Stock Investing Strategies

Stock investments

rainbow

Archive for May, 2012

Stock investing strategy and your long term goals

Your stock investing strategy depends to a large extent on your short and long term financial goals. If you are interested in making quick money, you can buy at a low price and sell when the price increases. However, it is not very easy to predict share price fluctuations and an investor may incur a loss . On the other hand, if you are interested in regular returns in the form of dividends, it is important to look at the dividend history of the company and the dividend yield. Many small businesses do not declare a dividend despite making a profit, because most of the profit is reinvested in the business. For other businesses, the share price is very high, so though they may be declaring a dividend regularly, the dividend yield is low.

For example, most large software companies declare a dividend, but the dividend yield for these companies is less than 2%. Since fixed deposit rates offered by banks and corporates is more than 9% ,these returns are not very attractive for some investors. In other sectors like the IT hardware sector , company share prices are not very high and some companies declare dividends regularly with a dividend yield of more than 2.5% . These are attractive for individuals who have to pay a 30% tax on their income, as the dividend income is tax free and there is some scope for appreciation in the share prices.