Stocks are ownership in companies. As company owners, shareholders have perks, such as possible dividend income and the right to vote on company matters. However, like all investments, stocks carry a substantial risk. To get a positive return, our financial advisors forecast future cash flows, interpret many financial ratios, evaluate the quality of management, and conduct other methods. The following rules for common investors might be beneficial in determining which stocks are best to add to your portfolio.
Dividends, Earnings, and Valuation
Dividends are an additional payout above capital gains and are considered by many to be a sign of stability. Some companies pay dividends, and others may instead choose to reinvest in themselves to promote growth. Investors relying on the stock market for income may benefit from dividend-yielding stocks, while others may be somewhat indifferent.
Another sign of quality may be the company’s past earnings and strong balance sheet. All else equal, the faster the earnings grow, the greater the appreciation. Some companies are also considered undervalued when analysts conclude a share is worth more than its asking price. Financial advisors might interpret ratios such as the price-to-sales, price-to-earnings, dividend-to-price, and price-to-book.
When picking stocks, portfolios that include multiple companies or industries are more resistant to fluctuations in the market due to diversification. For new investors or those without the time to analyze many companies, exchange-traded funds (ETFs) are a quick option to diversify. ETFs are consolidated groups of stocks that trade just like any individual company on an exchange. Some ETFs cross industry lines, such as the S&P 500 (SPY), which includes 500 large U.S. corporations. Many financial planners also build diversified portfolios using only ETFs.
Find a Trustworthy Financial Advisor
Financial advisors should act in the best interest of the client – you. First State Investment Advisors picks from a selected list of blue-chip stocks to deliver the Gold Chip Standard, which is proven to meet client growth objectives while minimizing risk over many years of practice. To get started with our accomplished Tulsa wealth advisors, contact us today at (918) 492-1361.