Stock Investing for Beginners: How to Succeed Without Being a Pro
Saving money on stock investing beginners succeed does not have to be complicated. We rounded up the essentials so you can spend less and skip the guesswork.
Key Takeaways
- Share This content is for educational purposes only and does not constitute financial advice, advisory, or brokerage services.
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- This is an in-depth beginner’s guide on how to invest in stocks and make money.
This is an in-depth beginner’s guide on how to invest in stocks and make money.
Here’s what we’ll cover:
- The common misconception about stocks.
- Questions to ask yourself before making your first investment.
- A simple five-step strategy for purchasing your first stock.
- Four common mistakes new investors make.
This article specifically focuses on stock investing. You can also read our beginner’s guide to investing to learn about investing basic, best practices and potential alternatives to stocks.
Table of Contents
ToggleWhat Is a Stock?
A stock is a share in the ownership of a company. This simple idea frequently gets lost on new investors.
“Stock certificates are deeds of ownership in business enterprises and not betting slips.”
, Warren BuffettAs a stockholder in a company, you have a claim on part of the company’s assets and earnings.
How much a single share of stock is worth at any given time is determined by supply and demand. In other words, there’s no formula to determine a stock’s cost.
This is why stock prices fluctuate wildly over the short-term , because prices are based on emotion and psychology, not logic.
Things to Consider Before Investing in Stocks
Most beginning investors want to rush into buying stocks based on their gut feelings about which companies will do well in the future.
Think Apple, Amazon and Tesla will only get bigger? If so, then making money is as simple as buying shares of stock in those companies, right?
Not necessarily.
Here are some things to consider.
#1. What Is Your Long-Term Investing Goal?
There are two primary reasons people become interested in stocks:
- To try and outperform the market.
- For long-term wealth accumulation/retirement savings.
The first group mainly consists of people looking to purchase shares of a specific company or two they feel will go up. Their approach is based on making short-term gains.
The second group consists of people who view stocks as a way to help them accumulate wealth and save for retirement. They’re not aiming to beat the market; instead, they’re looking to put money into funds composed of stocks that track the entire market (the S&P 500 being one example).
It’s key to know up-front what type of investor you are. While there’s nothing wrong with your particular motivation for wanting to start investing in stocks, it’s key to understand your goals and how they relate to your overall financial plan.
#2. Beating the Market Is Nearly Impossible
92% of investment professionals who actively select individual stocks fail to outperform the S&P 500 over 15 years.
Seeing that anyone can easily invest in the S&P 500 and outperform all but 8% of investment professionals, why try and pick individual stocks? The truth is, numerous of us shouldn’t.
But then again, going to a casino doesn’t make financial sense either.
If you’re the type of person that can stick to a passive index-fund-based strategy (i.e., a fund that tracks the entire market), then by all means, you should. Yet, being realistic, the allure of the stock market for numerous beginners is the chance to invest in the next Apple, Amazon, Google or Tesla.
Investing legend Burton Malkiel, who helped popularize the index fund movement with his classic book A Random Walk Down Wall Street, has sound advice for those looking for instant riches. What surprises numerous people is that he also can’t stop himself from trying to beat the market by picking individual stocks.
Here’s how he does it:
“How do I square that with sensible investing? You take your serious retirement money and invest it in index funds. Then, if you’ve got a little extra money, go ahead, have fun. I do this myself. Do some homework, do your stock picking and then hold on. It’s like the horse races. From time to time, someone will get the daily double. But over the long haul, you’ll lose. Gambling may be fun , I enjoy the horse races , but I do it for entertainment, not because I think it’s investing.”
, KiplingerPersonally, I use the 10% rule of thumb. I enjoy trying to beat the market but I limit myself to gambling no more than 10% of my investable funds to do so.
#3. Leveraging Tax-Advantaged Accounts Is a Excellent Idea
Another key consideration is the tax-advantaged accounts you have available to invest in. Investing in a 401(k) or an IRA can help increase your tax return over time. If you have them available, or qualify for these accounts, they’re frequently the best place to start.
If you have a 401(k) match that you’re not taking ad
Final Thoughts
The bottom line: a little research on stock investing beginners succeed goes a long way. Compare your options, watch for seasonal offers, and never pay full price when a better deal is one click away.
Originally published at thewaystowealth.com.
R.J. Weiss
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