Investing in stocks can be a great way to prepare a future nest egg—a $10 investment today could easily turn into $1,000 in a few years with the right portfolio. If you’re interested in stock investment but unsure where to start, our team has you covered. Here is a list of five beginner tips and frameworks to get you started.
Research the Companies You Invest In
Let’s take Taylor as an example. He’s brand new to the world of investing and was recently gifted $1000 to start—he’s downloaded a stock trading app and starts browsing around. He knows that Apple and Tesla are popular choices and invests in those first, adding in some other recommendations based on a quick Google search.
While Taylor isn’t off to a bad start, investing in company stocks gives him ownership of small shares in a publicly-traded company. He’s investing in their future—without taking the step to research the company’s plans, investing quickly becomes a numbers game without a strategy or understanding.
Just as you would research the features of your new phone before purchasing, it’s essential to do your research as a potential investor in any company before buying their shares. Here are some guidelines for what you can look into:
- What industry are they in?
- How are they doing in this industry?
- Who are their competitors?
- What are their short and long-term goals socially, financially, environmentally, and innovation-wise?
The Why: Purchasing & Selling
Stocks are financial assets that can be sold and converted into cash. The basis of stock investing is buying shares you think will be successful and increasing value over time before selling your shares to other investors on the market at a profit.
Before investing in any stocks, create a framework to justify why you’re purchasing a particular company stock and what would force you to sell it off. This could simply be that the stocks have reached a specific value, so it’s time to sell them off; alternatively, a massive loss on the company caused by a PR scandal or a change in CEO can also apply. This helps mitigate any hasty decisions in addition to minimizing any seller’s remorse.
It’s A Long Term Investment
As said by Warren Buffet: “Someone’s sitting in the shade today because someone planted a tree long ago.” Investments are not meant to be a source of short-term profits—and if it’s money you need within the next year, you should consider holding off on making any investments and saving up instead.
In most cases, stocks will gradually increase over the long run and fluctuate in the short run. For example, let’s take Procter & Gamble (P&G), a massive consumer goods company that owns Gillette, Pampers, Tide, and other brands.
Over the Past 1 Year
Over the Past 5 Years
We can see that their stocks have fluctuated over the last year with a minimal increase in share value, but the growth has been much more drastic over the previous five years.
Once Per Quarter is Plenty
Complementing the previous tip, it’s common for many new and experienced investors to become hyperactive on their stocks. Taylor, for instance, might feel eager to check the app every day to review how his Apple, Tesla, and P&G stocks are doing—but in the short run, this causes him more anxiety and tempts him to sell them off early at the first increase or drop.
As we saw with P&G’s stocks, many shares fluctuate depending on the time, consumer trends, and more. We saw this with Gamestop’s sudden surge in February 2021, the rise and fall of toilet paper shares during and after April 2020, and even during Apple’s annual product announcements. While the timing may be important, time in the markets is usually better. Checking your shareholder reports once per quarter is plenty.
Diversify Your Portfolio
Some markets are more volatile than others—take tech, for example. The rule here is to avoid keeping all your eggs in one basket. If Taylor had only invested in Gamestop last year, for example, and didn’t time his selling right, then he would have incurred some significant losses. Still, if he had other investments in various companies in different industries, like Netflix and Adidas, this loss would be cushioned by his other gains.
A well-balanced portfolio of various industries will help ensure more stable results and mitigate any surprises.
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