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Unpicking Basic Stock Research
Your 2-Minute dose of Genius!
Sika Republic
September 26, 2023
You’re ready to buy your first stock or ETF. You log onto your online brokerage account, enter the stock name or symbol, and a wave of information hits your screen.
It’s all useful information, designed to help you make an informed investment decision, but as a beginner it can also be overwhelming.
In today’s 2-Minute Masters we'll highlight a few of the key pieces of information you should understand before hitting the “BUY” button. Let’s dive in.
Stock Name: Is it the Right One?
First things first, make sure you're investing in the right stock. Take Zoom, for example. There's Zoom (Symbol: ZM), the popular chat and video platform, and then there's Zoom Technologies Inc. (Symbol: ZOOM / ZTNO), a Chinese mobile phone components maker. Don't make the mistake of buying shares in the wrong company. Double-check the stock’s name and symbol before you buy!
Price: Can You Afford It?
Next, consider the price. If it's more than you can afford, don't worry. You can still own a piece of it by purchasing a fractional share.
52-Week High-Low: Timing Matters
Take a look at the stock's 52-week high-low range. This gives you an idea of where the stock's price stands compared to its highest and lowest points in the past year. It helps you decide if you're buying at a high point, which might mean waiting for a better opportunity. Remember, the goal is to "buy low, sell high!"
Dividend and Dividend Yield: Income Earner
Interested in earning dividend income? Find out if the stock pays dividends. If a stock pays a dividend, you'll see a dividend yield percentage, which tells you how much the company pays out in dividends, relative to its share price. If it doesn't pay dividends, it will usually be labeled as "No" or "N/A.”
ETF Expense Ratio: Know the Cost
Keep an eye on what you’ll be charged by looking at the ETF Expense Ratio or Management Fee. The expense ratio tells you how much of the fund's assets are used for administrative and operational costs, which typically range from 0.03% to 0.50% or higher. Exchange-Traded Funds (ETFs) are managed investments, and every managed investment comes with a fee.
ETF Portfolios and Top 10 Holdings: What's Inside?
This shows which industries or sectors the ETF invests in, like Tech, Healthcare, Financial Services, etc. The Top 10 stocks reveal which companies make up the largest portion of the ETF's holdings. The ETF manager will regularly adjust these holdings to ensure the best returns.
Index ETF: Is It a True Match?
If you're investing in an ETF that tracks a specific index (e.g., S&P 500), make sure it replicates that index accurately. You can find this information on the screen or in the ETF's downloadable Prospectus document.
Tax-Friendly Buying: Consider Your Options
Consider where and how you're buying the investment. Can you purchase it in a tax-advantaged account like a 401(k), IRA, or in the UK - a Stocks & Shares ISA? Going the tax-friendly route can have a positive impact on your overall returns.
Today’s Takeaway:
Most online investment platforms do a great job of providing the key information you need to make a buy or sell decision. If you’re not yet ready to delve into terms like “P/E Ratio” and prefer not to pick individual stocks, you’ll likely find your favorite shares packaged within a beginner-friendly ETF.