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Stock beta!

Article by Eric Wimbush

Photography by Austin Distel

Originally published in SOFU Lifestyle

The COVID pandemic has seen individuals start to use the stock market as another stream of income or as a wealth-building source. While there are numerous asset classes, the average individual primarily invests in stocks. While seemingly sound, stock traders need to also use other market indicators to properly evaluate the risk/reward of each stock. One of the main ones used by advisors and investors is stock beta.

Simply: Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market (https://economictimes.indiatimes.com/definition/beta). Each stock has its own level of risk, but that level should be measured against some assigned value. Most industry professionals use the S&P 500 as the market measuring stick for stocks. It is assumed that the beta of the S&P 500 is 1.0 and every stock is compared to the market. For example, Amazon is one of the hottest stock investments in the market and has a 5-year beta of 1.33. This means that Amazon is likely going to move 1.33 times for every 1.0 movement in the overall market. This movement is generally reflected whether the market moves up or down. Beta is often quoted using a timeframe since some periods are more volatile than others. This makes the measurement more relevant.

As previously mentioned, beta must be combined with other indicators to derive whether an investment is good or bad. Many individuals invest in companies that they are familiar with and have no true concept as to whether the company is a good INVESTMENT. Take the time to properly educate yourself on the basic investment measures to determine whether you should place your hard-earned money in a company’s stock. Beta is one of those good starting points in the evaluation process. Seraphim Wealth Advisors provides client education on stock investing.

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