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Consumer prices in the United States have risen by a staggering 6.8 percent between November 2020 and November 2021. And with inflation rates continuing on an upward trend, that number is increasing.

One way to protect yourself against your money losing value is to find effective investments in the stock market that will continue rising in value over the long term.

But finding the right approach isn't easy. There are an abundance of information and tactics you can find online, each promising you the best possible earnings growth.

Whether it's buying an undervalued stock, following the picks of experienced investors, or trying to gain a competitive advantage through tracking stock screeners, there are a variety of ways you could try to gain the upper hand.

The good news is that even if everything seems very confusing right now, getting started with finding and buying quality stocks isn't that difficult.

In fact, you can start buying shares of companies as soon as today, minimizing the risk and putting yourself in a good position over the long term.

With that in mind, let's look at some of the key steps you should go through when investing in individual stocks. But first, let's answer why you should invest in individual public companies in the first place.

Why Invest in Individual Stocks?

When deciding how to invest your money, you have many options to consider. And sometimes, the number of options can become overwhelming.

There are stocks, bonds, mutual funds, ETFs, annuities, options, and various other financial instruments you can use for capital preservation and the best profit margins.

However, there are many reasons why stocks are one of the best ways to maximize your investments and diversify your portfolio.

For one thing, when you buy an individual stock, you have much more control over where your money goes. Even though you have to compromise a bit in terms of diversification, you can invest in companies you know and trust.

In fact, investing in a particular stock allows you to align your investments with the companies that you like and want to support. If you believe in a certain type of technology or service, you can invest in its future directly and reap the benefits of the company's success.

Another compelling reason to choose individual stocks is that many prominent companies offer dividends to investors. This way, you can earn money not just through the rising stock price but also by receiving a share of the profits based on the number of shares you own.

Public companies regularly pay dividends to the shareholders after successful periods, which means you can earn money from ownership without having to sell the stock itself. And that can amount to a significant amount over the long term.

Finally, when you invest in stocks instead of mutual funds or ETFs, you also don't have to worry about paying management fees that can eat into your returns. Even though the degree of risk might be reduced by using ETFs, the long-term management fees can amount to a significant cost that you could otherwise avoid.

Of course, when buying individual stocks, you need to consider how you will diversify your portfolio to not expose yourself to too much risk if one of the companies you invest in were to underperform.

In the end, investing in stocks is an integral part of creating a diverse portfolio. Even though funds do have their place and can provide an additional layer of security, investing in growth stocks on your own can give you more control over where you put your money and also provide you with dividends in many cases.

Finding stocks to invest in: Key Steps

Now that we've gone through some of the main benefits of investing in stocks, let's go over some of the critical steps you should take when creating your direct stock purchase plan.

Determine Your Goals

Just as with any plan, the end goal will typically determine the types of decisions you end up making. And the same applies to stock investing as well.

When looking at share prices, whether for educational purposes or investing, you need to understand what each stock purchase will help you achieve.

For instance, the types of stocks you choose to invest in can be determined by factors such as your age. If you are younger and still have many years of generating income, you can tolerate more risk in your investment to maximize potential returns.

However, if you are an older investor, you will probably be more interested in protecting your capital and minimizing the risks in your portfolio. Still, if you already have accumulated more money to invest, you may reap good returns from stocks even if you stick with safer options.

At the same time, you should consider how important immediate income is in your stock investing strategy. If you want to receive regular dividend yields, you will need to look for companies known for paying out regularly and generously.

However, most companies that pay out dividends are usually well established, which means there's not as much room for value growth. If you want to maximize growth and an increase in share prices, you might be more interested in stocks of younger companies that show a lot of promise for growth. But these types of companies also come with more risk, which you need to consider when diversifying your risk.

Whatever investing strategy you end up going with, the key part is understanding and internalizing the value and the risks that come with it. That way, you can stay consistent in what you are doing and avoid panic if some of the risks that come with your plan should materialize.

Invest in What You Know

As mentioned before, one of the key advantages of finding and investing in individual stocks is the ability to handpick the companies you want to own a part of.

Instead of investing in a fund with hundreds of companies, you can be very deliberate about the types of businesses you choose, which gives you a lot of control over the entire process and investing outcomes.

However, for this strategy to work, you can't rely on what others are doing or on superficial guesses about what might work in your situation. When you invest in a company, you need to understand not just the current situation of the stock but also the business itself.

Whether you like it or not, investing in stocks will require you to do at least some research so that you know what you are getting into. The good news is that if you do the proper research, you can invest with much more confidence and get better at recognizing opportunities.

An excellent way to find companies to invest in is to look at the environment you encounter every day. Whether it's the technology you use, the equipment used to run the world around you, or even things you and your circle seems to enjoy, you should always be on the lookout for new industries or sectors to research so that you are continually expanding your horizons and portfolio diversification opportunities.

Consider the Price

Price is crucial when determining whether it's a good time to invest in a specific stock. And therefore, you must be capable of correctly evaluating whether it's a good time to invest in stock through technical analysis of its current price, the company's financial situation, and a few other vital factors.

For starters, a good measure to identify how the value of a stock compares to its current price is to look at the price-to-earnings ratio. Basically, it's a way to figure out whether a company's price is lower than usual in relation to its profits and growth.

This method works best when used to calculate the stock value of well-established companies that have a lot of historical data to work with.

If your main focus is getting as many dividends as possible, you can look at the yields of specific stocks as one of the key deciding factors. However, even if the dividend yield is above average, you need to make sure that the company will be able to keep paying the shareholders regularly by remaining profitable and sustaining growth.

In the end, your goal should be to find lucrative stock opportunities that are currently priced lower than they are worth, based on your evaluation. So, the biggest challenge will always be collecting as much information as possible so that you can trust your evaluations.

Protect Yourself

Finally, as an investor, you should select stocks based not only on the lowest price but also on the amount of risk you can tolerate.

Even if a stock is valued lower than usual, you need to evaluate whether the price will bounce back or if the fall is related to more significant issues that may spell even more trouble in the future.

At the same time, you need to consider stocks that provide you with a safety margin you can use to cushion investments that don't work out.

For more established companies with a proven track record, even 10% below the price you believe it should be valued at might be enough to offset some of the risks. But for newer companies that are still growing, you should try to have more room for error and buy stocks that are valued significantly lower than what you believe they should be worth or could be worth in the near future.

Bottom Line

Investing in individual stocks can be riskier than simply sticking with mutual funds or ETFs. But at the same time, it gives you more control over who you invest in, allows you to reap direct profits from dividend yields, and provides another financial tool for diversifying your portfolio.

With the steps listed above, you should have a solid starting point for finding stocks to invest in and identifying the right opportunities for your long-term goals and current situation.