Joseph A Leonard - Wealth Management & Consulting

I have previously written about doing your due diligence in researching stock purchases online and I wanted to dive in and provide a few additional points to consider when researching what stocks to pursue in this volatile market.

To make smart financial management decisions, you should research a potential stock purchase before you actually make one. The good news is that this is easy to do, in most cases, because companies provide you with all of the information you need in advance. Though you can go with a hunch or just following your instincts, it is helpful to have a bit of clear research behind any stock decision you make.

What do you look for? When it comes to smart financial investing in stocks, there are a variety of factors that you need to consider prior to purchasing any type of stock. Consider the following:

• Learn about the company’s history and its foundation. A company that has a good history of growth, smart financial decisions and good earnings is likely to be a safer choice. Of course, the company’ stock price will be higher for it, but it still may be a clearly beneficial choice.
• Learn the Price to Earnings Ratio, or the P/E Ratio. This is the most popular ratio to use to evaluate a stock. It will tell you how much investors like yourself are willing to pay for the company’s earnings. Look for this ratio to be between 10 and 30 for the most optimal purchases.
• Consider the company’s dividends. If the stock pays a dividend, this means that when the company has a profitable year, the company gives some of those profits to stockholders. Find out if the company’s stock pays this and how much it pays.
• Look at the company’s cash flow. You may know from your own budget that if your cash flow is positive, then you have money to pay your bills. You want to learn if the company has a positive cash flow as well as how much of a profit it is turning. Profit means that the stock is a good choice, of course, but you also want to look at how much cash flow the company has and if that excess cash is being invested wisely. This also indicates that the company is less likely to file for bankruptcy.

There are numerous other factors to consider through good financial investing. This includes how volatile the stock is (check its past performance) and the market capitalization or market cap. Further, many stock investors like to look at who is running the company, especially if it is a newer company or one with more risk involved. This way, they can learn if the management team has the resources and skills to deliver for them.

If you fail to take the time to research financial investing options like this, you could not only lose money on a bad decision but you may miss a great option available to you. It is always a good idea to verify any information that you obtain, too, to ensure your source is reputable and that the information you are counting on is accurate. By doing this research, you position yourself for long term success with financial management.

Ask Joseph Leonard and Coastal Investment Advisors for additional personal finance advice or learn money management tips on financial management by downloading this free financial management guide.

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