As you start to invest in your future, you’re probably curious about a lot of the ins and outs of the stock market. There’s a lot to know, and making mistakes could cost you a lot of money.
It’s important to have a solid understanding of how stocks work and how you should respond accordingly. There’s always going to be an element of risk, but you can cut that risk significantly if you understand what you’re doing and what to expect.
“How many shares of a stock should I buy” is a common question, and we’re going to address it in this article. Hopefully, you can leave with a deeper understanding of the strategy you’ll use when you start buying shares.
“How Many Shares of a Stock Should I Buy?”
This is a pretty loaded question.
We’re going to break it down, though, exploring how the number of shares you buy relates to your overall portfolio and your desire for growth. It isn’t as if all people should objectively buy 1,000 shares of any one stock because everyone has different interests when they enter into the stock market.
Before we look at share volume, let’s go through the basics of a portfolio.
The Balance of Your Portfolio
the sum total of the shares you own constitutes your portfolio. That could mean a whole lot of one stock or a little bit of a number of stocks.
A portfolio can be geared toward more aggressive or conservative goals, and the risk of your investments will be based upon those goals. So, if you’re looking to get rich quick, you would employ an extremely aggressive portfolio.
If you’re looking to set yourself up for retirement, on the other hand, you’d look for smaller gains over a much longer period of time. Naturally, the riskier stocks will provide you with a higher reward and vice versa.
In either case, though, the idea is to insulate yourself from any extreme risks. You still want to have money in the account if one of your stocks were to tank.
Looking at stock loan rates and other ways to move money can provide you with a little more security if you’re particularly worried about losing your portfolio at a moment’s notice.
Imagine that all of your stocks make up a little community of people. This community wants to travel by sea to an island full of wealth. If you send everyone in a single boat, all of the community goes when it sinks.
If you send a fleet of smaller boats, some bigger than others, you won’t be hit as badly when one sinks.
Stock Quality
With your portfolio in mind, then, it’s important to take a close look at the quality of stocks you’re trying to invest in.
Some stocks have a long-standing record of rolling with changes in the market and providing reliable growth over time. Other stocks from large corporations have a low chance of tanking considering their history and importance society.
On the other side of things, there are new companies emerging every day. Some of the companies founded today will move on to be the Cokes and Chevrolets of the future.
If you were to invest in those stocks right now, you’d likely be a multi-millionaire by the time they come to full fruition. That said, it’s nearly impossible to know which companies will succeed and which will not.
A stock’s quality can be examined through a look at how the company runs, where it fits in the economy, how the market is changing, and how you think the future looks for that industry.
As you can see, there’s a lot of speculation involved. That said, it’s possible to make educated guesses and accumulate reliable gains over time.
Timing
The phrase you hear all of the time is “buy low sell high.” Generally, this is the underlying formula for making money through stocks.
If you buy shares while a company’s prices are extremely low, you would benefit most by selling those shares when that company reaches its peak. Another point of speculation is when a company will reach its peak.
It’s impossible to know. Many people suggest that you stick with the companies you own even when their cards are down. The more aggressive investors might suggest that you sell when your gut tells you and use the money to invest in other companies.
The number of shares you buy should depend directly on timing. If you can use your powers of foresight, try buying more shares of a company that’s about to boom, and avoid the shares of a company that’s failing.
So, How Many Should You Buy?
The answer to this question depends on all of the factors listed above. If you’ve found a promising company in an industry that seems like it’s about to boom, you could consider buying more shares of that stock.
If you really believe in the company, you could buy a large number of shares and potentially get huge returns. It’s never a good idea to bet all your chips on one company, though. Unless your investment accounts are for experimentation, you should try to spread your wealth around.
At the same time, there are some instances when you could safely invest a lot of your portfolio in certain stocks. When the stock is extremely reliable, necessary to the economy, and has an expectation of growth, you can invest much more in it.
In other words, invest more in stocks that don’t pose as much risk. Some people are thrill-seekers, though.
You might have an amount of money that has fallen into your lap and you’re trying to turn it into the down payment on a new house. In that case, you should do your research for a long period of time, identify a low cost, high-potential stock, and see what it can do for you.
Keep in mind that this is not a reliable way to grow your wealth over time.
Ready to Make Some Money Moves?
To answer the question “how many shares of a stock should I buy,” would require a close look at your situation and your goals. The same goes for most common financial questions.
If you’re looking to familiarize yourself with good money management ideas, explore our site for more information.
