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How to Research Stocks in 5 Simple Steps

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

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Though investors may find it easier to build a diverse portfolio using exchange-traded funds (ETFs) or mutual funds, investing small amounts in individual stocks can be a good way to learn the intricacies of the market. However, it usually isn’t enough to just throw your money into the market — you’ll need to do some research first.

If you invest your money strategically using a method that works for you, you could minimize your risk and maybe even earn higher returns. Here are some steps to take as you learn how to research stocks before choosing which ones to invest in.

How to research stocks: 5 steps to follow

  1. Understand the different types of stock analysis
  2. Dig into the company’s reports
  3. Consult with your brokerage firm or other research tools
  4. Make sure you understand the basics of the company
  5. Conduct qualitative research

1. Understand the different types of stock analysis

Before diving into the actual research of a particular stock, you’ll want to understand the different types of stock analysis, what they consist of and which route is best for you. In general, there are two broad categories of stock analysis:

  • Fundamental analysis: This type of stock analysis aims to determine whether the current price of the company accurately reflects its future value. It involves researching the nitty-gritty financials of the company, and can include looking at factors like earnings per share, the price-to-earnings ratio and more.
  • Technical analysis: This type of analysis utilizes data based on market activity, like trading volume and prices, to try to determine what comes next for a company’s stock price. Typically, investors doing a technical analysis will use tools, charts and trends to try and predict future price movements.

This article generally focuses on aspects associated with fundamental analysis, as it is used more for long-term investments, while technical analysis typically is used more for short-term trading.

2. Dig into the company’s reports

Every publicly traded company is required to publish reports. Using that information, investors are able to find companies that align with their investment interests. If investors did not have access to this information, they would be unable to make educated decisions about their investments.

To find these reports, you can look at each company’s website — many have special pages for investors. You also can search the U.S. Securities and Exchange Commission’s (SEC) filing database, EDGAR, if you have difficulty finding the reports in other places.

Some of the most informative reports include the following:

  • 10-K: This form is filed annually with the SEC and contains financial statements that have been audited by an independent third party. It’s a comprehensive form that will show you almost everything you need to know about a company. In it, you can find financial data for the past five years, information about how the company earns money, risk factors the company faces and a discussion about the company by management.
  • 10-Q: Through this form, which is filed quarterly, you will gain access to unaudited financial statements. It’s less comprehensive than the 10-K form, but still a worthwhile tool for investors. In addition to quarterly financial statements, you will gain access to management discussions about the company as well as information about potential market risks, legal proceedings, some internal controls and any unregistered sales of equity securities.

Once you find the above forms, you’ll need to locate the pertinent information. Each form has an overwhelming amount of data, but if you know what you are looking for, it should not seem as daunting. Here’s some of the most important information for investors to look for:

  • Net income: Check to see if the company finished with a gain or a loss at the end of the period. You can find this number at the bottom of the income statement. It equals total revenue minus expenses, depreciation, taxes and more.
  • Price-to-earnings (P/E) ratio: The P/E ratio is calculated by dividing the market value of a share by the earnings per share. Although the ratio often is calculated based on how the stock has performed in the past, it can show you how the market thinks this stock will perform in the future. If a company has a relatively high P/E ratio, it could indicate that the market expects healthy growth in the near future. Compare the company’s ratio to others in the industry to understand where this company stands against its competition.
  • Return on equity: The company’s return on equity helps you better understand how effectively the company uses its investors’ money and returns investments to its shareholders.

This is not a comprehensive list of factors to measure a company’s potential for financial success, but it is a good place to start. Remember — a single number will not be able to determine the worth of a company. You need to consider a variety of factors before deciding.Find a Financial Advisor

3. Consult with your brokerage firm or other research tools

If you have opened a brokerage account, utilize the resources that come with it. Most brokerage firms offer tools to help you research stocks. Whether the firm offers in-depth reports or a database of information, take advantage of those resources.

Additionally, you may have access to a qualified broker through your account. It may be a good idea to ask their opinion about a potential stock purchase.

If your brokerage firm doesn’t offer any useful options for researching stocks, you still have access to sites like Yahoo Finance, which provides investment news and customizable stock screeners.

4. Make sure you understand the basics of the company

In addition to understanding the financial statements of a company, you should understand how it works. Make sure you know where the revenue comes from. Does it come directly from consumer sales, advertising revenue or elsewhere? Who are the company’s biggest customers?

It’s also important to look at the basics of the industry the company operates in and how the company fits into it. Is it an established giant or a young company trying something new? Are there regulatory issues the industry must overcome? Think about how the company will fit into the future of the industry. Will it be able to adapt to change, or will it fall behind its peers? Does it have any competitive advantages?

5. Conduct qualitative research

While the financials of the company are an essential component to the research, so is qualitative research, which is a less quantifiable evaluation of a company’s caliber. While part of your qualitative research might include looking at some of the factors outlined in the step above, it can also include looking at factors such as:

  • Leadership: A company cannot function without upper-level management at the helm. You can usually find the names and roles of the leadership team on the company’s website. Once you find the leaders, look them up. Don’t just read the company’s short descriptions — search for their names. You may be able to find out more about their backgrounds and management styles. It’s possible that the past actions of these leaders will reflect their future choices. Ensure that you’re comfortable with the management in charge of increasing your investment’s worth.
  • Company values: Even if everything looks great so far, stop and think about the values and ethics of the company. Look up their mission statement and business practices. Then, read news reports to make sure the company’s actions match its claims. If you disagree with what the company stands for or how it conducts itself, you may want to reconsider your investment. The money you invest might help further a cause you don’t agree with, so make sure you’re comfortable before you invest.
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How to Invest $50,000 Wisely

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

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There’s no one right way to invest $50,000 — the best investment strategy for you will ultimately depend on your own unique financial situation. Regardless, investing your money can be a wise choice for your financial future.

Let’s take a look at six smart ways to invest 50,000, and which investment style might be right for you.

6 smart ways to invest $50,000

Here are some options for investing your funds. Keep in mind that instead of investing the full $50,000 all in one place, it may be wise to consider a healthy mix of investments.

1. Create an emergency fund

An emergency fund is a great way to safeguard against the unexpected. Everyone faces unexpected expenses at some point in their life — whether it’s job loss or an unanticipated medical expense — so it’s always smart to be prepared. In general, experts recommend having at least three to six months’ worth of living expenses in your emergency fund.

If you can, house your emergency fund in an account that won’t charge fees for withdrawals. Most of the best high-yield savings accounts don’t charge a monthly fee or fees for transfers. It’s important to have quick access to cash for anything life throws your way without further breaking the bank with fees.

2. Max out your retirement options

If you ever plan to stop working, then you’ll need to maximize your retirement savings — especially if you have available cash to invest. Luckily, there are numerous options when it comes to retirement savings.

If your employer offers a 401(k), you should contribute as much as you’re allowed. Other common types of employer-sponsored retirement accounts include 403(b), 457 and government thrift savings plans. Some employers will contribute matched amounts to your retirement account, which you’ll want to maximize if it’s available.

If your employer doesn’t offer a retirement savings plan — or if you’ve already maxed out your employer-sponsored plan — there are other options available. An IRA (individual retirement account) allows you to deduct the investments you make from your income and let your funds grow tax-free until you withdraw them. A Roth IRA is very similar to a traditional IRA, except you contribute after-tax dollars instead of pre-tax dollars. This might be a good option for those who expect to be a higher tax bracket when they retire than they are now.

3. Invest in the stock market

If your retirement accounts are maxed out, you may want to start investing in other ways. Not sure where to start? ETFs and mutual funds are a few good starting points, as they allow for automatic diversification.

Investing in a low-cost exchange-traded fund (ETF) could be a good option if you want fewer fees and more flexibility with your investments. ETFs are traded like stocks, so you’ll have the ability to get started with just one share. With mutual funds, you’ll buy into a fund as opposed to buying a share, so the minimum investment required tends to be higher.

4. Invest $50k into a 529 account

If you have children, investing $50,000 into a 529 account may be a solid plan now if you intend to pay for your child’s higher education later on. According to the College Board, the average annual cost of college tuition and fees was between $10,560 (for public in-state schools) and $37,650 (for private schools) for the 2020-21 academic school year.

A 529 plan can help cover your child’s education expenses, from private K-12 to graduate school, by allowing you to invest in mutual funds and other investment vehicles through the plan. Even better, 529 funds can grow tax-free, and any withdrawals you take for qualified education expenses are tax-free as well.

5. Get into real estate investing

Investing in real estate is another great way to diversify your portfolio. While $50,000 may not be enough to buy a property outright, it could certainly contribute to a down payment.

You can also put your money toward real estate in less direct ways, like adding real estate investment trusts (REITs) to your portfolio. In addition, you can find mutual funds and ETFs that focus on REITs, or turn to robo-advisors like Yieldstreet that get you invested in alternative assets.

6. Build a CD ladder

With $50,000, you can build a pretty sturdy CD ladder. This is where you open a few certificates of deposit at the same time, each with a longer maturity timeline. That way, you have a CD maturing every few months (or years, depending on how you build it), which results in steady income or further extra savings.

To get the most bang for your 50,000 bucks, look for high-yield CDs, which will grow your money more efficiently and make setting aside your money in an untouchable account worth your while.

What to consider before you start investing

1. What’s your preferred investing style?

There are a few ways you can go about investing your money. Each approach has its benefits and angles, so you’ll want to figure out what’s best for your situation early on.

  • Do it yourself: If you choose DIY investing, it’s important to map out your investment strategy with careful research and planning. After you’re comfortable with your plan, you’ll need to open a brokerage account to purchase investments. The obvious advantage to this tactic is that it’s typically less expensive than many other options. However, you need to be comfortable with making large financial moves without any professional assistance, as well as doing the legwork of researching.
  • Robo-advisor: Robo-advisors vary widely based on the brokerage firm, but in general they offer portfolio management based on an algorithm that’s tailored to your investment interests. Plus, many robo-advisors charge lower fees than traditional financial advisors and have lower minimum investment requirements. Of course, you’ll also get less personalization and portfolio customization, as you’ll be working with an online platform as opposed to a dedicated human advisor.
  • Traditional financial advisor: It may be a good idea to hire a financial advisor if the idea of managing your money without help is scary. A professional will help you to get the most out of your investments with minimal effort on your part. If you choose this route, make sure you research your future financial advisor carefully to ensure you end up working with someone who aligns with your needs.

2. What are your immediate financial needs?

Once you know how you’ll start investing — whether DIY or with some help — you can get down to the facts and factors that will help you build your financial plan. Before you sink that $50,000 into new investments, make sure other areas of your finances are taken care of first. You’ll want to prioritize paying down debts or any outstanding bills you might have.

3. What is your risk tolerance and investment timeline?

That $50,000 is no small sum — you’re going to want to make it work for you as best as it can. To do that, you’ll want to figure out your time horizon and how much risk you can afford to take on.

If you’re hoping to cash out in the next couple of years, you’ll likely want to avoid too much risk in the event of a near-term downturn. If, however, you have decades until your goal, that gives you the flexibility to put your funds in riskier investments for now, as you’ll have more time to ride out any market ups and downs.

4. How much will investment fees cut into your bottom line?

No one wants to pay fees — especially when they diminish your earnings. Keep an eye out for trading costs, particularly if you’re DIY-ing your portfolio. When working with robo-advisors and professionals, you still have to be mindful of trading costs, but you’ll also want to look out for commissions and any service fees your management company might charge.

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5 Things to Know About Using Your Roth IRA as an Emergency Fund

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

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Emergencies happen to everyone. Unless you are living under a very lucky star, you will likely encounter a major financial emergency at some point in your life. The problem is that you cannot predict when it will happen.

If you run into a financial emergency, then you need to be aware of your options. One route is tapping into your Roth IRA account in order to fund the emergency. Although taking money out of your Roth IRA is not an ideal financial situation, it may be more advisable than taking out a loan from your 401(k) or taking out a high interest loan.

What to know before using your Roth IRA as an emergency fund

Before you decide to take money out of your Roth IRA in an emergency, you need to understand what is at stake and how to minimize your losses.

1. Take out only what you absolutely need

The general idea of a Roth IRA is to allow your after-tax money to grow and be withdrawn tax-free during retirement. When you choose to take money out of your Roth IRA early, you are losing out on the potential for compounding interest that can really grow your investments.

Remember, this account is one of the ways you can save for retirement. If you withdraw money from your account early, then that may result in postponing your retirement to a later date.

2. Understand contributions vs. earnings

You can take out money you’ve contributed to your Roth IRA any time, without penalty or tax. But, if you want to take out earnings — the money that you’ve made from investing your contributions — you could be subject to a 10% penalty on that withdrawal.

All distributions of earnings are subject to the 5-year rule. The rule means that if you withdraw your earnings before the Roth IRA account has been open for 5 years, then you will be required to pay taxes.

If you are under the age of 59 and a half, then you are able to withdraw money without penalties if the money will be used for one of the reasons below. However, you will still need to pay taxes on the earnings you withdraw from your account.

  • To pay for medical expenses or health insurance if you are unemployed
  • You become disabled
  • The account holder passed away
  • To pay for a first-time home purchase (up to $10,000)

If you are over the age of 59 and a half, then you are able to withdraw your earnings without taxes or penalties when you have met the five-year requirement.

3. Leave all rollover contributions in your account

If you choose to roll over a traditional IRA into a Roth IRA, that rollover is subject to a different five-year rule. In order to take a distribution without paying taxes, you will need to leave the money in the Roth IRA account for five years.

4. You will not have immediate access to the funds

Unlike your checking account, you cannot just withdraw the money from your Roth IRA for immediate access. In fact, it can take several days to secure your funds.

“It usually takes a few days, so in the real case of emergency, it is not a viable option,” said Rivi Biton, a CPA and JD at a tax firm in New York. If the financial emergency can wait for your Roth IRA distribution to come through, then you may be able to make it work. If you cannot wait for the distribution and have no other options, Biton recommended, “If credit card funds are available, using them and then paying them off with the distribution is a good option.”

It is important to get started on the distribution process as soon as you know that you need the money. Otherwise, you may not get it in time to solve your problem.

5. Invest back into your Roth IRA when the emergency is over

Once you have made it through the emergency, you will want to begin aggressively investing back into your Roth IRA. Although you will be unable to make up for lost time, you will be able to continue contributing to your Roth IRA.

Each year, you are allowed to contribute a certain amount to your Roth IRA. For the 2021 tax year, you will be able to contribute up to $6,000 if you are under the age of 50 and up to $7,000 if you are over the age of 50.

The contribution window for your Roth IRA each year ends on April 15 the following year. For 2020, you will have until April 15, 2021, to contribute to your Roth IRA for the previous year. Taxes must be paid by the final April 15 date, which is why you have until then to finalize your contribution for the previous year.

Each contribution window is an opportunity to rebuild your account. When you are able to, move past the emergency and start reinvesting for your retirement.

Alternative options to fund emergencies

Tapping into your Roth IRA in the event of an emergency can seriously set back your retirement savings and it can be difficult to catch back up. But, if you can stick to just taking out your contributions and not your earnings, taking from your Roth can be a penalty-free option.

Here are a few other options to consider if you need to fund an emergency:

  • Create an emergency fund. Many recommend creating an emergency fund with between three to six months of expenses saved. The fund can help you through minor emergencies (an expensive car repair) to major emergencies (losing your job). No matter what kind of emergency life throws your way, having an emergency fund with enough cash will help see you through to the other side. At the very least it will give you a little bit of breathing room between a major emergency and finding the will to get back on your feet.
  • Liquidate a brokerage account. If you have a brokerage account that has grown over the years, it can be painful to liquidate it. However, it is an option with fewer penalties and taxes attached. You may be able to fund the emergency with the liquidated assets in that account.
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