One of the best ways to minimize the dangers of market volatility and build long-term wealth is consistently putting more money to work. One way to do that is through dollar-cost averaging, a strategy that invests a set amount of money into the same stocks or funds on a regular schedule.
Another way is simply buying new investments every week, every month, or at least every so often.
Of course, the real challenge is finding new opportunities, especially when prices have generally run up like they have over the last several years.
Here are four important fundamentals:
1. A Reasonable Valuation
There may be no more important key to successful investing than buying at the right price. While there are plenty of ways to define “value” there’s no simpler or more readily available measure than the price-to-earnings (P/E) ratio. The lower the number, the less money you’re paying for every penny the company earns.
2. Great Cash Flow
Companies that bring in loads of cash are attractive. Use free cash flow, which is the amount of money a company has after it pays all its normal costs of doing business.
3. Low Debt
Use a company’s debt-to-equity ratio to tell you how much long-term debt it has. The higher the percentage, the more debt the company has. Search for companies that have a total debt to total equity ratio under 20%. The lower the better!
4. Solid Profit Margins
This tells you how much of a company’s revenue becomes profit. It’s expressed in percentage terms. The bigger the number, the better!
Sven Franssen