Stocks are a traditional investment tool for building wealth. The payment of dividends is then the profit from their holding.
In the Czech Republic, the shares are still a bit hidden from the general public. They are talked about in connection with two situations. They either draw attention to themselves with their deep dips or, on the contrary, with sky-breaking growths breaking records.
We will guide you through the world of stocks, dividends and related investment products. We will outline the basic investment strategies and point out the common mistakes of beginning and slightly advanced investors. This contribution is intended for long-term investors, not for shareholders betting on declines or increases in shares in a short period of time, most often in units of days.
Shares and income
Avoid common mistakes
Shares and income
If you have been retiring for more than 10 years, stocks or equity funds are a great opportunity for you to enhance your financial assets. Even with a shorter period separating you from your pension, there is no need to limit your investment in shares. With a long investment horizon, two assumptions stand out – investing a lower amount and the effect of returns in a longer time.
If you hold stocks even in times of significant price fluctuations, they will not have a devastating effect on your finances. When you go on a well-deserved rest one day, you can use the fruits of the shares – finance your pension with a gradual sale or draw a dividend. Or both.
Stock is a traditional capitalist feature. Right after the freedom to which every citizen living in a given democratic country is entitled. Share ownership clearly divides the company into shareholders and non-shareholders. You don’t have to be a successful entrepreneur to be a shareholder. Just be an investor and buy a little someone else’s success. You will become a shareholder, ie the holder of a share, even when you buy a single share.
When deciding to buy shares, it is definitely worth focusing on such joint-stock companies that pay dividends and report a profit in the long run.
Dividend means the return on the ownership of a share. It is a share in the profit of a joint-stock company that pays dividends. It is expressed as a percentage of the share capital. Dividends significantly affect shareholders. The standard investment strategy is the purchase and long-term holding of shares with a favorable dividend policy and an interesting dividend yield.
Regular dividend payments bring basic information to shareholders – the company is profitable and it makes sense to invest in it.
Czech joint-stock companies pay dividends once a year. This is different from American companies, which pay dividends several times a year, most often quarterly. The difference between the dividend yield may not be significant. You can divide one dividend payment into four parts.
Several technical difficulties speak in favor of a more widespread expansion of share purchases. These include, in particular, fees, exchange rate or currency risk and the problem of purchasing multiple stocks at one time.
The advantages of equity funds lie in the disadvantages of equities. With fund investments, you buy the mediated value from the total volume of the fund. The entire equity portfolio of the fund is reflected in one unit certificate. You do not have to buy individual shares by titles. The funds are especially advantageous for smaller regular purchases.
The financial line between buying a fund and buying a stock is badly set, but we can divide it by the thousands that you can invest. With the price of an individual share for $ 50 or $ 100, a thousand crowns may not be enough. On the contrary, you can manage fund purchases even for lower hundred crowns. This is especially suitable for those who want to invest, for example, on a weekly basis and regularly send to the fund, for example, five hundred crowns.
Long and in small amounts. This is a winning investment strategy for buying stocks or unit certificates. At the same time, avoid the so-called market timing and do not try to make extraordinary purchases during stock declines.
Invest in well-known companies
For a successful investment strategy, it is good to know the fields in which the company whose shares you are buying operates. Imagine Coca-Cola or Google. Both companies are globally known, have been operating for at least 20 years and have made a profit. If you do not know the business of your company in detail, just study it.
Profit in the first place
To some extent, the scarecrows are joint stock companies that offer their shares but do not report a profit. If they are on the market for year two, it is nothing special, but even after a decade of the absence of dividends, something is wrong. On the contrary, a bad year in the company’s management may mean a reduction in the dividend or a temporary suspension of its payment.
Do not invest in one company, do not invest in shares from one field, do not buy only American or Czech shares. Divide your portfolio regionally, monetaryly, by industry. This is the only way to reduce downturns and make your investment strategy more resilient to incoming downturns.
Diversification also means the division of the volume of shares. What is the point of holding one title disproportionately? Need to have Microsoft shares purchased from half the total value of the portfolio? Similar situations only make sense if, for example, you are the top manager of a company using its option program.
Long investment horizons clearly speak for stocks. Therefore, they are good assets for responsible preparation for old age. If you are 10, 20 or even 30 years ahead of you, only good for your stock portfolio. And you don’t have to stop stock even in retirement. On the contrary, with a shorter period of five years, carefully consider investing in stocks.
We can imagine an investment strategy in which you will invest regularly for years. For another 20 years, for example, you will leave the equity portfolio intact, so it will be financed from dividends received.
Time plays for stock investments for you. As in the case of the purchase of unit certificates in open-end mutual funds. In time, significant growth peaks await you, as well as falls and a very rapid erasure of the value of shares. In an instant, they will lose the value they had been climbing for several years.
Avoid common mistakes
Novice equity investors most often make the three mistakes mentioned. We will gradually analyze them.
One share bet
Selection of a joint-stock company that is sympathetic to the investor for any reason and subsequent investment in one stock. Preferably at once the entire amount that the investor has ready to invest. The risk of making a bad choice, reducing the company’s performance or investing at the top are just additional purchases.
Shopping on top, sales at declines. Market timing is waiting for extraordinary situations – whether it is a peak or a decline. Crowd psychology ground the thoughts of many uninstructed investors into abbreviated behavior contrary to the principles of stock investments. Especially long-term strategies. Inappropriate special purchases are usually more expensive. You will either buy at an exorbitant price or sell at the wrong time and you will lose the difference between your higher buying and lower selling prices.
Changes in investment strategy
No investor can avoid adjusting the investment strategy. However, these should not be sudden and radical changes. The sudden sale of a larger number of shares of stable and dividend companies and the subsequent investment in start-up unicorns without a profitable past is a gamble for your future returns.
We have a brief introduction to stocks and dividends. If you are new to the field, be sure to read the related articles. You do not need to have any larger capital for long-term investing.