What are the good stocks to invest into? This is very relative and depends primarily on your investment goals. Therefore, to starting point in deciding which stocks to pick is to do some investment planning.

The objecting of investment planning is to spell out your investment goals; you then proceed to decide on the mechanisms to meet your goals.

The rule #1 in setting your financial goals is precision. "To earn as much as possible" is not a good financial goal. It is too vague, undefined and abstract. The good ones are concrete and realistic but challenging:

• Deposit for purchasing a new house
• College fund for your child

The rule #2 is that your financial goal must be measurable. For example, aim for $100,000 rather than "lots of money".

How will you know you've reached your financial goal? Each one of them needs to have a time component attached to it. Finally, the circumstances are subject to change, so your goals have to be flexible rather than lit in concrete.

I suggest you draw 3 financial plans, each with a different time-frame. The plans with the shorter time-frame are always a part of the plan with the longer time-frame, which is the "bigger picture":

1. Long-term financial plan (5 to 10 years)
2. Annual financial plan, and
3. Short-term (operation plan)

Remember that more than one path can lead to the same goal. An extension to a house, for instance, can be purchased with a lump-sum, or a loan. Depending on your financial goals, the stocks to select fall broadly into one of the following categories:

• Speculative stocks
• Income stocks
• Growth stocks

Speculative stocks

The stocks of start-up mining and exploration companies are typically speculative. This means that they are not highly priced, but have the strong potential. Sometime these stocks can stay penny-priced for months or years; then suddenly, a big discovery is made; investors pour in, and the stock takes off like a rocket, returning many times over the initial investment.

Speculative stocks are what they are - speculative. You cannot rely on them to grow or provide you with income, and prepare yourself for the potentially long wait. Successful speculative traders find a penny stock broker, invest for the long-term and arm themselves with patience.

Interestingly, day-trading or short-term investing is often deemed as "speculative". It is fraught with danger because determining any significant short-term movement of the stock is quite hard.

I prefer the more tradition definition of speculative stocks as the ones of little value but big potentials. Huge corporations that are today considered to be rock-solid investments started as speculative stocks. However, for every such company that grows into a major enterprise, there are scores of ones that quietly disappear after running out of money.

Whether you decide to invest in a speculative stock or not depends on your investment goals and your level of acceptable risk.

Income stocks

Income stocks typically provide the stockholders with regular income through high-yielding dividends. which can be fully franked (the company has already paid tax on them), partially franked on un franked.

Income stocks investors can hold their investment for years, decades even, while collecting the dividends every year.

Since income stocks are more oriented towards providing you with regular dividends rather than growth, they are highly suitable as an additional income stream.

Growth stocks

Growth stocks pay smaller dividends than income stocks, or pay them irregularly, or both. Some growth companies rarely, if ever, pay dividends.

That makes them attractive is the capital gain. The company grows and the value of its stock grows, appreciating in value.

Personally, I am not too thrilled about companies that provide no dividends at all. You often end up buying into high-priced stocks and successfully trading them depends on the finding the "bigger fool", i.e. someone who will pay even more.

Knowing about the company and the industry it is in are essential to determine if it has good growing potential. Some companies expand very aggressively, borrowing money to capture new markets, and stretching themselves to the limit (or, sometimes, over the limit).

Other companies prefer more conservative approach - the smaller but steady growth with considerably lower risks.

Rick versus returns

Before opening your stock trading accounts and embarking on stock trading on the Internet, consider what is better, to invest into speculative stocks, income stocks or growth stocks? This depend on your investment goals and to a large degree to what for you is the acceptable level of risk.

Keeping your money in a safe does not carry many risks, but there is also no potential for profits. In fact, you're guaranteed to lose due to inflation. To retain their value, your investments must at least appreciate at the rate of inflation.

Inflation means depreciation of value over time, and it is the biggest government-sponsored theft in the history of mankind. Through inflation the government is sure to steal a part of your work every year until there is nothing left. In the past the value of money had its backing in gold, but one country by another replaced this by inflationary mechanisms. Inflation has the threefold purpose:

a) To force you to invest, i.e. to circulate the money aiding the economy and providing more tax for the government

b) To force you to work more, and

c) To fill the governmental pockets, which is easier done through legal theft than through sound management and responsibility.

Be it as it may, the inflation is there to stay and has to be factored into your investing.

Investing into growth companies typically carry more risk than investing into income stocks, but less risk than investing into speculative stocks. However, with more risk come potentially greater returns.

If you're averse to risk, go for older, well-established companies with the proven management and conservative approach to growing the business. If you have high tolerance to risk, go for more speculative stocks.

No mater what you choose, your investment has to be able to pass the "sleep test". It means that you have to be able to sleep soundly at night and not worry about the potential losses and the direction your investments are going to take.

Risks to consider

If you were to pose to consider every conceivable risk that can affect your market, you'd probably be scared off investing for the rest of your life. The potential risks are innumerable, and most are completely out of your control. For example, a terrorist attack can severely depress all stocks related to tourism and affect a whole range of industries. Or, our of the blue the government may pass the law that is greatly beneficial (or detrimental) to the stock you've invested in.

I suggest a practical approach, which is developing knowledge about the company you're investing in and being aware of the industry it is in and the overall market conditions.

The company may expand and operate with solid profits, but if the market conditions are not right the stock can still go south. In a bear market even rock-solid performers can see the value of their stock sliding down.

Investing into stocks always carry a degree of uncertainty. However, there is no direct correlation between risks and rewards and stock-trading is not the same as gambling. You should always strive to maximize the returns while minimizing the risk. How do you do that? By applying the greatest risk-reducing, profit-maximizing tool you can possibly have. Knowledge.