Developing multiple streams of income offers greater financial security for individuals and organisations. Share investment is a common example of portfolio income that individuals usually engage in to increase their levels of income. Relying entirely on one source, such as wages from a job is risky. A global financial crisis may mean the complete cessation of your income. Well-researched and planned investment in stocks and shares has the potential to grow your money exponentially. There are numerous streams of income to consider, and are broadly classified as active, passive and portfolio income.
Growth Trends: What do They Mean?
The performance of a company on the share market is contingent on several factors, such as the business cycle, economic climate, timing and the sector individuals and businesses are looking to invest in. The infamous dot-com bubble in the mid to late nineties, for example saw the equity value of IT sectors balloon rapidly as a result of speculative trading. In an economic boom, stocks in the energy and consumer staples (such as household and food products) sectors often perform well as consumer confidence skyrockets and individuals have higher levels of disposable income.
What Should you Look Out for in Shares?
In deciding which stocks and shares to invest in, you should research the companies of interest thoroughly. Decide to invest in stocks and shares? It is worthwhile to research the company, in particular indicators such as the profitability, cash flow and current share price. Measures of profitability such as return of equity (ROE) and return on assets (ROA) are useful in deciding if a company’s stocks are worth investing in. A company’s profitability is essential because larger earnings equate greater resources for further business expansion and potentially an increase in the value of their shares.
According to MSN Money, a company’s cash flow is a measurement of the amount of money that moves in and out during the financial year. Observing a company’s cash flow enables investors to determine a business’s rate of return and liquidity – a business may fail due to a lack of free flowing cash.
A company’s current share price is another useful predictor of its viability and future viability. An abnormally high price may indicate the presence of a speculative bubble, which means that the stocks are overvalued and particularly susceptible to a sudden plunge when the bubble bursts so it’s important to be informed so you make an educated investment.