The purchase of shares is a form of investment that can be very profitable. But it may also involve high risks when you don’t know where to invest money to get good returns. The issuance of shares is a way in which companies make capital to finance their growth plans, and each of them represents a proportional part of the ownership of the organization. The shares are listed on the Stock Exchange and are liquid instruments that, under normal circumstances, can be sold at the time you need to have access to your money.
As a shareholder of a company, you have access to all your financial and administrative information and, depending on your contribution, that is, the number of shares you own in relation to the total issue, you can even be part of the board of directors and intervene in the most important management decisions.
One way to estimate the market value of a company is by multiplying the price that each share reaches in the stock market by the number of shares issued. This stock price is based on its profitability, good administrative management and development potential, and on macroeconomic and even political variables.
Where to invest money to get good returns in two ways:
- For the capital gain, which is the difference between the price at which the shares were bought and the price at which they are sold.
- For dividends, which are the proportional parts of the dividends of the company received at the end of an annual cycle.
How to invest in stocks?
Investing is not a game of chance. Behind the stock selection, there is an arduous work of analysis of the factors that influence its stock price and its possibilities of generating profits.
Inexperienced investors tend to acquire purchase of shares of strong companies, in the belief that their investment is more secure. However, it is small companies with good growth prospects that can pay the most. How to know if the fundamentals of these small companies justify an investment and do not represent a risk?
There are several parameters that must be analyzed and that will serve to filter the companies that offer the greatest potential for profit.
How to invest in stocks? Take these parameters:
- Net benefit per share. It is obtained by dividing the benefit after subtracting the taxes from the amount of shares issued.
- Profitability by dividend. It is the profit received for profits at the end of the annual cycle and maintains an inverse relationship with the price at which you acquire the shares. The higher the dividend yield, the lower the price.
- Price-earnings ratio this indicator makes a comparison between the share price and the benefit it offers to determine how many times that benefit is paid and calculates its annual return.
- Target price is the price that analysts expect to reach an action based on the analysis of the variables that affect the market.
You must analyze other aspects if you really want to know how to invest in stocks. The investment opportunities in an action have more to do with the management and operation of the company. You must know where to invest money to get good returns include:
- Volume of business Determine the size of the business and the reasons that drive its benefits, such as increased sales or market dominance.
- It is an accounting term that indicates the benefit offered by an organization before taking into account interest on financial obligations, taxes, and depreciation and amortization of assets.
- Similar to the previous concept, but amortization and depreciation are accounted for here.
- Net financial obligations. It is the calculation of what the company really needs once the cash is discounted in its current accounts and the capital that has temporarily invested.
- Net assets per share. It is used to calculate the value that each share creates for the investor and is obtained by estimating the value of the assets in the market minus its net financial debt and any other liabilities.
- Cash flow per share. It is determined by subtracting disbursements from income and dividing the resulting amount by the number of shares issued. It is a way to measure the profitability per share according to the company’s cash inflows.
Advantages and disadvantages of investing in stocks market
Unlike other investment instruments, your purchase of shares also has obvious advantages:
- Its performance is greater than that of more conservative securities such as bonds and certificates of deposit.
- The losses will be limited to the amount invested.
- The responsibility is limited because you are a passive investor in the company and do not intervene in its management.
- They are liquid assets because you can sell them at market value at any time.
- You have access to tax benefits.
However, with higher yield potential there are also risks and the disadvantages of investing in stocks include:
- Its value fluctuates depending on the results of the financial management of the company.
- The economic environment influences share prices, so you are at the mercy of decisions external to the company.
- It is not possible to predict the movements of the markets, so it is difficult to decide when to exit from an investment that could represent losses.
Some questions that many novice investors ask themselves are: where to invest money to get good returns? should I buy shares in the company where I work? Well, those are depends on the same factors that we have already analyzed as determinants in the selection of a good investment opportunity.
Acquiring shares of the place where you work can have benefits both in your work commitment to the company and in the form of higher profits than those that correspond to you as an employee.
But analyzing other options can help you to diversify your investments and be less exposed to the ups and downs that your company may suffer, both external and internal factors.
An essential checklist before purchase of shares
As we have emphasized throughout the article, the information is the basis of a good decision. This is a list of things you should consider if you seeking where to invest money to get good returns:
- Be aware that the profitability you obtain will be variable, so you must stay informed of both the financial situation of the company and the stability of the markets.
- If your shareholding gives you access to the board of directors, become an active participant.
- Find out about the tax benefits you can access by investing in stocks.
- Analyze if the price is fair when you are about to purchase of shares. Your decision would be based on the company’s sales, the dividends it offers and the liquidation value of its shares.
- Make sure that the financial information of the company is solid and that it is duly registered in the Stock Exchange.
- Request all the current and historical information of the company in the financial, accounting, legal and administrative aspects and analyze it with care. If you do not have enough knowledge, lean on a financial advisor.
- Find out if the industrial sector in which the company of your interest operates is vulnerable to regulations or political decisions that could affect the price of their shares.
Purchase of shares can be a good decision if you are willing to commit your capital in the medium or long term. Make sure you have well informed or well advised to choose the options with the greatest potential for growth and profitability. Now you know where to invest money to get good returns. I will say it’s time to make some good money. Good luck!!