How to Invest in Stocks for Beginners: A Guide for First Time Investors

Investing in stocks is one of the best ways to build wealth and own a portion of the world’s most amazing business. Stocks are portions of real companies that are publicly traded across international stock exchanges.

My goal is to make you financially independent and secure using the power of stock market investing.

A whopping 46% of Americans currently do not invest in the stock market. I think that’s a shame because all of us spend our hard earned money with several publicly traded companies like Google, Apple, McDonald’s, and others every day.

If you enjoy the product, why not enjoy owning the stock too?

Hopefully, this article will change your mindset into a positive one where you embrace stocks and shift towards a wealth building mindset instead of consumer mindset.

You can consume your favorite products and services while building wealth at the same time. You can then pass down this wealth to your children, relatives, or favorite organization in the future. It’s important to think long term and prepare for the future now so you have more options in life.

How do you get started? Read this step by step guide showing you how to invest in the stock market even if you’re a complete beginner.

Decide How Much to Invest

The first step to investing in stocks is figuring out your initial investment amount. Whenever someone asks me how much money they need to invest, I recommend starting off with at least $100.

Most brokers don’t have a minimum deposit but you want enough money to buy at least one share of a decent company. Getting started is more important than anything else.

Here’s a couple ideas for intial investment amounts to get you started on the right track:

  • $100
  • $500
  • $1,000
  • $10,000
  • $25,000
  • $100,000 or more

Someone you reading this article are sitting on a large pile of money (more than $100k) but don’t know where to invest in. Later on, we will talk more about asset allocation, portfolio construction, and choosing between growth and value stocks.

For now, I want you to come up with an initial amount that works for your u.

Open an Online Brokerage Account

You need a brokerage investing account to invest in domestic and international stocks.

Your brokerage account allows you to buy and sell stocks during normal trading hours.

You can also buy stocks direct through the company but most people prefer to use 3rd party brokers for accessibility, liquidity and ease of use.

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Researching Stocks

Research is one of the most important strategies to building a winning stock portfolio. You can’t simply buy what’s being talked about on CNBC and do well. The stock market is an emotional, volatile machine that operates on fear and greed. Research allows us to separate ourselves from emotion and invest with sound reasoning and good instrincts.

How do successful investors (not traders) view the investing universe? Are there any trends in the way they pick their investments?

Lessons from Legendary Stock Market Investors

Here are some insights distilled from the methods and writings of investment legends like Warren Buffett, Philip Fisher, and Peter Lynch.

  • Stay within your circle of competence: You are best positioned to identify winning companies within your own field of expertise. If you work in retail, you are more qualified to decide if you should invest in companies like Walmart, Target, Best Buy, etc. than the latest bio-tech company.
  • Look for Economic Moats: There are some companies that manage to be virtual monopolies in their area. These companies have, over the years, succeeded in building a “moat” around them to keep their competitors away. They have a durable competitive advantage. Some examples of competitive advantage are:
    • Brand – Think Harley Davidson, Coke, BMW. These are brand names etched in the public mind as the best in their class. These companies can raise their prices on the strength of their brands resulting in deeper profits.
    • High Switching Costs – When was the last time you switched banks? Or cell phone providers? Or cigarette brands, if you are a smoker? You get the picture here? Companies that have high switching costs can hold on to their customers a lot longer than companies that don’t.
    • Low Cost Producer – Companies that are able to make products and sell them at phenomenally lower prices than their competition automatically attract customers – lots of them. As long as quality is not compromised, of course. Walmart and and Dell have perfected this concept to a science.
    • Secret – Large pharmaceutical companies with patents; companies that own copyrights, drilling rights, mining rights, etc. are pretty much the sole producer or service providers in their area. Again, these companies can raise prices without fear of losing customers, resulting in higher profits.
    • Scalability – This is a product or service that has the potential to network or add more users with time. Adobe has become the defacto standard for publishing, Microsoft’s Excel for spreadsheets. eBay is a great example of a user network. Each additional user to the network costs the company virtually nothing. The additional revenues that come in as the network expands go straight to the bottom-line.
  • Quality of Management: How competent is the management running the company? More importantly, how focused are they toward the company, customers, investors, and employees? In this age of rampant corporate greed, it’s always a great idea to research the management of the company. The companies annual reports as well as newspaper/magazine articles are good places to get this information.

See Which Products & Services You Use Regularly

I often find the best investment ideas by taking a look at my own persoanl spending habits. Why? Because if I like a certain product, chances are the company is doing a good job, has sound management and is making a lot of money. Take a look at your own buying habits and see which products/sevuces appeal to you.

Most products clearly list the company name and brand infomration on the packaging. Household items like toothpaste, hair care or beauty products list the company name in fine print on the back of the label.

Once you find the company name, just Google “company name + stock” or “company name + investor relations” to see if it’s publicly traded. Certain brands are owned by a parent company that trades on a major US stock exchange.

If the company is not publicly traded, then you cannot buy stock because it;s privately owned. You can always look out for a potential IPO in the future, though.

Types of Stocks: Growth Vs Value

Stocks tend to fall under two types of categories:

  • Growth stocks
  • Value stocks

Growth stocks are companies with fast-growing revenue but don’t necessarily post a profit. Tech stocks, solar energy stocks and cannabis stocks are examples of industries with tons of growth investing opportunities. You aren’t paying from profits today; You are paying for the growth and expected earnings in the future.

Value stocks are generally older, more established companies with a long history of profitability and dividend payments. Stocks like At&T, Walmart and Coca Cola fit into this category. These stocks are better suited for income investors who want to collect regular dividend payments.

Determine Your Portfolio Allocation

When it comes to portfolio allocation, it all depends on your investment goals and time horizon. Your portfolio will be made up of a mix of stocks (long term investments), bonds (short term income producing assets) and cash.

A conservative rule for building your portfolio is the rule of 100. You simply determine your stock & bond mix by subtracting your age from 100.

Ex. If you are 40 years old, then your portfolio will be 60% stocks and 40% bonds. We subtract 40 from 100 to reach 60. As you age, your portfolio will continue moving towards bonds to protect your principal and preserve your equity.

Set a Budget

Start Investing

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Tarik Pierce is the founder of InvestorTrip.com and regularly contributes articles to this website. He studied Economics at Dartmouth College and invests in a mix of dividend stocks, high CAGR tech stocks & cryptocurrencies.

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