That is a very good question, and there is no easy answer, unfortunately. Everyone has their own
opinion on which stocks to buy and how long to hold them.
Several factors to consider:
- How long can you wait?
- How much risk can you afford?
- How many stocks can you afford?
Price, Risk & Timeline
If you want to be conservative and keep your risk low, you should choose a few stable,
blue-chip stocks like
GE and hold them for a few years.
The downside is that conservative stocks usually don't gain value very quickly.
On the other hand, if you want to take some risks and try some more volatile stocks you have
a chance at making a larger and faster gain. A good example is to
buy stock in
Google.
Some of the riskiest stocks you can buy are Penny Stocks.
They can give you the highest return (or loss!) in the shortest amount of time. They are usually
not good stocks to buy.
Search for good stocks to buy based on price:
Diversification
The more stocks you purchase, the more safe you will be in case one stock drops significantly.
Experts often recommend 30 to 100 different stocks but that is often not practical to do.
Of course, you will probably also make less money because some stocks will go up and some will go down.
You will probably also want to buy stocks from a few different industries so that you will be diversified
in case one industry goes sour.
P/E Ratio
Many people like to use a company's P/E Ratio
to determine whether it's a good buy or not.
The Price to Earnings (profit) Ratio can give you an indication of how high a stock's price is
relative to how profitable it is. The best thing to do is to compare one company's PE ratio to
other companies in the same industry to see how high or low the price is. What can happen is
many, many people can buy stock in a good company, which will cause the price to go much higher
than it's really worth.
See an example of
Microsoft's
industry P/E ratios using Yahoo! Finance (scroll to the bottom).
Good Stocks to Buy
Basically, you want to buy stocks that will go up in value over time. That may mean that you
need to find some that are currently undervalued, using the PE Ratio or something similar.
Or, you might look for companies that show potential to grow significantly over the next few years.
But you should try to avoid buying stocks that are overpriced just because they are popular
at the moment. That can lead to a quick loss!
Best Stocks to Buy
The best stocks to buy are the ones that fit your time frame and risk level.
The "experts" in the stock market don't always have your best interests in mind so
you may want to consider asking trusted friends and relatives if they know any
good stocks to buy instead.
