend13 Good Side Hustles From Home You Can Start This Weekend

Source: biblemoneymatters.com

Health Care Stocks – What They Are & Why You Should Invest in Them

Everyone has experience with the health care industry. When you get sick, you buy medicine. If a sickness or injury is bad enough, you go to the doctor; if it is dire, you may call an ambulance to bring you to the hospital. All of these products and services live within the health care industry.

Because everyone has a need for quality health care products and services, the market is an absolutely massive one. According to Policy Advice, the global health care market could grow to be worth more than $10 trillion annually by the year 2022.

Any time a market is so massive, there’s plenty of room for big companies to make big profits and funnel those profits to investors. So, it’s not surprising to see that so many people want to invest in health care stocks.

But as great as investing in this industry can be, it can also be dangerous. Making the wrong investments in the space, known for wide swings in valuations, will lead to significant losses. So, it’s important that you understand the market and what makes it tick before risking your money in the space.

What Are Health Care Stocks?

Health care stocks represent a diverse group of health care companies. The health care category is an extremely broad one, encompassing a wide range of companies from multiple sectors.

Biotech

All stocks within the biotechnology and pharmaceutical sector are included in the health care category. These companies create, manufacture, and market the medicines we take when we’re sick.

Service

There are also plenty of stocks within the service sector that can also be categorized as part of the health care space. For example, health insurance companies, health care providers, and other companies that provide a medical service are included in the health care industry.

Technology

There are also several technology stocks that fall into the health care category. For example, the companies that create the technologies that make remote doctor’s appointments possible, like Teladoc, operate in the health care space just as much as they operate in the tech space.

Moreover, application and software companies that create health-related mobile phone apps, companies that store medical data in a HIPPA-compliant way, and companies that produce technologies like thermal imaging for use in medical applications are all in the health care category.

Even big tech is getting into health care, with companies like Apple, Amazon.com, and Alphabet all making sizable investments in the space.

Essentially, if the company sells a product or service that has anything to do with keeping people healthy, it’s a health care company. So, the health monitoring features on the Apple Watch make the company a health care company as much as Gilead Sciences’ treatment for hepatitis C makes it one.


Health Care Stocks Pros and Cons

There are plenty of benefits involved in investing in the sector, but there are pros to cons to everything — and health care stocks are no different.

Pros of Health Care Stocks

Investments in health care stocks come with several benefits. Some of the most important to consider when deciding whether to invest in the sector, include:

1. There’s a Wide Range of Opportunities

The health care market is massive, offering a wide range of opportunities across stocks with wide-ranging market caps that live at various different levels of risk. As a result, regardless of your goals when you make investments, you’ll likely find an opportunity or two that fits well in your portfolio.

For example, if you’re looking for a stable growth stock that pays dividends and comes with a relatively low level of risk, you would likely dive into a blue-chip stock like Johnson & Johnson. This stock has a long history of sustained growth and increasing dividends, fitting the bill for exactly what you want.

On the other hand, if you’re willing to take on more risk and want to get in on a company on the ground floor for a potential opportunity to win big in the long run, you may look at Novavax. This company has multiple vaccine candidates under development, some in late stages, and seems to be changing the way we see influenza vaccination while also working on a COVID-19 vaccine candidate.

If you’re somewhere in between and don’t want to take the risk on the ground level, but still want the opportunity for significant gains, you may look at a company like Gilead Sciences.

Gilead Sciences has seen great success with its hepatitis C treatment franchise. With work in COVID-19, HIV, and several other ailments, the company may see similar blockbuster success ahead. In the meantime, revenue and earnings growth generated from the early successes of the company greatly reduces the risk.

As you can see, no matter what your needs are as an investor, there’s a strong chance that a health care stock — or group of stocks — can assist you in meeting your investing goals.

2. The Industry Is Interesting

Successful investors will generally tell you they avoid investments in companies that do things they’re not interested in. There’s a good reason for that. To make money in the market, you have to be willing to do research into the companies that you’re buying pieces of.

If you’re interested in what you’re investing in, you’re more likely to do the research that’s required to make effective investments. Conversely, if you’re not interested in the product produced by a company, there’s a possibility that you will cut the research short, not getting the full story, and therefore, you’re incapable of making an educated investment decision.

The vast majority of children have an interest in science and what makes the human body tick. As you grow older, this interest tends to continue. It’s the reason both the “Bill Nye the Science Guy” and “MythBusters” TV shows were so popular, even though one was geared toward younger audiences and the other toward adults.

Health care and medicine are highly scientific topics. As a result, you’ll likely find the research into these topics more interesting than research surrounding topics like banking, commodities, or other industries that don’t have the “sexy” factor.

3. There’s a Feel-Good Effect

There’s no other way to say it. Investing in health care makes you feel good. When you invest in a health care stock, you’re investing in a company that has improving the lives of others at its core.

The entire sector is centered around making the sick feel better, improving the quality of lives of patients, and extending the length of life. Those are tall orders, and the heroes in the health care field fill those orders every single day. An investment in a health care stock can be as much a philanthropic move as it is a capital one.

In today’s day and age, socially responsible investing is becoming more popular. Investors are just as interested in the problems their investments address as they are in the money the investments can generate for them. The vast majority of health care investments lend a hand to the socially responsible investing trend.


Cons of Health Care Stocks

Although investing in companies in this space can be a lucrative venture and make you feel good in the process, there are also drawbacks to consider. Some of the most important drawbacks include:

1. Exclusivity Doesn’t Last Forever

In the health care sector — especially when it comes to companies that create new medicines and technology — exclusivity is important. When the U.S. Food and Drug Administration (FDA) approves a new drug, the regulatory agency grants an exclusivity period in which the company that receives the approval is the only one that can sell the treatment in the United States.

In general, this exclusivity period lasts for five years. However, for drugs that treat rare conditions or those that treat conditions with no other options on the market, exclusivity periods can be extended to up to seven years.

Once an exclusivity period expires, any other company can sell that therapy under a generic brand name, cutting a deep hole into the revenue generated by the original drug developer.

If a company does not continue to innovate and only has one approved treatment, the scars left by generic competition can be painful for the company and its investors, cutting into earnings growth and potentially leading to losses.

2. Clinical Trials Can Go Wrong

Many companies in the health care industry have an additional hoop to jump through. Before a drug, medical device, or therapeutic agent can make it to market, it needs to be tested in three phases of clinical trials.

Should any of these clinical trials go wrong for a company, its stock may experience a dramatic decline in value. This poses an added risk for investors considering buying companies in the clinical-development stage.

3. There Are Several Risky Plays That Look Good

There are quite a few companies in the health care category that sell a hope and a dream. The problem is that hopes and dreams are easy to buy into. For example, people understand the global health risks posed by AIDS and can get excited about the prospect of eradicating the disease.

Unfortunately, there is still no cure for the condition.

There are several companies out there working on a solution, and every company on the list will claim that they’re onto something big. However, the vast majority of life sciences and biotech companies looking for a solution to this problem are in early development stages.

When news is released that one of these treatments did well in mice, it’s easy to think that the treatment will do well in humans and make it to market. That’s not always the case. Moreover, the road to FDA approval can be a long and costly one, further adding to the risk.

The same can be said for companies creating medical devices or even pioneering new health care services.

As a result, it’s more important than ever for you to do your research to get a full understanding of the company you’re buying into prior to making an investment in health care.


When Should You Invest in Health Care Stocks?

Because there are a wide range of different types of investments available in the health care industry, any time may be a good time to invest in the space. The key here isn’t when to invest in general, but when to invest in which types of stocks in the sector.

Market Rallies and Economic Booms

When economic times are positive and markets are rallying, cyclical health care stocks are the stocks to buy. Cyclical stocks ebb and flow with economic conditions.

Cyclical stocks in the space often work in multiple sectors. For example, according to CNBC, Apple has spent years building internal medical teams. These teams have developed health care software, hardware, and — most recently — health care provider locations.

At the same time, Apple is known for some of the most successful technologies in the world. The company makes the iPhone, iPad, Apple Watch, and several other consumer electronics products, selling billions of dollars worth of its technology every year.

These products are decidedly cyclical. Consumers are more likely to spend thousands of dollars on technology when they are secure in their jobs and have a positive outlook of the U.S. economy. As a result, an investment in Apple, or another company like it, gives you exposure to the health care sector while allowing you to take advantage of positive economic trends.

Economic Declines and Market Crashes

If you are sick, you’re going to go to your health care provider, buy medicine, and do what you can to get well as quickly as possible, regardless of economic conditions. As a result, the vast majority of companies in the health care space are noncyclical investments.

These are the types of stocks you want to get involved in when economic conditions are declining. Getting out of the stocks that have a heavy correlation to the United States economy and getting into more stable-growth stocks like established health insurance, pharmaceutical, and health care service and technology stocks protects your portfolio from significant losses.

These stocks even have the potential to experience gains through economic downturns, making them safe-haven options worth considering.


How Much Should You Invest in Health Care Stocks?

Diversification is an important part of most successful investment portfolios. The idea is that, by investing in a wide range of asset classes, sectors, and stocks across the stock market, you have the ability to avoid significant losses on a single investment or a group of investments in a single sector or asset class.

So, how should you go about diversification when it comes to health care investments?

Consider Your Goals

The vast majority of established companies in the sector are stable-growth companies. Because their products are needed regardless of the time of year, economic conditions, or geopolitical situation, these are the perfect stocks for buy-and-hold investors.

On the other hand, if you’re looking for a strong income investment or a momentum play, the majority of established health care companies aren’t going to be best.

While some companies in the industry pay dividends, the average dividend yield in the industry is just 2.28% according to Dividend.com. That pales in comparison to the 3.2% average dividend yield in the technology sector, the 3.96% average dividend yield in utilities, or the whopping 4.92% average dividend yield in the basic-materials sector.

Also, while established health care companies are known for strong long-term growth, they are not known for momentous growth. Riskier, clinical-stage biotech companies may scratch this itch, but there are far less risky plays with which to take advantage of momentum.

Make Sure You Can Dedicate Enough Time

While the health care industry is generally an enjoyable and entertaining industry to research, there is a drawback. Health care is an incredibly convoluted space. There are quite a few working parts. Not to mention, the highly regulated nature of the health care sector adds a deeper level of research that’s required to understand long-term opportunities.

As a result, if you intend to invest in the health care space, it’s important that you have the time to do the research required to get a solid understanding of just what you’re investing in before you risk your money.

It’s also important to keep tabs on new innovation. Due to short-term exclusivity periods, health care companies — even established ones — must continue to innovate to drive growth in the future. Understanding a company’s product-development pipeline requires even more of a time commitment.

Managing a well-diversified portfolio full of health care stocks could be a full-time job. So, you’ll want to limit your health care allocation to the number of stocks that you have adequate time to research, both in performing initial due diligence and keeping tabs on continued innovation.

One way around the daunting research involved with investing in health care is to consider health care focused exchange-traded funds (ETFs), mutual funds, or potentially Nasdaq Composite Index funds because the Nasdaq is biotech- and tech-heavy.

Follow the 5% Rule

No matter what sector or asset class you’re interested in, the 5% rule is an important guideline to follow, especially for the beginner investor. The rule suggests that no more than 5% of your overall investment portfolio should be used for any single investment. You should also never spend more than 5% of your overall portfolio dollars on combined high-risk investments.

Following this rule, let’s say you are interested in Johnson & Johnson — an established name in health care that’s known for consistent growth — which you believe will continue to provide tremendous opportunity.

Say you have $10,000 in your investment portfolio. Based on the 5% rule, you can invest up to $500 in Johnson & Johnson. Because you believe the stock will continue to produce compelling growth, you decide to invest the entire $500 in the stock.

However, if you have some questions about the company’s ability to continue growing, you may invest $250 to gain exposure but limit risk.

Following the same example, let’s suppose you’re looking at five clinical-stage companies in the early stages of product development that you believe have real potential. Because these are all high-risk opportunities, the rule suggests you could invest $100 into each company, ensuring that the combined total value of these riskier investments would not exceed 5% of the overall value of your portfolio.


Final Word

The health care industry is booming and filled with opportunities for investors. Not only do these stocks have the potential to generate gains within your portfolio, they have an added benefit: the feel-good effect of knowing that the company you’re funding is helping people live healthier lives.

On the other hand, not all stocks are created equal. When investing in the health care sector, be sure to do your due diligence and keep up with the companies you’ve made investments in. Short exclusivity periods and a highly regulated environment create added risks to consider.

Nonetheless, by doing your research, keeping tabs on your investments, and being a generally educated health care investor, the potential rewards are compelling.

Source: moneycrashers.com

24-Hour Listings: What You Need to Know About Buying Sight-Unseen

What You Don’t See Can Hurt You (If You’re Not Careful)

Buying anything sight-unseen is always a risk, but when the “thing” you’re buying is a house, then the risks are about as high as they can get. For starters, the home may have hidden problems that the buyer won’t know about until they see the property in person. For example: the roof could have leaks; the HVAC system may not work; or, there may be an insect infestation.

While a home inspection can help the buyer gain a better idea of what the home’s quality is like, it is in no way a guarantee that there aren’t going to be issues.

Despite this, many home buyers and investors are willing to take on the risks of buying a home sight-unseen. For some buyers, it is just the fact that they live some distance away from the property and they either don’t have the time to visit or need a home quickly because they’re relocating to the area. For an investor, buying a home without seeing it can sometimes wind up being a good move. Of course, investors usually ensure they include contingencies in their contracts to protect their financial investments.

But what can a regular homebuyer do to protect themselves when they’re in the position of having to buy a home without ever seeing it in person? Here are some tips to help ensure the home you’re buying is worth it.

home buying sight unseenhome buying sight unseen

Use a Reputable Agent

The agent you choose to work with will have a big impact on your satisfaction level throughout the process. Therefore, you need to do your research so you can find an agent in the area where you’re looking to buy – one who is experienced, knowledgeable, and well-respected.

Make sure you check their social media pages and online reviews from past clients. You can even ask them for references, preferably recent clients, to contact, so you can learn more about how strongly the agent works for his or her clients.

Take Advantage of Technology

There’s an unfortunate growing trend in the real estate industry in which the photos uploaded for display on online listings are manipulated via Photoshop or other editing software. Rooms are made to look larger then they are. Colors and textures are made more vibrant. Dark rooms can be illuminated by computer-generating artificial lighting effects. Therefore, what the buyer sees online is often not the reality they find when they finally visit the property.

To prevent this misrepresentation, use technology like FaceTime, Google Hangouts, or other video chat programs so your agent can give you a real-time virtual tour of the home. This will help give you a better idea of the size, scope, and quality of the home’s interior, exterior, and property.

home buying sight unseenhome buying sight unseen

Send a Representative to See the Property for You

If you have family or trusted friends living in the area, then you can ask them to visit the property and provide you with their honest take on it. If possible, send someone who knows your tastes, preferences, and DIY skills. The individual can also serve as the liaison between you and your agent.

Get the Home Inspected

A professional home inspection will go a long way toward you determining whether the home is a sound investment or a money pit. While a home inspector won’t be able to tell you if something is about to malfunction, they can let you know about the state of the roof, the HVAC system, the plumbing and electrical systems, and other common concerns. The inspection report will also serve as a strong negotiating tool if the home does have some problems that will need to be fixed before you take ownership.

home buying sight unseenhome buying sight unseen

Always Include Contingencies

When buying a home sight-unseen, you are the only party in the transaction that is taking a risk. Therefore, you need to protect yourself by including contingencies in your contract. This way, you will have more room to deal with any unexpected problems or negative information you uncover while doing your due diligence. In bad situations, a contingency can even help you walk away from your contract without accruing any excess costs or legalities.

Find the Home You Want on Homes.com

Homes.com offers home listings for every city in the United States. So, if you are looking to relocate, we can help you find the home of your dreams in your soon-to-be new city. We can even match you up with a preferred seller’s agent in the area where you’re looking to buy. Give us a try today and see for yourself why so many buyers find their homes with Homes.com.


Carson is a real estate agent based out of Phoenix, Arizona. Carson loves data and market research, and how readily available it is in today’s world. He is passionate about interpreting these insights to help his clients find and buy their perfect home. Carson got into the real estate industry because he loves the feeling of handing over the keys to a new home to happy clients. In his free time, he works on his backyard bonsai garden and spends time with his wife, Julia.

Source: homes.com

How to Determine What You Can Afford for a Car

How much can you afford for a carHow much can you afford for a carYour dream car and the car that you can realistically afford can be two totally different things. If you are paying cash, then your car choice may not be a complicated one. However, if financing is your only option then how to determine what you can afford for a car becomes a crucial undertaking.

Ideally, you should go for a car whose monthly payments do not exceed what your income can handle. Your calculations also have to factor in the extra costs that go into buying a car as well as the operational expenses that you will encounter on a daily basis.

What’s an affordable car? How do you go about the calculations? Let’s find out.

Breaking Down your Car Budget

Apart from the price listed on a car, there are other costs that you should consider. These are expenses that you find out on your own and plan for; the car salesman won’t reveal them to you!

Up-sells and Cross-sells: The dealer will try to increase the displayed price, a strategy known as upselling. You will be enticed with features like extra body kits, chrome wheels, warranties, etc. Another common trick is being led to buy a different and more expensive brand or model; cross-selling. Avoid these extra costs by sticking to your first choice.

Dealership Fees: There will be registration fees, sales tax, and documentation fees. These are for you to bargain with the dealership. Such fees can drive the price up by around 10%.

Ownership Expenses: Once you own the car, other expenses start: insurance, maintenance, repairs, annual registration fees, depreciation and the like.

Gas is another major ownership expense that most people neglect to factor when making a purchase. Let’s use a Toyota Prius, a favorite for first-time owners as an example; it goes for around $20k plus a possible 5k to cover the other costs.

The car consumes about 44 miles per gallon. Data from Federal Highway Administration show that on average a driver covers 13,476 miles per year. This translates to around $907 per year at $2.96 per gallon (13,476 miles x $2.96 / 44 mpg).

True Cost of Owning a Car

After you have calculated the expected cost of the car you are looking for (plus the extra costs), your budget starts to take shape. Using the above example, you are looking at around $25,000 for a new car with a 5-year (60months) car loan. However, for the true cost of owning you need to factor gas expenses for the loan duration;

True cost of owning = Purchase + Other costs + Gas = $20,000 + $5000 + ($907 x 5) = $29,535

Can your Income Sustain the Monthly Payments?

With car financing, you will be repaying the loan on a monthly basis. So what’s the optimal percent of your monthly income that should go to the car? There is no specific answer to this since budgeting depends on your priorities.

Most experts, however, recommend that transportation should cost 10-15% of your net pay. This follows a 50/30/20 rule where 50% of your income goes to living needs, 30% to flexible spending and 20% to investments and other long-term financial goals. Your car is included in the ‘living needs’ category with the remainder of the 50% going to mortgage and utilities.

It’s upon you to ensure that your car loan repayments fall within the 10-15% range. For the Prius, the monthly cost will be around $493 (the total cost of owning/ 60 months). Hence your take-home pay should be at least $3290 for you to afford this car.

Monthly income= $493 x 100/15 = $3290 (assuming 15% of your pay is the car budget)    

Final Thought

Before you walk into a car dealership, do your homework on all the costs that will go into owning a car: Make use of free online calculators to get a rough idea of which car you can afford and understand all costs that may come with other deals like trade-ins. Lastly, negotiate your car loan for cheap rates, keep in mind that a longer loan term could mean a lower resale value by the time you have paid off the loan due to depreciation.

Source: creditabsolute.com

CANSLIM Stock Trading Investment Strategy – Pick High-Growth Stocks

There are several main factors of successful investing, but few are more important than the strategy you employ. Most investing courses that teach you how to make money in stocks go into great detail with regard to strategies and the importance of following them.

The reason is simple. Investment strategies are designed to tell you when to enter and exit investments and which investments have the highest probability of generating profits. By following a strategy, you increase your chances of making successful investment decisions, which affects your overall profitability.

One common strategy investors looking to outperform the market use is known as the CANSLIM strategy. What is CANSLIM, and can it help you pick high-growth stocks?

What Is the CANSLIM Investment Strategy?

Invented by Investor’s Business Daily founder William J. O’Neil, the CANSLIM investing strategy, also known as the CAN SLIM system, was designed to find and take advantage of high growth stock opportunities.

Using a mix of fundamental analysis and technical analysis, the strategy helps investors determine the best stocks to invest in based on a series of seven criteria. The acronym CANSLIM points to the seven criteria growth investors should look for as they take part in stock picking:

C: Current Quarterly Earnings

Many of the factors involved in the CANSLIM system include the same statistics most growth investors look for, including the C — current quarterly earnings per share (EPS).

EPS compares the amount of profit the company has generated on a per-share basis to the cost of each share of the company. For example, if there are 1 million shares of ABC stock available,and the company generated $1 million in profits in the last quarter, the EPS for that quarter is $1, or $1 million in profits divided by the 1 million shares available.

When following the CANSLIM strategy, investors look for a current trend of compelling growth in a company’s quarterly earnings, with EPS expected to maintain a year-over-year growth rate of at least 20%.

Pro tip: David and Tom Gardener are two of the best stock pickers. Their Motley Fool Stock Advisor recommendations have increased 563% compared to just 131.1% for the S&P 500. If you would have invested in Netflix when they first recommended the company, your investment would be up more than 21,000%. Learn more about Motley Fool Stock Advisor.

A: Annual Earnings Growth

The current quarter’s earnings growth is important because it shows whether the company you’re considering investing in is experiencing strength at the present moment. However, investors who employ the CANSLIM strategy are looking for stocks that have a clear history of growth that’s likely to be followed by more of the same.

The A in the acronym stands for annual earnings growth.

The strategy suggests investors should only invest in stocks that have consistently created significant earnings growth over at least the past five years. Look for at least 20% growth in profitability for five consecutive years. If a stock hasn’t maintained this high level of growth, most CANSLIM investors move on to the next opportunity.

N: New — New Products, New Management, or New Information

The strongest companies on the stock market are known for generating consistent news flow. Stories about everything from new products to new management and new technologies have the ability to send a stock screaming for the top, and those that experience the most growth release these stories on a relatively regular basis.

Look into the press releases issued by the company recently and see whether any market-moving news has been released. Has there been a promising new member added to the board of directors? Is a new product expected to hit the market over the next year?

Essentially, you want to make sure the stock you’re interested in maintains a position within mainstream financial headlines. News from a company can be a catalyst for big price movements.

S: Scarcity of Share Supply

Price movement in the market is simply a matter of supply and demand.

As with any other product — be it milk, lumber, or gasoline — there’s only a limited supply of any given stock on the market at any given time. When the demand for a stock outpaces supply, the price of that stock must increase. The higher cost to new buyers reduces the demand until it reaches equilibrium.

On the other hand, when the supply of a stock outpaces demand, prices must fall to make that stock more appealing to investors. As the price falls, the now less-expensive stock begins to see an increase in demand.

Investors who employ the CANSLIM strategy tend to compare the trading volume of a stock — the number of shares that trade hands on an average trading day — to the total number of outstanding shares on the market at the time. The closer trading volume is to the number of shares outstanding, the more demand is likely to overtake supply, sending the stock’s price to the top.

Investors employing this strategy also look for companies that have a history of share buybacks. A share buyback happens when a publicly traded company purchases shares of its own company on the open market. This is good for two reasons:

  • Supply and Demand. When a company purchases shares of its own stock, it’s essentially pulling available supply off the market. As described above, when there’s not enough supply of a stock to meet investor demand, the price of the stock increases due to scarcity.
  • Return of Value. Share buybacks are a great return of value for shareholders. Think of outstanding shares as a piece of pie. When the pie is cut into more pieces, each piece becomes smaller — in the case of shares of stock, each share becomes less valuable. With share buybacks, the company is essentially cutting fewer pieces of the pie, making each share more valuable.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.

L: Laggard Stocks

Investors who employ the CANSLIM strategy look for laggard stocks, which is actually a play out of the value investors’ playbook. The idea here is to find stocks that have underperformed compared to similar stocks within their sector with similar fundamentals.

The thinking is that by investing in laggards, eventually an undervalued stock will rise to or above its fair market value, resulting in tremendous returns.

To determine whether a stock is a laggard within its category, investors look to the relative strength index, or RSI. Stocks with an RSI below 30 are considered to be undervalued compared to their peers.

Investors also look to relative price strength, or RPS, to determine if a stock is undervalued compared to its peers. The RPS is a technical indicator that compares the price movement experienced by a stock to that of the market as a whole. An RPS of less than 1 suggests the stock is undervalued, and a good candidate for investors following the CANSLIM strategy.

I: Institutional Sponsorship

CANSLIM iInvestors look for stocks that have some institutional ownership, but not too much. One of the goals is to invest in a stock before the majority of institutional investors realize the opportunity, thereby taking advantage of significant profits as institutions like mutual funds and private equity firms buy large blocks of shares.

While you want to get in before the majority of institutions, taking advantage of the shift of supply and demand as they dive in, it’s also important that you invest in companies that institutions actually will have interest in. So, there’s a careful balance here.

Look for companies that have two or three strong institutional investors with compelling track records, but make sure that no more than 20% of the outstanding shares of the company are currently being held by big-money players. This setup suggests the stock is something institutions would be interested in, while also ensuring there’s plenty of room for more institutions to dive in.

M: Market Averages

The CANSLIM investing strategy was designed for use during bull markets. When using this strategy, it’s important to pay close attention to the overall market direction.

You can assess the direction of the overall market by looking into stock market indexes like the Dow Jones Industrial Average, which tracks average growth among large companies in the United States, or the Nasdaq, which tracks the technology market closely.


Pros and Cons of the CANSLIM Strategy

As with any investing strategy, there are pros and cons to CANSLIM. Some of the most important to consider include:

Pros of CANSLIM

This investing strategy is especially popular among growth investors. Strategies don’t become this popular without several perks to using them. Some of the biggest advantages of the CANSLIM strategy include:

1. Significant Profits Within Reach

Through this strategy, investors essentially have a roadmap to the investing process that makes it possible to generate profits significantly above and beyond what the average investor generates by investing in index funds, exchange-traded funds (ETFs), and other investment vehicles designed to track the market or specific industries.

2. No Guesswork

Investing tends to come with guesswork. After all, it’s impossible to predict the future, and when you invest, you’re predicting that a company will do well and the value of a stock will rise.

Those who follow the CANSLIM strategy follow a specific set of criteria that takes the guesswork and emotion out of the equation. If any one of the factors required for a stock to fit into the strategy doesn’t match up, CANSLIM investors move on to the next opportunity.

3. An Educated Approach

The basis of CANSLIM is educating yourself about an investment opportunity before actually pulling the trigger. The strategy requires you to look at the company you’re considering buying a piece of under the microscope, not just basing your decision on what the company’s doing today, but what it did yesterday and what it will do tomorrow.

Moreover, the strategy requires you to look into the overall market to ensure conditions are perfect for an investment. Few strategies require investors to go into this much detail, and while doing so may be somewhat cumbersome, the process protects you from making mistakes based on a lack of understanding of what you’re investing in.

4. An Institutional Mindset

Every one of the metrics involved in the strategy are those that institutional investors — also commonly referred to as “smart money” — look at before making their investments. As a result, when following the strategy, you take on the mindset of an institution.

Often, following the strategy results in a small investor diving into a stock before the institutions realize the opportunity exists, giving you the ability to benefit from the upside as institutions catch on.

5. Fast Markets

The strategy is designed for use in fast-paced bull markets. As a result, it brings a bit of excitement to the investing process, making it more fun to build wealth in the stock market.

Cons of CANSLIM

While CANSLIM has led plenty of investors from rags to riches, there are also drawbacks to consider. After all, there must be a dark cloud for a silver lining to exist. Some of the most important drawbacks to consider before using the strategy include:

1. Market Performance Dependent

This strategy is best used during bull markets when stocks are trading up on a regular basis. When bear markets take hold, the strategy can — and often does — lead to losses.

2. Short-Term Investments

Following the strategy, you’ll be investing in growth stocks that fit into a specific set of criteria. However, stocks don’t generally fit these criteria for long. As a result, the strategy requires added research because investors will need to continuously look into stocks they’ve already purchased to ensure they still fit into the strategy. This can take up quite a bit of time.

3. Volatility

The stocks that tend to experience the highest levels of growth in the market also tend to experience the highest levels of volatility.

Volatility is a measure of the speed of price fluctuations, regardless of whether the price is moving up or down. As a result, highly volatile stocks are risky to invest in. After all, they have the potential to fall just as fast as they climb. Failing to pull out of an investment that’s going in the wrong direction can lead to significant losses.


Does CANSLIM Work?

This is the million-dollar question. Regardless of whether a strategy works for someone else, deciding whether it will work for you can be difficult. What can be said to be generally true is that the strategy has a history of outperforming markets.

According to the American Association of Individual Investors, the strategy has outperformed the top 15 benchmarks for the U.S. market since 2006. Depending on how you employed the strategy, using it since 2006 would have returned annualized gains of between 15.2% and 20.9%.

To put that into perspective, since 2006 the annualized gains of the top stock market indexes were 6.4% for the Dow Jones, 6.5% for the S&P 500, and 12.0% for the Nasdaq 100.


When to Use the CANSLIM Investment Strategy

As with most other investment strategies, the CANSLIM strategy wasn’t designed to be used every day. Market conditions have to be just right for the strategy to be the most advantageous.

The strategy is best used just after a consolidation takes place. Consolidation is a technical term that describes a chart pattern in which a stock trades between clear support and resistance lines for a period of time. Following a consolidation, a breakout will take place, either breaking below support to new lows or breaking above resistance to new highs.

The CANSLIM strategy is best used when the overall market has completed a consolidation pattern and begins to move upward. This suggests the upward movement ahead will be a strong, momentous run, giving you the opportunity to generate outsize gains.

These are the best conditions in which to use the CANSLIM strategy:

  • Bull Markets. This strategy is a growth investing strategy. Growth strategies are best used when markets are moving in the upward direction. If markets are moving into negative territory, you should choose a different strategy, such as value or income investing.
  • After Consolidation. It’s important to wait until a stock breaks a consolidation pattern. If you use the strategy to purchase a stock during consolidation, there’s a chance the breakout will be either bullish or bearish. Of course, a bullish breakout would make for a great investment. Conversely, if the stock breaks in the bearish territory, significant losses may be the result. So, it’s best to wait for the breakout, which often requires a bit of patience.
  • Calm Markets. Markets are sometimes choppy, with some assets climbing while others fall. Sometimes the market is volatile, with big swings up one day and big drops the next. The movement in choppy markets takes place at the whims of the investing community, which are nearly impossible to predict. As such, it’s important to make sure the market is moving steadily and calmly in the upward direction overall when you use this strategy.

Who Should Use the CANSLIM Strategy?

There’s no such thing as a one-size-fits-all investment strategy because every investor has their own unique goals. Some investors want outsize growth and are willing to accept the risk that comes with it, while other investors are happy with low-risk income stocks.

CANSLIM isn’t just a growth investing strategy — it’s an aggressive growth strategy, which is one of the reasons it requires such detailed research prior to buying or selling a stock. As a result, there is a very specific group of investors that should consider taking advantage of the strategy:

  • Risk Tolerance. Aggressive growth strategies are designed to generate gains that outperforms the overall market. However, where there’s an opportunity for large gains, there’s also the possibility of large losses. This strategy should be used only by investors with a relatively high risk tolerance.
  • Research Capabilities. Stocks that fit into this strategy have very specific metrics, many of which take a bit of research to find. It’s important that you have experience researching opportunities in the market in detail and are confident in your ability to do so. If you find yourself scratching your head wondering what this or that metric means, consider furthering your research capabilities before attempting to deploy this strategy.
  • Experience. Much of this boils down to experience. Those who use this strategy successfully are generally highly experienced investors who know their way around the intricate system of the stock market.

If you don’t have a high risk tolerance, have a hard time understanding Wall Street jargon, or have little experience in the market as a whole, it’s likely best to avoid using this strategy.

Nonetheless, if you’re determined to give the CANSLIM strategy a shot, make sure to take advantage of trading simulators to test your skills for a few months prior to putting real hard-earned dollars at risk.


Final Word

There’s no question the CANSLIM investing strategy has led many investors to wealth in the market. Few would debate that the strategy’s inventor, William J. O’Neil, is a financial genius.

However, it’s important to remember that a strategy that’s a good fit for another investor won’t always be a good fit for you.

Choosing your strategy is one of the most important decisions you’ll make as you start investing. When doing so, you should take all factors into account — not just the potential gains, but also the potential losses and the work involved in successfully deploying the strategy.

There are clear perks to following the CANSLIM system. You’ll be required to learn quite a bit about the stocks you’re investing in, and you’ll have the potential to generate returns far and above averages in the market.

However, you’ll also be required to have a detailed understanding of the market and a relatively high risk tolerance. So, it’s not the best strategy for beginners or investors with a low appetite for risk.

Source: moneycrashers.com

11 Key Factors to Consider When Buying a Stock

As a new investor, venturing into the stock market can be a bit intimidating. You know that the idea is to buy stocks at a low price and sell them later for a higher price. But when it comes time to buy individual stocks, you may be at a loss.

How do you go about deciding which stocks to buy and when to buy them? There are several factors you should consider before pulling the trigger.

Factors to Consider When Buying Stocks

When you buy a stock, there are several factors that you should consider before pulling the trigger. After all, you want to buy shares in a great company, at a great price.

But what criteria qualifies a publicly traded company as a great company, and how do you know if the price you’re getting is a great price? How can you tell which stocks are a fit for your portfolio?

Here are the main factors you should consider before buying any stock.

1. Your Time Horizon

The time horizon associated with an investment will play a crucial role in whether it makes sense for your situation. Here’s how time horizons break down:

Short Term

A short-term time horizon is any investment that you plan on owning for under one year. Investments with a short time horizon have little time for recovery if things go wrong.

If you’re planning on holding an investment for under a year, it’s best to invest in stable blue-chip stocks that pay dividends. The companies represented by these stocks are large corporations with rock-solid balance sheets, making the risk of loss minimal. On the other hand, gains through these investments tend to happen at a slow, steady pace.

Medium Term

A medium-term investment is an investment you intend to hold anywhere from one year and a day to 10 years.

Due to the longer time horizon, you have more time to recover should something go wrong. Although you shouldn’t dabble in penny stocks, even with a medium-term investment, the longer term opens the door to investing in quality emerging markets stocks and other stocks with a moderate level of risk.

Long Term

Finally, long-term investments are any investment you plan on holding onto for more than 10 years. These investments have the most time to recover if something were to go wrong, giving you the ability to take the most risk in an attempt to generate a significant return.

Pro tip: David and Tom Gardener are two of the best stock pickers. Their Motley Fool Stock Advisor recommendations have increased 563% compared to just 131.1% for the S&P 500. If you would have invested in Netflix when they first recommended the company, your investment would be up more than 21,000%. Learn more about Motley Fool Stock Advisor.


2. Your Investment Strategy

Before you even buy your first share of stock, it’s important to study various investing strategies and choose one or more that you’ll follow.

Investment strategies are important because they take much of the emotion and guesswork out of the equation, giving you strict guidelines to follow when it comes to buying and selling stocks. When investing, it’s important to ensure the stocks you buy meet the criteria set forth by your strategy.

There are three key types of strategies used by most successful investors:

  • Value Investing. Value investing is the process of investing in stocks that display a clear undervaluation relative to their peers in hopes of generating outsize gains as the market catches onto the opportunity. This is the strategy that made Warren Buffett millions of dollars.
  • Growth Investing. Growth investing is the process of finding stocks that have displayed market-beating growth in revenue, earnings, and price appreciation for a length of time. Growth investors believe that these upward trends will continue to outpace the market, creating an opportunity to generate outsize gains.
  • Income Investing. Finally, income investors look for quality stocks that are known for paying significant dividends. These dividends generate passive income that can be used to fund one’s lifestyle or reinvested to increase earnings potential.

Before buying a stock, consider the strategy or strategies you’ve chosen and whether the stock you’re interested in fits in well with that strategy.


3. Diversification

Diversification is an important part of building and maintaining a quality investment portfolio. This is the process of spreading your investments across various stocks and other securities across various industries and markets.

Before buying a stock, it’s important to consider the level of diversification that already exists within your portfolio.

For example, you may be thinking about buying shares of Apple or Amazon.com, but when reviewing your current investments, you might realize all you have in your portfolio are tech stocks. What happens if the tech sector crashes?

Well, your portfolio focused solely on tech stocks would tank along with the sector.

However, if you consider buying stocks in another category such as utilities or consumer staples instead of adding more tech stocks, should the bottom fall out of the tech sector, the other holdings in your portfolio will provide stability.


4. Share Price and Intrinsic Value

Famous investor Warren Buffett made his billions by comparing the current market price of stocks to their fair market value. When he finds a company that’s trading lower than the company’s stock price should be, he pounces, taking advantage of the discount. Buffett knows that in the majority of cases, an undervalued stock will eventually climb to reach its fair, or intrinsic, value.

This is a process known as value investing, a type of investing that puts the utmost importance on the valuation of a company and uses various metrics to determine whether the valuation is low, high, or where it should be.

Some of the most important metrics include:

  • Price-to-Earnings Ratio (P/E Ratio). The P/E ratio compares the price of a stock to the company’s earnings per share (EPS), essentially putting a price on profitability. For example, if a company trading at $10 per share produces EPS of $1 annually, its P/E ratio is 10, suggesting that the share price is 10 times the company’s earnings on an annual basis.
  • Price-to-Sales Ratio (P/S Ratio). The P/S ratio compares the price of the stock to the annual sales, or revenue, generated by the company. For example, if a stock trades at $10 per share and generates $5 per share in annual revenue, its P/S ratio is 2.
  • Price-to-Book-Value Ratio (P/B Ratio). Finally, the P/B ratio compares the price of the stock to the net value of assets owned by the company, divided by the number of outstanding shares. For example, if a stock trades at $10, has a net asset value (book value) of $1 billion, and has 100 million outstanding shares, it has a P/B ratio of 1.

Before buying a stock, look into various valuation metrics and how they compare to other stocks within the company’s industry. If you’re following the value investing strategy, you’ll want to make sure the stocks you buy are undervalued compared to their peers.

Even when following any other investing strategy, it’s important to avoid overvalued stocks because the market has a history of correcting overvaluations with declines.


5. Balance Sheet

A company’s balance sheet is an important part of any fundamental analysis effort. It gives you an at-a-glance look at the financial strength and stability of the company.

A company’s balance sheet shows investors the value of assets it owns, the amount of debt it owes, and shareholders’ equity.

When diving into the balance sheet, it’s important to consider the amount of debt the company owes in relation to the assets it owns. After all, as is the case in personal finance, debts can become overwhelmingly burdensome, and in some cases mounting debts can result in bankruptcy.

It’s important to know that the company you’re thinking about buying a piece of comes with a sturdy financial foundation from which to grow.

You’ll also gain valuable information by looking into the company’s cash flow statement. This outlines the cash flowing into and out of the company, showing whether the company has more coming in than it has going out. Of course, you generally want to buy stocks that have more cash coming in than going out, showing further financial strength.


6. The Size of the Company

The size of the company you’re considering investing in plays a major role in the amount of risk you take when you buy it. As a result, it’s important to consider the size of the company in relation to your risk tolerance and time horizon before buying a stock.

The size of publicly traded companies is determined by looking at the company’s market capitalization, or the total market value of the company’s outstanding shares of stock. Here’s how market caps and risk relate to one another:

Penny Stocks and Small-Cap Stocks

Any stock with a total market cap of under $2 billion will fall into the penny stock or small-cap stock category. These companies are relatively young with minimal, if any, profitability. As a result, they represent some of the highest-risk investments.

Mid-Cap Stocks

Mid-cap stocks have a market cap ranging between $2 billion and $10 billion. These companies generally have something going for them. They’ve created a new product, have started generating profits, and in most cases have a promising future ahead. However, they haven’t quite made it big yet.

Mid-cap stocks come with lower risk than penny stocks and small-cap stocks, but there’s still a moderate level of risk, as these companies haven’t attracted the masses quite yet.

Large-Cap Stocks

Finally, large-cap stocks are stocks representing companies with an overall value of more than $10 billion. These are the companies that have “made it.” In the vast majority of cases, these companies sell popular products and consistently produce significant profits, which are often returned to investors by way of dividends or share buybacks.

As massive companies with huge followings, these companies represent the lowest risk opportunities in the stock market.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.


7. Volatility

Volatility describes the rate of fluctuations in the price of a stock or other financial asset. The higher the volatility, the faster the stock will rise and fall, while lower volatility assets will move at a slower, steadier pace.

It’s important to remember that volatility describes the rate of fluctuations in price — it doesn’t determine the direction of those movements.

Stocks that experience high levels of volatility will climb dramatically on good days, and fall like a brick on bad days. As a result, these investments come with significantly more risk than stocks that don’t move quite as fast.

After all, if you have a low-volatility stock that moves more slowly and a recent uptrend begins to reverse, you’ll have plenty of time to cash in on your profits before they disappear.

On the other hand, stocks that experience fast-paced movements don’t give you much time to exit the investment when a trend reverses, which could lead to you giving up all the unrealized profits you may have had — or worse, could lead to losses.


8. Dividend History

Dividend stocks known for giving a portion of their profits to their investors by way of dividend payments. While these payments are secondary to value and growth investors, they are nice to receive, and they’re an absolute must for investors following the income investing strategy.

If your goal is to generate income through your investments, it’s important to take the time to look into the dividend history of the company you’re interested in buying.

Ultimately, income investors are looking for high yields, or a high level of income in relation to the stock’s price. Look for a company’s dividend yield (or annual dividend), expressed as a percentage on your favorite stock research platform.

Beyond the yield itself, it’s important to look into the historic dividends paid by the company. Ultimately, you’re looking for growth in dividend payments on an annual basis for a period of three years or longer. A trend of growing dividend payments tells you a few things about a company:

  1. It’s Financially Secure. Companies can only pay dividends when they have enough cash in the bank to do so. When a company has a strong history of growing dividends, it shows it is financially secure and not likely to fail any time soon.
  2. It Hasn’t Stretched Itself Too Thin. Some companies will make large, one-time dividend payments, which can act as bait to drive investors in, but keeping those dividends alive would stretch the company’s finances too thin. Companies that offer compelling and increasing dividends consistently have cash to spare.
  3. It’s Growing. Finally, companies that remain stagnant won’t have the growth in profits required to afford increasing dividends. Companies that pay dividends with a history of steady increases are likely experiencing growth in profitability equal to or greater than the growth in dividend payments.

9. Revenue and Earnings Growth

To make money with stocks, you’ll need to invest in companies that are growing. The best way to determine if a company is growing is by looking at both its revenue and its earnings.

  • Revenue. Revenue is the total amount of money the company generates from its operational activities. For example, when Apple sells an iPhone, the sale price of that phone is added to its revenue total.
  • Earnings. Earnings is the amount of money a company makes after all expenses have been paid. For example, when Apple sells an iPhone for $1,200, it might pay $500 for manufacturing, $25 for customer acquisition, and $50 for general corporate expenses associated with the sale. In this example, the cost of the phone to the company is $575, leaving $625 left in earnings for the sale of each phone.

It’s important to look at both revenue and earnings because companies can inflate one or the other figure, but will have a hard time inflating both. For example, a company that wants to generate more revenue might spend much more on advertising. As a result, its revenue will grow, but the advertising costs will cut into profitability, leading to shrinking earnings.

On the other hand, if a company wants to inflate its earnings, it may decide to lay off employees or cut back on marketing. While this may increase the company’s earnings for that particular quarter, its revenue will likely decline. Without employees and marketing driving revenue growth, the earnings increase isn’t sustainable because sales will slow.


10. Preferred or Common Stock

There are two different types of stock that companies issue: common stock and preferred stock. The type of stock you buy will play a role in your earnings potential as well as your ability to recuperate losses in the event of a dissolution of the business. Here’s how it works:

Common Stock

Common stock is the standard type of stock that the vast majority of investors buy. If dividends have been declared, these shares are paid dividends and have a claim to the company’s assets in the event of liquidation.

However, their claim to assets is last. Bond holders and preferred stockholders will be paid prior to a common stockholder, meaning that in the event of a liquidation, there’s a strong chance that common stockholders will experience significant losses.

Preferred Stock

Preferred stock puts the investor one rung up on the ladder. This type of stock generally comes with predetermined dividends that are consistently paid, and will be paid prior to common stock dividends. Moreover, these investors also have a claim to the company’s assets in the event of a liquidation and will be paid prior to common stockholders.

As a result, preferred stock comes with a lower level of risk and generally higher income earning potential. However, preferred stockholders give up their right to vote on important matters. Moreover, these shares are known for slower growth.


11. Debt-to-Equity Ratio

Debt-to-equity ratio is a tool investors use to determine how thin a company has stretched itself in terms of debt. Of course, high levels of debt are bad because bankruptcy becomes a very real possibility when a company is stretched too thin, just as is the case with consumers.

To determine a company’s debt-to-equity ratio, you simply divide the company’s total debts by its total shareholder equity. For example, if a company has $5 million in debt and total shareholder equity of $10 million, its debt-to-equity ratio is 0.5.

The higher this ratio, the more the company has leveraged debt. As an investor, you’ll want to buy stocks in companies that don’t leverage debt too much, meaning you’ll be best served investing in companies with a low debt-to-equity ratio.

Generally, investors look for a debt-to-equity ratio below 1 for the lowest risk investments. Any debt-to-equity ratio above 2 suggests the company has significant debts and the investment comes with a high level of risk.


Final Word

One of the biggest mistakes new investors make when it comes to investing is blindly buying stocks simply because they know the name of the company or because someone told them to. Unfortunately, actions like these increase your chances of losses and decrease your potential profitability.

If you’re considering buying a stock, it’s important to educate yourself about that stock, the market itself, and the overall economy before pulling the trigger on the purchase. Research is the foundation of any strong investment decision.

Source: moneycrashers.com