5 things to consider when choosing shares
Whether you’re looking for an income now, growth for the future, or a combination of both, you need to select the shares that are going to suit your investment strategy and financial goals.
Here are the key questions you should ask yourself when choosing shares.
1. What’s your end game?
Every investment strategy should be focused on achieving a clear goal, or set of goals. That means knowing where you want to end up before you begin. If you know exactly what you want to achieve out of your share investment, it’ll be easier to identify the right investment strategy and the types of shares you need to drive your portfolio.
2. What’s the economic climate?
Shifts in the economy affect the earning of companies and the value of their shares. That’s why it’s important to assess the greater economic climate, as well as any upcoming government policies or legal decisions that may affect the value of the shares you’re considering. You could also look for market opportunities that might foster the future growth of your target companies.
3. What type of shares should I buy?
Ask yourself whether you’re looking to establish regular income with shares that pay high dividends, or if you’d prefer to choose shares that are more likely to increase in value over time.
Investing in blue-chip companies – usually found in Australia’s top 50 companies, as listed on the S&P/ASX 50 – tends to be the most stable option, while buying shares in speculative companies could carry more risk but offer the potential for larger returns.
4. How do I diversify?
Diversifying your share portfolio simply means reducing your risk by purchasing shares across a wide range of industry sectors and company types. For example, investing in a group of stable blue-chip companies may mitigate the risk of any investments you make in more volatile, speculative companies. Also, spreading your investments across sectors could potentially protect against industry-specific market shifts that may affect share prices.
5. Should I borrow to invest?
Whether you want to buy in on a big opportunity or need to access funds to diversify your share portfolio, it can be tempting to borrow to invest. You can borrow against property you own or use financial products like margin loans to increase your investment capacity. However, these are high-risk strategies and should be handled with care.