Investing in the stock market is one of the best ways to build wealth over the long term, but it can be complicated and stressful to get started if you’ve never invested before. However, there is good news.

The good news is that investing is more accessible than ever. Years ago, you had to work with stockbrokers who charged heavy fees and might not have your best interest in mind. Today, anyone can start investing with just a few dollars and there is a wealth of investment information and advice on the Internet.

• What you need to know before you Start Stock Trading?
• How do Beginners Trade Stocks?
• How Do I Find The Right Investments For Me?
• What Stock should I Invest in as a Beginner?

What you need to know before you Start Stock Trading?

When some people think of investing and the stock market in particular, they think of it like a casino or a get-rich-quick scheme. Although there are ways that you can invest to make large amounts of money in short amounts of time, they’re also incredibly risky.

Read Also: How to Protect Yourself from Stock Market Crash

Most people who invest don’t use these strategies. Instead, they use time-tested techniques like building diverse portfolios and low-cost investing methods to grow their nest egg over the years.

If you’re just getting started with investing, these tips can help you build your first portfolio.

1. Handle the Basics First

Before you start investing, you should cover the basics of your everyday finances. That means taking steps like building an emergency fund and paying off high-interest debt.

Many financial experts recommend that people maintain anywhere between three and six months’ expenses in an emergency fund (we recommend a Savings Builder account at CIT Bank). That means that if you spend $3,000 per month, you should have somewhere between $9,000 and $18,000 in savings. That’s usually enough to cover unexpected expenses or to weather a period of reduced income, such as unemployment.

The last thing that you want is to have to sell your investments when they’re low to cover living expenses, so a healthy emergency fund is important.

Getting rid of high-interest debt is also essential. For example, if you have debt that charges 12% interest, making extra payments toward that debt is equivalent to investing that money and earning a 12% annual return.

The S&P 500, an index of large American stocks, has provided an average return of 9.8% over the past century or so. Depending on your risk tolerance, you should aim to pay down any debt charging an interest rate near or higher than that. A common rule of thumb is to pay down debt charging more than roughly 6% interest before investing.

Of course, there are exceptions to this rule, such as investing enough to get your employer’s 401(k) match, but making sure you pay down costly debt and have emergency savings before you start investing are important.

2. Know Your Goals and Timeline

Before you start investing, you need to know why you’re investing. Different goals necessitate different investing strategies.

For example, someone who wants to preserve their capital and draw some income from it may opt for a more conservative portfolio, focusing on less-risky companies or investing in bonds.

Someone who wants to grow their nest egg over the long term, perhaps to build retirement savings, will likely want to invest in stocks that have higher return potential.

Your timeline for investing also plays a significant role in your investment strategy. If you’re a young professional and saving for retirement, you can handle the volatility that comes with investing in high-risk, high-reward stocks. As long as you earn strong, positive returns in the long term, it’s not a huge problem if your investments lose 50% of their value in a bad year.

Someone who is saving for a near-term goal, such as paying for a teenage child’s college, will want to construct a less volatile portfolio. Instead of investing in small, risky companies, they might invest in blue-chip stocks, bonds, or even CDs.

In general, investing should be a long-term endeavor. There are three primary factors that influence how much your portfolio will grow:

• The amount you invest
• The annual return of your portfolio
• How long you leave your money invested

Building a diversified portfolio can help reduce your risk and keep your portfolio growing over the years. That means that the longer you keep your money invested, the larger your investment portfolio will grow.

3. Know Your Risk Tolerance

Another factor that will impact your portfolio is your risk tolerance. Even if you’re investing for the long term and want to increase your portfolio’s value over time, your personal risk tolerance may lead you to less risky investments.

Someone with a high risk tolerance might be willing to build a portfolio composed solely of stocks if they have a long time horizon. People who don’t feel comfortable with that risk might want to hold a mixture of stocks and bonds even if their investment goals are long-term.

4. Choose a Brokerage

There are dozens of different companies that offer brokerage accounts to people who want to start investing. Choosing a brokerage is an important part of starting to invest.

Each brokerage offers different types of accounts, features, and fees, so you want to choose one that fits with your needs.

For example, people who want to save for retirement want to work with a brokerage company that offers IRAs. People who are saving for a child’s education should find a brokerage that lets them invest in 529 plans.

How you plan to invest also affects the brokerage you choose. Some major brokerages like Fidelity, Schwab, and Vanguard have their own line of mutual funds and don’t charge commissions when investors purchase their funds. If you plan to invest mostly in mutual funds and exchange-traded funds (ETFs), using the brokerage that also manages those funds can be a good idea.

If you plan to invest primarily in individual stocks, finding a brokerage with its own line of mutual funds is less important. Instead, focus on avoiding costs like account fees and trade commissions so you don’t pay a huge amount to build your desired portfolio.

You can earn a free share of stock (up to a $200 value) when you open a new trading account from Robinhood. With Robinhood, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.

5. Do Your Due Diligence

Whether you plan to buy individual stocks on the stock market or invest in bonds, mutual funds, or almost any other security, doing your due diligence is essential. That means researching every investment before you buy it.

Publicly-traded companies are required to submit certain paperwork to the SEC each year. These documents include information about the company’s revenues, expenses, account balances, and more. You should read these documents carefully and make sure you understand what they contain before investing.

For example, if a company has high debt, low cash balances, and falling revenues, you can find that out in the company’s annual report. Given the high risk of such a company, you might not want to buy shares unless you’re willing to accept that risk.

Some popular metrics that investors look at when researching stocks include price-to-earnings (P/E) ratios, earnings per share (EPS), and return on equity (ROE). These metrics can help you compare different businesses that you might invest in.

Another strategy that some investors use when researching companies is technical analysis. Technical analysts look at stock price charts and try to identify patterns, then relate those patterns to how the share’s price will change in the future.

For example, technical analysts believe that a stock’s daily price passing above or below the price’s long-term moving average indicates future gains or losses for the stock, presenting a good buying or selling opportunity.

Regardless of the strategy that you use to research stocks, having a strategy, knowing how to implement it, and taking the time to do your due diligence are essential.

6. Build a Diverse Portfolio

One of the most important things to do when building a portfolio is to diversify. You don’t want to put all of your eggs into one basket because a single hole in that basket could leave you with an empty portfolio.

For example, if you put 100% of your money into Enron stock, you’d have been left with nothing when the company went under. If you put 10% of your money into each of 10 different companies, even a collapse as bad as Enron’s would only cost 10% of your portfolio. Diversifying further reduces the risk even more.

Diversify on Your Own

The most basic strategy for diversifying is buying shares in multiple companies, but there are more advanced strategies that you can use.

For example, some people aim to split their portfolio between stocks with different market capitalizations. Market capitalization measures the total value of all of a company’s shares. Large-cap companies — those worth the most — tend to have lower returns but lower volatility than small-cap companies.

Holding a mixture of companies of different sizes lets you get exposure to the high-risk, high-reward of small-caps while getting some of the benefit of lower volatility large-caps.

Others diversify their portfolio by holding different types of investments. For example, you might build a portfolio that is 70% stocks and 30% bonds. Stock prices can be highly volatile but bonds tend to be more steady. A mix of stocks and bonds lets you get most of the benefit from strong markets, but reduces your losses during downturns.

Diversify with Mutual Funds

One of the easiest ways to build a diversified portfolio is to invest in mutual funds. Mutual funds pool money from multiple investors, then use that money to buy securities. A single mutual fund can hold hundreds or thousands of different stocks.

Investors can buy shares in the one mutual fund to get exposure to all of the stocks in that fund’s portfolio. Instead of having to keep track of 10, 20, or more companies that they hold in their portfolio, an individual investor only has to keep track of the mutual fund they invest in.

Mutual funds can use all sorts of different investing strategies. Some aim to track specific stock indexes, like the S&P 500 or the Russell 2000. Others hold shares in companies that operate in a specific industry, like health care or utilities. Some use an active trading strategy where the fund’s managers try to find good opportunities to buy and sell shares to beat the market.

Some mutual funds even hold a mix of stocks and bonds, or adjust their holding over time to reduce risk as time passes closer to a target date.

Mutual funds do charge a fee for their convenience and management services, but passively-managed funds tend to be quite inexpensive and the simplicity, diversification, and peace of mind they offer is worth the small cost.

Diversify with Robo-Advisors

One service that has grown popular recently is robo-advisory.

Robo-advisors are programs that invest on your behalf. When you sign up for a robo-advisory service through a company like M1 Finance, you’ll usually have to answer some questions about your investing goals, risk tolerance, and financial situation. The program uses that information to construct a portfolio for you.

Once the robo-advisor builds a portfolio, all you have to do is deposit and withdraw funds as needed. The software handles all of the day-to-day for you, such as buying and selling shares or rebalancing your portfolio if one asset class outperforms or underperforms the rest of your portfolio.

Robo-advisors also offer other perks. A common one is tax-loss harvesting, which sells shares for a loss and reinvests the money in similar securities. This lets you deduct the paper losses from your income when filing your tax return, reducing your taxable income in the short term. Deferring those taxes to later can help increase the size of your portfolio.

Robo-advisors charge a fee for their service, typically as a percentage of your invested assets. Many claim that their benefits lead to higher returns that offset the fee, but it’s up to each individual to decide whether robo-advisors are right for you.

7. Invest Logically, Not Emotionally

Whether you choose to invest on your own or to let a mutual fund or robo-advisor manage your investments, it’s important to make sure you don’t invest emotionally.

It can be easy to let your emotions and sentimental attachments to certain companies or brands make you want to buy their shares. However, liking a company isn’t the best reason to buy its stocks. You should base your investments on a sound strategy and research.

Similarly, it can be incredibly stressful to watch your portfolio’s value plummet as the stock market drops, to the point that you want to pull your money out of the market.

History shows that the most important part of investing is keeping your money in the market. Even the worst market timer in the world outperforms an investor who regularly moves money in and out of the market.

8. Avoid Leverage

For new investors, it can be very tempting to use leverage — borrowed money — to invest, especially if you don’t have much money to start investing. This is doubly true because many brokers have made it easier to access leverage than ever before.

A 10% gain on a $100 investment is just $10. If you borrowed another $900 to invest, bringing your total balance to $1,000, that same 10% gain would be worth $100, which makes the gain much more exciting.

The important point to remember is that leverage can be incredibly dangerous. Investing is never a sure thing. You could lose some or all of the money you invest, even if you buy shares in an incredibly stable business.

If you invest $100 and your stock loses 25%, you’ve lost $25 but still have the other $75. If you borrowed $900 to increase your investment to $1,000, a 25% loss means losing $250 — more than twice the amount of money you had to invest to begin with. If that happens, you have to sell the shares at a loss and find a way to repay the remaining $150 of debt that you now owe.

Advanced investors sometimes use leverage when executing specific investing strategies, but for most individuals, and especially beginners, it’s usually best to avoid leverage.

How do Beginners Trade Stocks?

Maybe there’s a product you use so much that friends or relatives say you should buy stock in the company. Or perhaps you received a windfall and want to invest a sliver of it in the market for fun and, if all goes well, profit.

If you’re itching to get hands-on with some active online trading, this section will help get you started.

1. Decide if this is the right strategy for you

You might consider trading stocks if:

• You’ve maxed out 401(k) matching dollars from your employer. Most 401(k) plans don’t allow participants to purchase individual stocks — instead, investors choose from a selection of mutual and index funds. But you can typically buy and trade stocks within an individual retirement account. Trading within an IRA can be beneficial: Because these accounts are tax-advantaged, taxes on capital gains may be deferred or avoided completely.
• You’ve contributed the annual maximums to a 401(k) and an IRA and are likely on track to meet retirement goals. You’re also willing and able to take on more risk by stock trading. In this case, you might want to open a taxable brokerage account with an online broker and trade within that account.

If you’re not yet steadily saving for retirement, you’ll want to start doing so before you start trading online. Maxing out a 401(k) and contributing what you can to an IRA is one of the most effective ways to build long-term wealth.

Trading individual stock not only carries more risk, it requires more effort than investing in mutual or index funds. You need to actively watch your positions and understand whether and how to react to market moves. This is not the kind of risk most retirement investors want to take on.

2. Get an education

Before you trade anything, learn everything you can about investing and the markets. Mistakes can be costly.

There are a lot of free educational resources that teach how to trade through an online broker. Consider Morningstar’s Investing Classroom or one of the investing courses on Udemy.com.

Also, most stock brokers offer their own educational centers and a staff of former traders or investment advisors who can guide you. Some brokers, such as TD Ameritrade, offer their clients paper trading, a simulation of trading that is a great way to practice without money or risk involved.

3. Select an online broker

Choose an online broker with the tools and support to match your needs. In general, beginner traders should prioritize customer support, educational resources, and account and trade minimums. In addition, consider the online broker’s stock trading software. New traders will want a platform that is streamlined, easy to navigate, and incorporates how-to advice and a trader community of peers to help answer questions.

4. Start researching stocks

Your account is open, and you’re ready to start investing. What’s next? Picking stocks, of course, and that’s the hairy part.

Most traders start by doing a thorough analysis of a company, looking at public information  including earnings reports, financial filings and SEC reports, as well as outside research reports from professional analysts. Much of this should be provided by your broker, along with recent company news and risk ratings.

Start slowly, picking one or two stocks and investing a set amount of money that you are prepared to lose. You can plow gains back into the stock — or into other companies — but don’t add more money to the pot until you know what you’re doing and can put research into other companies.

5. Make a plan and stick to it

Investing can be emotional, particularly for those new to the game. Losing money doesn’t feel good, and it’s easy to panic and pull out at the wrong time. It’s also easy to get swept up in the excitement of what feels like a winning stock.

That’s why it’s important to plan how much you want to invest at what price, and determine how far you’re willing to let a stock fall before you get out. Using the right type of trade order can help you stay on plan and avoid emotional responses. For example, stop-loss orders trigger a sale if a stock drops to a certain price, which can minimize risk and losses.

How Do I Find The Right Investments For Me?

Investing in the stock market can happen a variety of ways. You can do anything from hire a stockbroker to oversee your investments or make investments through an app on your smartphone.

When trading stocks, you can set up a fund with a professional, and invest based on their recommendations, self-direct your own trading, or you can employ a mix. You can find a broker either through a bank or an online trading platform.

Knowing which stocks to buy can be intimidating, particularly if you’re a beginner. As noted earlier, there’s no sure bet. However, there are several steps you can take to figure out whether an investment is right for you.

Contact a Stock Analysts

Stock analysts get paid to figure out which are the best stocks to invest in. If you’re getting into this game, one place to look would be to figure out what the pros are saying. They research companies and pore over publicly released investor information every day to make recommendations.

Sometimes they work for large banks or mutual funds. Other times they might provide information to paying subscribers. All stock analysts have the goal of generating returns for the investors who use their information, proving the value of their service.

A lot of these stock market gurus publish information online. However, just because they spend their days analyzing stocks doesn’t mean they’re good at it. Any serious analyst will put their money where their mouth is and publish their record. Evaluate the returns and read the reviews others before blindly trusting your investment strategy to any analyst.

Research The Industry

One of the things Warren Buffett preaches is to invest in industries that you’re passionate about. If you’re reading about certain industries and watching what happens within them closely, this makes you more likely to be able to pinpoint good investments within that particular industry. You’ll know which companies are on the right track and you’ll also have a better understanding of the external forces that impact that industry as a whole.

It’s these external forces that make diversification of your portfolio important. If you’re fully invested in tech stocks and there’s a critical shortage of the metals used in computer chips, that would negatively impact the entire industry and your portfolio would suffer.

On the other hand, if you have some money invested in Apple, some in Waste Management and some shares in a stock market stalwart like GE, it’ll be easier to weather a downturn in any particular business. This is why diversification is incredibly important.

Research A Company

It’s important to be able to do some research on the company you’re buying before moving forward with an investment. You can start by researching recent past performance of the stock. Be aware of tailwinds that might help the company meet future goals as well as challenges it might face in the near future. Does it have a new product? Or has it been a while since the company came out with something new? Is the company innovating in a new space or are they facing increasing competition?

As an example, Netflix was a first mover in the streaming video space, but in recent years it has had more competition. The streaming industry has also dealt with increasing fees for streaming rights.

Look At The Company’s Financial Statements

Reviewing company financial statements can give you an idea of the future of the company beyond revenues and expenses. In addition to figuring out earnings, knowing where a company spends its money tells you a lot about where management wants to take the organization.

If you have an idea of where the company is headed, you can make a better judgement of its long-term prospects. You’ll know whether they’re investing for the future with R&D or slashing headcount in order to keep the business afloat. Sometimes you can figure out a lot just by looking at the numbers.

Examine The Company’s Management

It’s important to be able to evaluate the management of a company as part of trying to determine its long-term prospects. When you do this, there are a couple of red flags you should avoid:

• A small leadership team with no clear succession plan. What happens to the company if the person with the vision leaves?
• Leadership is selling their stock. If this is happening, it might mean that they don’t have as much confidence in the future of the company. They could be trying to sell their stock while they can.

Find A Stock Broker

As mentioned above, you really can’t trade stocks on your own. It’s something that has to be done through a licensed broker. You can find an in-person broker in your area or do your trading with an online brokerage. Either way, you can have your stock trades either self-directed or managed by the broker.

Beginners may feel more comfortable having their trades managed by an experienced hand who can give them guidance while earning more in fees. There is a growing number of services that will let you direct your own trades while investing a relatively small amount of money.

It’s up to you what you feel more comfortable with.

What Stock should I Invest in as a Beginner?

Here are the 11 best stocks for beginners to buy:

1. Amazon (NASDAQ: AMZN)

Amazon (AMZN) is one of the best-performing stocks of all-time, and one of my personal favorites. Not only because I’ve made a ton of money from it, but also because I see the company as very well-positioned for growth in the future.

With Amazon’s stock price around $3,000 at the time of this writing, you may have to purchase fractional shares to get your hands on some. But don’t let that scare you away.

It’s hard to believe it, but Amazon’s stock has tripled in value over the past three years. Their annual revenue has more than doubled in that same time period. It’s impossible to know how high Amazon will go, but I will most certainly be along for the ride.

2. Alphabet (NASDAQ: GOOG)

Alphabet is the parent company of search giant Google. The company oversees all products and services related to Google Ads, Android, Chrome, Google Cloud, YouTube, Google Maps, and more.

Positioned to do over $150 billion in revenue in 2020, and over $200 billion in revenue in 2021, Alphabet is one of the world’s largest and most profitable companies. In one way or another, their products and services are embedded in nearly every computer and mobile device on the planet.

As of late, Alphabet’s stock price has swung a bit due to market volatility and also regulatory and compliance issues. All that aside, We think Alphabet is a solid buy-and-hold stock for new investors — especially those looking to dabble with fractional shares.

3. Apple (NASDAQ: AAPL)

Apple is another top tech stock that consistently reports top-ranking revenue numbers and returns for investors. This makes Apple a solid buy-and-hold choice for beginner investors.

Apple is most famous for inventing the iPhone, iPad, iTunes, AppleTV, iCloud, and Apple Watch. Apple also designs and manufactures a wide range of high-end personal computers, like the Macbook Pro and Macbook Air.

Shares are currently around $375 at the time of this writing. They aren’t as expensive as Google or Amazon, but they aren’t cheap, either. Either way, their returns are hard to beat.

If you invested $5,000 in AAPL five years ago, those shares would be worth around $15,000 today. Not too shabby!

4. Disney (NYSE: DIS)

The Walt Disney Company’s holdings stretch far beyond the Magic Kingdom. Under the Disney umbrella, you’ll find ESPN, Fox, Marvel, Lucasfilm (Star Wars), National Geographic, and a wide range of vacation-oriented locations and services located throughout the world.

Suffice it to say that today and into the future, everybody either wants to watch a Disney-backed movie or TV show or visit one of their many theme parks.

In my opinion, their massive reach, and ability to engage consumers all over the world, and of all ages, makes Disney a solid buy-and-hold stock for beginners. And that’s not to mention the recent launch of Disney+, the company’s recently launched video-on-demand streaming service, and up-and-coming Netflix competitor.

5. Facebook (NASDAQ: FB)

Facebook is the social media and advertising giant that was founded by Mark Zuckerberg. The company’s current stock price is around $240, which is about six times higher than it was during its IPO in 2012.

The company also owns Instagram and WhatsApp. Together, their products and services have over 2.6 billion active users as of the first quarter of 2020. That means one out of every three people on the planet uses their platforms. Wow!

With numbers like that, it’s easy to see why so many beginning investors are getting on board with Facebook shares. The company has a massive audience all over the world of engaged users and continues making smart investments (e.g., Oculus virtual reality). Add it all up, and Facebook seems poised to continue marching toward a $1 trillion market cap.

6. Microsoft (NASDAQ: MSFT)

Microsoft used to be the most valuable stock in the world before Google and Amazon overtook them.

Still, Microsoft is holding strong, providing millions of users with computers, hardware, software, and cloud computing throughout every corner of the globe. In large part, this is due to CEO Satya Nadella’s impressive tenure at the head of the company, where he’s overseen the acquisition of GitHub, heavy investments in Azure, the company’s cloud computing platform, and the release of services like Microsoft Teams.

Despite the global pandemic, Microsoft stock has risen to an all-time high at around $211 per share at the time of this writing.

Microsoft’s recent performance is proof of the value of buying and holding when it comes to blue-chip stocks. And that’s precisely why I recommend Microsoft as a solid stock to buy for beginners.

7. Netflix (NASDAQ: NFLX)

Netflix is the pioneer of streaming video. The company is on pace to exceed $24 billion in revenue in 2020, serving over 182 million subscribers around the world.

One thing we really like about Netflix is that it still has so much potential to grow its market share. Currently, less than half of Netflix’s subscribers are located in the United States. As highly-populated countries like Brazil and India continue to modernize their internet infrastructure, it’s safe to assume that Netflix stands to benefit in the form of tens of millions of additional subscribers.

We also wouldn’t be surprised if one of the other companies on this list — like Apple — decided to buy Netflix one day. Apple is sitting on a ton of cash and hasn’t really come up with a new line of products in a while. Maybe Apple decides to use some of that cash to make a splashy acquisition over the next few years? Who knows?

One thing’s for certain: I’m keeping Netflix in my portfolio to capture my slice of that potential upside, just in case.

8. Nike (NYSE: NKE)

Nike is the largest manufacturer and supplier of athletic shoes and sports equipment in the world. Since 2016, the company has consistently exceeded $30 billion in annual revenue. And, like all of the stocks in this post, the company’s share value continues to rise over time.

Nike is another one of those safe, blue-chip stocks from the leader in its segment. This is purely my own speculation, but as the population continues to grow, so too, should Nike’s global reach.

It’s worth noting that most of the companies on this list are tech companies. Any good portfolio should be balanced, so adding a solid retailer like Nike to your portfolio is always a good way to diversify your investments.

9. Pinterest (NYSE: PINS)

Pinterest went public in 2019. The company offers a visually-focused social media platform that gives people a unique way to share and learn about travel experiences, design and decor, art, recipe ideas, and more.

Read Also: 8 Thing you Need to Know About Stock Market Correction

Pinterest is a solid buy, and it could be a great bargain right now. While their stock price has been somewhat of a rollercoaster since their IPO, it feels like almost every big tech stock experiences ups and downs in the early years.

As Pinterest figures out additional ways to monetize its platform and grow its user base, don’t be surprised to see its stock growth accelerate.

10. Spotify (NYSE: SPOT)

Spotify’s stock value is on fire lately due to its recent partnerships with Kim Kardashian West and Joe Rogan. Pundits believe that these celebrity endorsements help the streaming music juggernaut stand out from its competition, and that over time, the company should continue to gain market share.

Currently, Spotify has over 124 million paid subscribers and over 270 million active users on the platform. It’s hard to predict how much higher their stock will climb. At the time of this writing, Spotify costs $270 per share, up from around $149 during its IPO in 2018.

11. Tesla (NASDAQ: TSLA)

If you’re a firm believer that electric cars are the future of automotive transit, and you’re a fan of Elon Musk’s bold visions, Tesla could be a solid addition to your portfolio. Keep in mind Tesla isn’t just cars, either. The company is also focused on disrupting the battery sector and purchased SolarCity a few years ago.

However, with share prices approaching $1,500, you may need to get started with fractional shares if you want to add Tesla to your portfolio.

Conclusion

Investing in the stock market can be exciting and is an important part of building wealth. Making sure you understand how to invest and research potential investments before starting is important.

You should also take the time to consider different investment accounts. While investing in a 401(k) or an IRA is good, many people could also benefit from a taxable brokerage account. Understanding the different types of accounts you can use can help you make the most of each dollar you invest.