4 Investing Tips For Beginners

For many people, especially millennials, investing is a scary word. Millennials watched their parents, friends and relatives struggle through the most recent financial crisis of 2008-2009, where investment values were nearly cut in half. Many individuals lost their jobs and a significant portion of their retirement savings as stocks, bonds, mutual funds and 401K values all declined. With the crisis now well behind us, the market has rallied from those lows and hit all-time highs, which for some resulted in significant gains. However, many people missed out on those gains because they were scared to invest and put their hard earned money to work because they feared another great collapse. The good news is that investing doesn’t have to be scary; in fact, it can be fun (if you’re a little nerdy like me or if you’re a fan of gambling, but with a bit more certainty that you’ll win). Below I’m sharing with you a few tips for novice investors. For more basic information on investing and as a preface to this one, check out my previous post What to Know Before Investing.

Shop Around

Before you even think about investments, you need to find a broker or investment company to work with. There are hundreds of different companies out there, each with their own pros and cons. Mutual funds can be purchased directly through the fund’s manager itself or through an independent broker. Stocks, bonds, options and the like are purchased through a broker. For the beginner investor, I recommend using one of the more well know brokers to manage your investments. TD Ameritrade, Fidelity and Charles Swab are some of the common electronic brokers that offer investors low trading commissions. Picking a broker with the lowest commission rate may not always be the best way to go. For example, some sites may have very low commission rates, but may not offer any research or training and may be difficult to use. My husband and I use TD Ameritrade because we like the research and tools they offer to their customers and the commissions they charge are reasonable (but certainly not the cheapest). Some brokers offer referral incentives for both the referrer and the recipient, such as free trades. That’s always a nice way to start! Do a little research and pick the broker that you are most comfortable with.

Do Your Research

Investing is very similar to school. In order to do well in school, you usually have to study and do your homework, among other things. The stock market is the same way, and this is true regardless of whether you are buying individual stocks, ETFs or mutual funds. Before you purchase any type of investment you should do research and study what you are planning to invest in. People may think that they don’t need to research anything because they are buying a mutual fund or ETF and that simply isn’t true. If you are buying a mutual fund you should research the fees being charged to you. For example, are you being charged a front-end or back-end load fee? Or is the expense ratio being charged high? Some funds have higher expense ratios that don’t necessarily convert into higher returns. Ideally, you would want a mutual fund that offers high returns, with relatively low risk and a low expense ratio. By doing research, you can find the funds that offer that ideal combination. If you are investing in individual companies you want to learn as much as you can about those companies, the industry and the financial performance of those companies as you can. Even for ETFs it’s helpful to research what the ETF invests in and the securities it holds before purchasing anything.  ETFs can hold stocks, bonds or commodities and different ETFs will have different types of risk. Doing your research will allow you to narrow down your choices to the ones you are most comfortable with.

For individual companies, the research needs to be slightly more detailed. For a beginner investor if you want to invest in individual companies I suggest starting with larger, well-known companies, or what many people call “Blue Chip” stocks. These companies are typically lower risk and offer consistent returns. Many of these stocks even pay dividends which increase your returns. A few key things to look for are: earnings per share growth (EPS), a high return on equity (ROE), relatively small or manageable amounts of debt, a good management team and a price to earnings (P/E) ratio that is in line with its peers and the market as a whole. I find Simply Wall Street a great site for investors because it has a fun interactive way to learn about companies and it provides a tutorial that guides new users through the site and teaches them how they can use the site to do research. Those items will help a beginner investor narrow down his/her list of stocks to choose from.

Stay Current

Once you have committed your capital to an investment, be sure to check in on it. This is especially true if you have invested in individual companies. If you have or are building your own portfolio of stocks, checking in at least once a week on each stock is a good way to stay up to speed with the company and its developments. There are plenty of apps that enable you to watch stocks without even having to log into a brokerage account. I personally like Apple’s “Stocks” app, which comes standard on the iPhone because this shows you the current stock price (down to the minute), historical stock prices, news and much more, all in one location. If you own ETFs or mutual funds, checking in on the industry or the market as a whole is also a good idea. Being well-informed can only help you make better decisions later down the road. Keep in mind that the market doesn’t always go up. There will be fluctuations and your investments will go both up and down. If you have done your research and are comfortable with your investment, the short term gyrations are just bumps in the road as your investment value grows into the future

Start Small

If you are new to investing, you don’t need to put your life savings into the market all at once. In fact, you should avoid that! Before investing anything in the stock market, you should have an emergency fund set up and some additional savings that you can use if needed. When you have established those savings, start small and open up an account with $1,000. The idea is that you have to be comfortable with the risk that there is a chance that you may lose some money, so if you plan on taking that $1,000 out in the short-term because you’ll need it for something in the near future, it might not be the right time to invest for you yet. You also don’t want to put so much money into investments that it forces you to struggle financially because you have no liquid assets. It’s all about finding your balance and your own magic number. I suggest $1,000 as a starting point simply because it’s enough to buy multiples shares of a few stocks with (if that’s the route you choose), but it’s also not a fortune. When I first opened up my brokerage account, I started with $1,500. Six years later and I have added more to that and that money has grown. Once you get the hang of it and you start to feel more comfortable or have more money to spare, you can always add more. Plus, adding that small amount may help you overcome the fear of investing.

What broker do you use, or plan to use, for your investments? What amount did you first put into the stock market when you began investing or what do you plan to start with? Do some research and get back to me in the comments 🙂

18 thoughts on “4 Investing Tips For Beginners

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  1. I use the Apple app as well to get a snapshot of my stocks/funds. In the beginning, I didn’t like it as much and couldn’t delete it back then since it was built it (lol) so I decided to embrace it! Speaking of apps, I’ve been using Robin Hood lately for trading. There is no commission at all for the basic platform which offers lots of securities. The only thing is you can only trade on your smartphone, but I’m fine with that.

    1. Robin Hood sounds really interesting. I’ve never used it, but have seen it referenced before in other articles. Is it just stocks or can you trade ETFS and options? Also, are there any limits on the number of trades you can execute?

      1. Yes to ETFs since I recently bought one from RH platform. I’m not sure about the quantity of trades or if you can trade options. The platform is pretty user-friendly. In terms or research, I’ll just use Google or other sites before I decide to buy or sell. Good luck!

    2. I’m very interested in the Robin Hood! I’m going to have to look into this. I’ve been using TD for years, so I’ve just kind of stuck with it and never really looked into any others because I haven’t had any complaints really. But no fees kind of sounds like a good place to put a little bit of money for some free trading. Thanks!

  2. I use Vanguard and purchase passive index funds. They are nice and easy to pick up and I love the low cost fees involved. Although I am intrigued by Robinhood’s investment platform which allows you to trade for free. Definitely seems like there is downward pressure on brokerage fees.

    1. Lost cost or free = happy customers! I definitely agree about the downward pressure. With all the technological advances, I’m sure fees will continue to decrease in order for brokerages to stay competitive.

    2. Yea there certainly is a race to the bottom in terms of fees. However, I’m worried about Robin Hoods execution. They can’t remain free forever, so they’ll have to make money somehow. I think they’ll probably end up widening the bid-ask spread, thereby earning the difference. That is akin to a brokerage fee.

      1. You bring up a good point. With all the technological advances making it easier for competitors to start businesses, I’m curious to see how this impacts companies overall. I feel that it can go one of 2 ways: increasing fees in one way or another OR finding other ways to make their money (advertisements, offering specific paid for services, etc.).

    3. As a budding Boglehead, I’m on board with your approach, MustardSeedMoney! I’ve become convinced that passive investing is the best way to weather the market’s ups and downs 🙂

  3. I use Fidelity, because my first job’s 401k was administered through them. I have a very simple 3-fund portfolio, invested in the Blackrock iShares ETFs ITOT (70%), IXUS (20%) and AGG (10%). I chose these because their fees are relatively low, and I get to trade them commission free. Plus, I can always swap them out for cheaper alternatives because they are tax defferred accounts.

    One interesting way to DIY invest is to use Motif Investing. They let you pick up to 30 securities to invest in at once, and charge you a single fee (I believe it was $9.95 at some point, not sure now). This makes it much cheaper if you want to avoid Mutual Funds / ETFs. I think re-balancing is $7.95. This works very well for DIY folks who want to do their own research, and invest in individual companies. I’ve never used them, and I don’t plan on it: my 3-fund portfolio is the way to go for now.

    1. Commission free trading is always a good thing! I had Fidelity at one of my prior employers, as well, but I rolled it all into TD Ameritrade because I just wanted one place to manage it all.

      Motif sounds interesting. Like you, I’m happy with where my retirement funds are at the moment, but definitely something that may work for others!

  4. Thanks Courtney for treating us to this excellent article. I really liked your tip number #2 Do Your Research. I also believe that one cannot become successful in share trading without doing a thorough research and analysis. I hope all the investors come across your article some day and get an opportunity to read this marvelous piece.

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