The Importance of Finding Intrinsic Value
Managing your retirement fund can be a technical proposition if you lack the requisite knowledge and experience.
When you go through possible options for investing your money, you will find there are certain ways you can spend your money and earn a reasonable profit on it.
It is only natural you look to increase your wealth after retirement, especially if you retired early.
For instance, if you plan to become a trader and invest a chunk of your wealth in stocks that are undervalued, you should implement a proper strategy to buy or sell.
The fact of the matter is undervalued stocks are a much misunderstood term among traders as well as novices. Whether you are a trader or an investor, you must not buy or sell stocks without implementing a well thought out strategy.
However, the purpose of buying undervalued stocks is often to capitalize on their value in the market once it increases.
However, recognizing which stocks are undervalued and which are not is a matter of knowledge you acquire by reading company portfolios and statistical databases.
This article will cover important information on what to look for before buying undervalued stocks to improve the chances of making a profit.
Managing Your Retirement Money
There is little doubt investing your money to make profits in the long run should be the aim of any investor.
There are many types of investments you can choose from to capitalize on your wealth. For example, you have the freedom to invest your money in both short and long-term investments.
The long-term investments include insurance and monetary policies while short-term investments are stocks/shares and options.
However, you should keep in mind investing in stocks is risky and technical. You should not invest in stocks without prior knowledge of how it works.
Essentially, in any high-risk market, especially the stock market, people often end up losing a major chunk of their investments.
The foremost reason for this is lack of information on how and when to trade their stocks. However, you should keep in mind that if you have learned the traits of trading stocks, you can make good money on your investments and in good time too.
Types of Investments
Make no mistake about it as investing your money to increase your wealth can be painful. However, to increase your financial prosperity in the long run, you must take this bitter pill.
The fact that you can invest your money in a plethora of options can be perplexing as well as confusing.
You should plan to invest your wealth in the asset/investment vehicle you feel will work best for you.For example, you can invest money in stocks as well as bonds. It comes down to how long you want to invest the money for.
There is a new type of investment that is specially aimed at retiring personnel. These investments are designed to increase your wealth in a matter of years without any significant risks.
For example, some plans require you to invest your money for five years, while others are for ten years and longer. As an investor, it all comes down to which methods you choose for increasing your wealth.
Investing your money in insurance and retirement plans can take up a lot of your time, not to mention it ties your money in one place rendering you virtually unable to diversify your investments.
The problem with investing money in insurance or a fund is the same, i.e. as the invested amount cannot be moved around.
If you face this situation, you should look to invest your fund into methods which allow you to diversify. Additionally, you should be able to move your money as you please.
One such type of investment is stock, where you can invest and withdraw your money at will. Investing money in stocks is a good way of multiplying your wealth to a good extent.
Additionally, you don’t lose much of it when you invest a small chunk in different stocks and shares. Still, you should understand the basis of the stock market and how to invest your capital in it through different ways.
The Importance of Finding Intrinsic Value in Choosing Stocks
To build on your existing savings and retirement fund, investing money in the stocks is a good way to start. However, you should first understand what an undervalued stock is.
You should also look at the market and find assets that are being traded below their intrinsic value. Keep in mind investing your money in profitable stocks is perhaps the fastest way of building wealth.
Most of the time, these assets or stocks are dragged down by other similar stocks whose prices keep fluctuating. Below are the factors which play an important role in the decline in the value of a given stock:
· The ongoing momentum in the market
· Financial bubbles and possible crashes
· Lack of attention and activity
· Little or no interest
· Bad news and rumors
· Stock falls below expectations
This is one of the most influential aspects which decide the fate of the value of a stock in a given market. In general, traders buy when the market sentiment on the rise as it is the time to sell.
Contrary to this, when the market sentiment is feeling the pressure of selling, it is the right time to invest in stocks whose prices is going down.
In order to find out if a stock is cheap or expensive, you can use this intrinsic value formula to find the stock’s intrinsic value:
Intrinsic Value Formula Infographic Credit for Wealthy Education
The good thing about buying while the market is depressed is it is an opportunity where you can have your hands on high value stocks as well.
So, you should wait till the market sentiment changes and more investors are looking to sell rather than buy. Spending your money on undervalued stocks is a good way of earning a profit when the time is right.
Keep in mind your profits may depend on the amount you have invested in the market. A word of caution here: never be greedy and invest more money in the market just because you want to earn a higher profit.
Often, stock investors lose most of their investment due to greed as the market activity is fragile and unpredictable.
Whatever advice you receive from your peers, you should diversify your investments to increase your wealth in the long run.
Investing in long-term wealth options is an appropriate way to capitalize on your investments. For example, you should make chunks of your investment and invest each chunk in a specific investment option.
Invest some money in stocks while some in long-term options, such as saving certificates, bank savings, and insurance. In the end, increasing your wealth is all about investing it bit by bit in different investment vehicles.
About the Author
This is a guest post from Hung Nguyen – Co-Founder of Wealthy Education. Since 2014, he has helped over 10,000 students from over 140 countries learn stock investing and discover a life of financial independence. You can also find him on Twitter, Pinterest, and Facebook.