Things to Remember When it Comes to Beginner Investing
One thing that many people interested in beginner investing have a tendency to think is that there is some type of formula or method that financial advisors use to determine the best stocks to pick, and if they could just learn that "magic" formula then they could get rich in the stock market and never have any financial worries ever again.
There is No Magic Formula
Unfortunately, when it comes to beginner investing you need to be a bit more patient and realistic than expecting instant riches. There are no magic formulas or methods that can be applied to all investing situations and financial plans, just some things to remember that will make it a bit easier for you to build a solid portfolio that will keep you financially afloat for the long run.
Why Beginner Investing Should Mean a Balanced Portfolio
It's also unfortunate that many who get involved with beginner investing forego the idea of building a balanced portfolio in exchange for chasing after that elusive hot stock, the one that they believe will suddenly take off and give them an outrageous rate of return in only a small amount of time. To them, investing long-term translates to three or four weeks, maybe a month or two! However, an experienced investor will tell you that this is one of the easiest ways to lose tremendous amounts of money in the stock market and that it's much wiser to build a solid, balanced portfolio that you intend to keep for years to come. While some interested in beginner investing may want to consider putting a portion of their money in short-term stocks that will pay larger dividends, these should not make up the bulk of your portfolio, as higher rewards typically mean higher risk. For every one stock that is risky but that pays out, there will be another that doesn't.
Stocks Don't Always Go Up
Beginner investors seem to forget that whatever you invest in stocks, you're not guaranteed to get back. It's one thing to put your money in a bank account, assuming the interest rate the bank pays you will go up or down but the money in the account is safe, and an entirely different matter to invest in stocks. You can go to the bank at any time and get that deposit back, but if the stock is worth less than what you originally paid for it, you lose that original investment. Beginner investing is not guaranteed by any means, so a balanced portfolio is needed to offset the risks carried by these particular stocks. If you still doubt this, consider how many people thought that companies like Enron, Tyco, and WorldCom were all safe investments. Many who purchased stock in so-called secure companies such as these as part of their beginner investing strategies lost quite a bit of their investment, if not all of it.
Stocks go up and down even with the most secure companies, so investing in a wide range of companies that actually offset one another is the wisest strategy there is for beginner investing.
How to Build a Balanced Portfolio
When manufacturing jobs were shipped out of the U.S. to overseas companies, stock in U.S. companies dropped in value considerably. However, since these foreign companies were now making money, foreign currency went up in value. Realizing how a dip in one industry will cause a rise in another will explain how to build a balanced portfolio with your beginner investing. You need to spread your investments out, but not haphazardly. There should be a plan of investments so that if your stock in one company dips, your stock in another company should go up. Think of how this works in many different ways - the price of gas goes up, and travel goes down. The housing market goes down, but rental properties are suddenly a hot commodity. The key to building a balanced portfolio with beginner investing is to choose stocks that purposely offset one another. When one end of your portfolio goes down, another should go up. This is the best way to protect your investments for the long run.
Keep Trading Fees Low
When you have a small amount of money, you want to be certain it all isn't going to stock trading fees. We recommend using our Stock Trading Fee Chart so the money you invest actually goes towards your investment rather than fees.