When you’re investing, there can be a lot of things you need to think about. To make life a little easier for you, we’re going to look at some important factors to consider before buying shares.
These will give you a leg up on the competition and make sure you’re ready to invest. Read on to find out what steps you should take before leaping in.
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1. Does the company fit in with your strategy?
Before buying shares, you should consider whether the investment fits in with your existing investing strategy.
It can be pretty distracting when certain companies are all over the news and their share prices are skyrocketing. However, if you have a plan in place, it can be much easier to be rational and not get tempted by current hot stocks.
If you’ve decided you want to focus on value investing and picking up bargain stocks, it may not make sense to consider a fast-growing tech company with an overvalued share price. You should think about whether that company suits you and your investing goals. As the saying goes, “If you don’t know where you are going, you’ll end up someplace else.”
2. Have you researched the business?
Once you’ve made the decision that a company is a good fit for your portfolio, it’s always worth doing some research. This will make sure you’re ready to invest.
A few factors to consider before buying shares include:
- Stock analysis: looking through the company’s financials and see what their past and projected performance looks like.
- Industry research: an understanding of the company’s competitors and the industry the business operates in can be really useful.
- News: sometimes outside factors can impact a company, so it’s worth seeing what is happening in the wider world.
Some of this information, such as financials and balance sheets, should be available on the company’s website. For extra investing-related topics, you should head over to The Motley Fool or see what updates your share dealing account offers.
3. How many shares do you want?
It’s always worth thinking about how much you want to invest in pounds rather than in shares.
This is because some shares have a much higher price tag than others. This doesn’t necessarily mean that the company is more valuable. Usually, they just have less stock available to buy, so their value is split across a lower number of shares.
Most share dealing platforms now let you buy fractional shares. Meaning you don’t have to go out and buy a whole share of a company. You can just select how much you want to invest and it will work out how much of a share you can afford.
Sometimes it can be worth considering buying whole shares, but don’t get too hung up on it. It’s the amount invested that matters more.
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4. Will this be a core holding for you?
Before you’re ready to invest, you should consider whether this will be an important part of your portfolio. Do you want to grow this position over time? Or is it more of a fringe investment to diversify?
Understanding this will give you an idea about how much you should buy. This way you can think about whether it’s worth buying, say, ten shares of a stock or just one share.
5. Where is the cheapest place to buy the shares?
Depending on how much you’re planning to invest, it’s always worth considering using a cheap share dealing account for buying shares.
Otherwise, if you are building up your portfolio with smaller trades, you may get charged an expensive commission fee for every purchase. If your broker does charge per trade, it may be better value to make one £500 investment instead of five £100 investments.
It’s definitely worth considering where you plan on buying shares. Because this will impact whether it makes sense to invest incrementally or with a lump sum.
6. Are you prepared mentally?
Buying shares is exciting. But it’s important that you fully consider the risks of what you’re doing before you invest.
There is no guarantee you’ll make money when investing. It’s likely that at some point you may see your shares drop in value. This is a completely natural part of the market but it can still be hard to watch.
If the stock market drops, it’s important to keep calm and focus on the long term. The best way to make sure you’ll be cool as a cucumber is to understand the risks and factor in how you’ll react in these situations.
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