This is what I heard from my parents all the time growing up: there is no way to predict the future; therefore, even when a company is doing well, choosing to purchase stocks in that company is absolutely a gamble. Anything can happen: a business could go under; a recession could come; a CEO could be fired. All of these could send shares in a company tumbling down.
It wasn’t until I started investing on my own that I realized investing really isn’t like gambling. Not at all.
While you can’t predict the future of a stock, you can’t do that for anything. At the risk of sounding like a flower child, life is a gamble in itself. Anything could happen. So, while investing can seem like a bit of a gamble, if you’re willing to take some measures beforehand, it certainly lowers your risk of seeing some negative surprises.
Do your research If you’re going to just pick up some popular stocks you’ve seen in the headlines, then, absolutely, you might as well be gambling. Choosing stocks means choosing an investment into your future, so you might be picking stocks that — while popular — don’t fit with your needs.
That’s why before you buy shares, you need to research the background of companies to make sure their performance adds up to your goals. If you’re looking for retirement, choosing a steady stock with a long history of performance is a great option. If you’re looking to pay off debts in the next few years, maybe you want to choose something a bit more aggressive.
Have a goal As I mentioned, you’ll also need a goal to make those types of choices. If you don’t, then buying stocks can be a bit of a gamble. You need to decide what the focus of your portfolio will be to choose the type of shares you want to buy. For example, if you’re a millennial looking for a long-term investment, then buying a banking stock could be a great choice.
One great option that deserves more research is Toronto-Dominion Bank. This banking stock offers investors a cheap share price and a strong dividend. It also offers great future potential growth, as just to reach fair value would give investors a potential upside of about 14% as of writing. Beyond that, the bank has had strong expansion into the United States that has boosted revenue and should help combat any downturns in the Canadian markets.
Let it ride Usually in gambling, it’s better to cut and run when you have some winnings. That’s because the longer you stick around, the higher the odds are that you’ll end up losing what you’ve gained. That’s not the case with investing. When you choose stocks based on your goal and have done a thorough amount of background research, longer is actually better.
Let’s take BMO Low Volatility Canadian ETF as an example. This stock certainly isn’t exciting, and that’s a good thing if you’re looking for a long-term investment. Since 2012, the stock has grown at a steady pace by about 125% as of writing. That means an investment of $20,000 in 2012 would be worth $44,901.75 today. What investors like about this stock is in the name: low volatility, meaning as little risk as possible. The bank invests in strong Canadian stocks that have a long history of performance, and that means there is less likelihood of seeing the swings that could be happening across the markets.
Fool contributor Amy Legate-Wolfe owns shares of TORONTO-DOMINION BANK.
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