Getting started investing when you’re a beginner in the stock market can be plenty intimidating at first.
The learning curve combined with the fact that you are putting your own money at risk is often enough to scare many average people away from one of the safest ways to financial freedom.
However, even the most successful investors had to start somewhere, and it’s never too early to start planning for the future and learning how to invest.
The most important thing you can do is get an investing education first. Learn the basics of the stock market and if there is something that you don’t quite understand, ask. That’s the secret to successful investing for beginners.
In this beginner’s guide to investing, we’ll cover the 10 steps you need to know to get started investing and growing your wealth in the stock market.
1. Learn How to Invest for Beginners
Before you get building wealth, it’s important to understand the basic goal of investing as well as the basic process that you will use to reach that goal.
Ultimately, investing is all about buying $10 worth of value for $5 bucks.
When you are able to buy a company for less than what it’s true value, you set yourself up to grow the value of your investment over time – which is the ultimate goal of investing.
In order to determine if a company is worth more or less than what the market is asking you to pay for it, you will need to look at a number of qualifications.
Rule #1 investing, breaks those qualifications down into what we call the 4M’s of Investing.
These 4M’s are Meaning, Moat, Management, and Margin of Safety. In other words, the 4M’s of Rule #1 investing dictate that you should only purchase a company if:
- You understand how the business operates and it has personal MEANING to you.
- It has a MOAT – or something intrinsic about the company – that protects it from competition.
- It is run by reliable, trustworthy MANAGEMENT.
- It is priced at a point that offers a MARGIN OF SAFETY, meaning that it is priced at least 50% below its true value.
If you find a company that meets all of these qualifications, you will likely have found an ideal investment opportunity.
Get my full 4M’s of Rule #1 Investing Guide here.
At this point, all you need to do is place your money in the company and keep it there for the long-term. If you made a wise investment, your money will grow in value for many years after you invest it in the company.
Now, investing in individual companies does take a little bit of learning, but it’s like riding a bike…Once you get the hang of it, it’s with you for life…
And it makes you rich over time.
Investing should be simple and accessible to everyone, and that’s what we aim to teach.
2. Types of Investments Beginners Need to Know
There are several different types of investments that you should be aware of before you start investing your money. Although, we focus on stocks, there are some other options out there.
These investments include:
When you purchase an individual stock, you become a partial owner of the company whose stock you purchased. That means when the company makes money, so do you, and when the company grows in value, the value of your stocks grows as well.
Investing in stocks is by far the most rewarding investment option since it allows you to profit from owning any publicly traded company that you wish to invest in.
On average, the entire stock market grows at a rate of about 7% a year, but it is possible to achieve much higher returns by investing in hand-selected individual companies.
Bonds can be purchased from the US government or from individual companies. Rather than buying your ownership in a company, bonds essentially allow you to “loan” money to the government or to a company in exchange for modest returns. On average, bonds offer a return of 2%-3% per year.
Not great…Especially if you’re getting close to retirement and don’t have 40 years to grow your money.
Investment funds are a basket of stocks that are overseen by a fund manager. While these funds are built and managed by so-called “financial experts”, they typically have a hard time beating the market when you factor in the fees that fund managers charge to those who invest in their fund.
You’ll have a much easier time (and more fun!) learning how to invest your own money rather than relying on some mutual fund manager who can’t beat the market.
How to Invest in a Mutual Fund for Beginners (Check Out Index Funds Instead)
If you don’t want to do the work (and reap the rewards) of learning to invest into individual companies, there is a “put your money in and forget about it” option available that will typically generate better results than a mutual fund.
Simply putting your money in an exchange-traded fund like the S&P 500 (SPY) – a collection of the 500 biggest companies in the market – allows you to profit from the market’s growth without having to pay fees to a fund manager.
Aside from investing in individual companies (Rule #1 Investing), this is the best option beginner investors have available.
Bank products include things such as savings accounts, money market accounts, and CDs. While seen as less risky than other investment options, these bank products typically don’t offer enough of a return to be worthwhile.
Most bank products offer a return of less than 2% per year, not even enough to keep up with inflation.
Options are pretty complex and are probably best avoided by beginners. In the most simple terms, purchasing an option in a company gives you the option to buy or sell shares of that company at a set price within a set timeframe.
Options are incredibly risky if you don’t know what you’re doing.
There are some safe options trades you can do, but we don’t talk options on the blog. This is a place to learn how to invest. If you want to get into these safe options trades, you’ll have to attend one of my monthly investing workshops in Atlanta, GA.
Typically used to supplement retirement income and lock down a steady, monthly payment, annuities are a contract between an investor and an insurance company where the investor pays a lump sum in exchange for periodic payments made by the insurer.
While annuities may be helpful for some retirees, they are not an ideal investment option for beginner investors.
Initial Coin Offerings and Cryptocurrencies (Stay Away)
Take my advice and stay away. Cryptocurrencies such as Bitcoin have gained a lot of interest in recent years as an investment vehicle.
However, they remain an incredibly risky investment due to risk factors such as the possibility of government regulation and the possibility that the cryptocurrency will never see widespread acceptance as a form of payment.
At this point, no one knows for sure what the future of cryptocurrencies holds in store, and investing in cryptocurrencies is little more than speculation.
We don’t invest in things we don’t know. That’s not investing, that’s gambling.
3. Start Investing in Stocks
If you are looking for the most profitable place to invest your money as a beginner, buying stocks in individual companies is the best option you have available.
Investing in individual companies is less risky than investing in things such as options and Cryptocurrency while at the same time offering much higher returns than investments such as bank products, bonds, and annuities.
With the right investing strategy, buying individual companies in the stock market can enable you to achieve returns of more than 15% per year.
This is the investing strategy that I teach. The same strategy that the best investors in the world, (like Warren Buffett) has used to crush the market for 60 years.
How to Invest in the Stock Market for Beginners
Succeeding at investing in stocks is all about choosing the right companies as well as the right time to invest.
This process entails carefully researching each company that you are considering, looking at factors such as its past performance, its financial reports, its management, its moat, its personal meaning to you as an investor, and more.
Once you have found a company that meets your qualifications, it still may not be prudent to invest in it right away. Instead, you’ll want to put the company on your watchlist and wait until the stock market places it on sale.
The good news is that the market puts wonderful companies on sale all the time. If you’re patient, the companies on your watchlist will eventually dip to a price that allows you to buy them up for a bargain rate and profit once the price of those companies goes back up to their true value.
Investing Tip: Check Your Emotions
By far the most important stock marketing investing tip for beginners to follow is this: keep your emotions in check.
If you invest in wonderful companies at a point when the market has placed them on sale relative to their value, it’s hard not to make money; that is if you don’t let your emotions get the better of you.
Even great companies can experience dips in price over the short-term, and these dips often cause inexperienced investors to become afraid and sell off their shares.
By the same token, greed causes many investors to buy into a company at times when the company is overpriced. This, of course, leads to the exact opposite of buying low and selling high.
If you want to succeed as an investor, you have to avoid letting fear or greed drive your decision-making process.
Remain patient and logical as you invest and you’ll be able to avoid many of the pitfalls that beginner investors often fall prey to.
How to Invest in the Stock Market for Beginners With Little Money
It may come as a surprise to some, but you don’t need a lot of money to succeed at investing in the stock market.
In fact, when I first started out investing I was barely making enough to survive off of and definitely didn’t have a ton of extra cash to throw into the market.
The reality is, though, that even as little as $1000 can be enough to kickstart a successful investing career. Thanks to compounding interest, $1000 can be grown into a fortune given enough time.
With that said, the strategy for how to invest $1,000 is almost exactly the same as the strategy you would use if you had $100,000 to invest – you still want to purchase wonderful companies at a discounted price and hold onto those companies for as long as they are growing your money.
How to Invest in Penny Stocks – Are Penny Stocks a Good Idea?
Penny stocks are defined as stocks that are priced below $5 per share. Typically, the companies that issue these stocks are much smaller and/or much newer than other publicly traded companies.
Many beginners often find these stocks attractive since they are priced so low, but the truth is that penny stocks are probably best avoided.
These stocks are often quite volatile, it’s more difficult to research the companies that are issuing them, and penny stocks are plagued by companies simply looking to take advantage of inexperienced investors.
4. Research the Best Stocks to Invest in for Beginners
The best companies to invest in for beginners are companies that have been around for at least ten years, companies that you understand, companies that have exhibited past growth and exhibit the potential for future growth, companies that are run by trustworthy management, and companies that have been placed on-sale relative to their value by the market.
If you find a company that meets these qualifications, you will have found an ideal investment for any investor, beginners included.
Small Investments for Beginners
It is possible to start investing with any sum of money, thanks in part to the fact that shares of most companies aren’t usually all that much.
Most stocks are priced below $1,000 per share, with many stocks being priced below $100 per share.
While the price of a share alone does not tell you how much of a bargain you are getting (after all, it would be much better to buy a 10% share of a company for $1,000 than a 1% share of the same company for $500) the fact that most shares are priced affordably makes it easy for beginner investors to make small investments in the market when they are first starting out.
How Much Should a Beginner Invest in the Stock Market?
Ultimately, you want to invest as much as you possibly can over the course of your life.
With that said, it’s understandable if you want to take things a little slower starting out while you learn the ropes. Invest as much you are comfortable with and invest consistently.
If you do this, you’ll be on the right track to building up a healthy sum of money over the long-run.
5. Check Out These Investing Resources for Beginners
If you want to learn more about the stock market and how to succeed as an investor, there are certainly plenty of resources available.
These resources include things such as books, blogs, podcasts, apps, investing software, and more. In the following sections, we’ll cover some of the best investing resources available right now that you can use to grow your investing knowledge.
Best Investing Books for Beginners
There are a lot of wonderful investing books written by highly successful investors that are chock-full of helpful tips, insightful information, and inside knowledge on the world of Wall Street.
Investing Classes for Beginners
Enrolling in investing class is one of the best ways to learn hands-on investing instructions from experienced investors.
My Rule #1 Transformational Investing Webinar is a good place to start. Especially so if you’re getting close to retirement and you have a bunch of money tied up in a 401(k) and it’s not growing fast enough.
Investing for Beginners Podcast
Listening to an investing podcast is a great way to gain access to timely and relative information on investing and the current state of the market.
Start by checking out the InvestED Podcast that I host along with my daughter, Danielle, then branch out into other podcasts that catch your interest.
Best Investment Apps for Beginners
There are a number of investing apps available, ranging from apps such as Acorns that automatically rounds up your purchases and invests the leftover change to apps such as the Seeking Alpha App that notifies you when there is breaking news about one of the companies in your watchlist.
Some of these apps may prove quite helpful, while others are little more than a distraction. If you find an app that works for you and helps you become a better investor, though, there’s no reason not to use it.
6. Practice Paper Trading for Beginners
Paper trading is an excellent way to build up investing experience without having to put any real money at risk.
You can think of paper trading as an investment simulator in the sense that you can buy and sell stocks, track your profits and losses, and do everything else you would do with real investing all while using imaginary money.
There are a number of online platforms like Think or Swim that allow you to engage in paper trading free of charge, enabling you to practice investing in the most realistic way possible without risking any real money.
7. Learn Where to Invest
Once you decide that you are ready to start buying and selling stocks, you need to choose what platform or service you will use to make your investments.
For most investors, an online broker will be the best option since online brokers allow you to place trades for a relatively small fee while still offering all of the resources and information you need to make wise investments.
Best Investment Firms for Beginners
There are a lot of online brokers that you have available to choose from, and most are fairly competitive in regards to the fees they charge and the services that they offer.
Just a few great online brokers for you to consider include:
While you should check out the fees and get a feel for the platform before you make your decision, you really can’t go wrong with any of the major online brokers.
8. Check Out the Best Online Investment Sites for Beginners
In addition to checking out Rule #1 Investing for new videos, blog updates, and more, there are plenty of other investing websites that you can use to stay up to date on the market and learn more about how to invest.
9. Understand Good Investments for Beginners
The best investments for beginners are investments in individual companies made at a time when the market has put those companies on sale.
In the end, this is the most important key to investing regardless of whether you are a beginner investor or a billionaire investor such as Warren Buffett.
10. Build an Investment Portfolio
When you are first starting out, building an investment portfolio shouldn’t be your primary concern.
Instead, focus on finding wonderful companies and purchasing them when the price is right. If you do this, your investment portfolio will build itself over time.
Remember what you’re trying to do here…
You’re going to try to buy $10 dollars of value for $5 dollars.
Understand that Rule # 1 is “Don’t Lose Money,” but what it means in practical terms is to invest with certainty.
Certainty comes from this: Buying a wonderful business at an attractive price.
If you follow these 10 steps when you start investing you’ll do just fine in the stock market. You’ll be able to outperform 90% of all of the professional fund managers who invest for a living.
Are you not sure where you stand on your investing journey or how much money you need to retire? You need my Investing Journey Success Planner. Use it to plan, save and invest at any age.