by Alexandra Grose

Created on: January 23, 2010   Last Updated: January 26, 2010

If you’re new to investing and buying for the long term, there are ways to invest which will better work to your advantage, right from the start. Look at the financials, which isn’t nearly as difficult as it sounds. If there’s heavy debt to cash, don’t go for it unless it’s a bank or mining, as both rely heavily on borrowed money. It’s quite normal for a company to have borrowed money, but if it’s more than 25-50% there could be problems if interest rates rise.

Look also at the company’s charts. Take a look 5 years out. You’ll notice fluctuations in the charts and these are normal. Share charts seldom run flat for long, they go up and they go down. What you’re looking for is a chart showing each new rise as being higher than the previous rise. Invest in a company which is already rising, as this shows you good potential.

Well known, what’s called blue chip companies, are less likely to fail, than their smaller counter parts. Blue chip companies seldom take off at any great pace, but are less likely to go bankrupt. As they say ‘elephants don’t gallop,’ however if it’s security your looking for, blue chip companies are safer than most.

Even in these tough economic times, there are companies, which are doing well. Not all companies in the same industry will do as well as another company from that industry. So buy shares in the company, which is continually making new highs, rather than in the one, which is falling.

Investing in companies, which pay dividends, are also a good way to get more bang for your buck. Have your dividends reinvested, this way you get extra shares, without having to purchase them from your own money.

Another saying is; ‘don’t put all your eggs in one basket.” People, who invest and lose everything, do so mostly because they place everything in one investment. Diversify! If you invest with 5 different companies and one goes under, you’ll only lose 20% of your income, as against 100% if you are only in one investment.

In diversifying, buy into different sectors. There are thousands of companies to choose from and a sector is what each company is classified as. You have the mining sector, banking sector, health sector, energy sector, etc. It’s not a lot of use buying into 5 different banks, for when the banking sector is down, it’s most likely that all the banks will fall. What you want is to invest in 5 different sectors.

You’re looking for what’s going to go up in the long term, not flash in the pan companies, but solid companies, which are likely to be around for a long time. Ask yourself, what’s going to be needed in 20, 30 years? Is the aging population going to need more health care, or is there a fitness trend developing? Will oil be a good investment, or will there be a new fuel, which makes oil obsolete?  Food and water, the basics of life, which are always needed added to the rapidly growing population, gives you clues as to where best to invest.

At the end of the day, understand there are risks involved. If the company’s price falls and you’re in for the longer term, decide whether the falls are worth waiting for the price to rebound, or whether you’d rather get out, than lose more money. If it’s a strong company, it’s usually only a year or two before the price picks back up again. Don’t panic, if the price falls. Learn about stop losses and have an idea what to do should your stop be met.

Learn more about this author, Alexandra Grose.
Click here to send this author comments or questions.