Now I'm no stock expert – far from it. But I do know a little bit, and I do my own investing. There are a couple tips I have for someone who is just getting started investing. These are super-newbie tips, but I think they can save you a bunch of money in the long run.
1. Time is money
The more time you spend reading about investing, the more money you are going to end up with. You don't have to dedicate your life to being a stock expert, but you should care enough to read a few books and blog posts on the topic.
How much research do you do before buying a TV, video game, or car? Probably at least a few hours.
But when it comes to investing you want to throw your hands up and say, “This is too hard!”.
It doesn't make sense.
The very minimum you would want to do is fine a low-cost index fund that you like. Personally, I like Vanguard because they have very low fees compared to a lot of other services. I also read some books from John Bogle, the man who started this company and I like his philosophy on investing.
Do some research and find a company you like. You do not have to be a stock expert to make money in the stock market. But you should spend a minimum amount of time learning the basics so that you can make good decisions.
2. Invest Simply
My dad loves these little banks and telecom companies that I've never heard of. He's been investing for years, and knows what he's doing. I on the other hand invest in companies like Apple and Ford, because I know what they do, and can understand the news.
I've read this over and over in the investment books I've chewed through in the past year or so. Invest in what you know, and refine your investment strategy from there. It's easy for a newbie to think that somehow they can find a ‘loophole' and discover a super-secret, one of a kind company that will make them rich fast.
I know, because I used to think that way.
If you decide to branch out beyond a basic index fund and invest in individual stocks, start with just one or two. Go for something simple, and a company that you understand. My first stock to buy was Apple. It was having a bad news cycle because the iPhone only sold as many units as they predicted.
I knew that was dumb logic. They are one of the biggest and most popular companies in the world, and trading at a PE ratio of 11 compared to Google, which was trading at a PE of 30. Maybe that's a false equivalency, but I knew that investor sentiment was down, and that long term Apple would survive and grow. I've more than doubled the money I invested.
That's not to say I'm a great stock picker. But I saw a company I knew, and an opportunity to invest that I was confident in.
3. Only Invest Money You Don't Need
This has been my #1 strategy so far, and it's taken a load of weight off of my shoulders. I've been doing quite a bit of investing since I got back to the US, and every day the market is doing something different. Some days it's up, and everyone's saying that we're in a bullish trend and have another 10 years of gains to look forward to.
Other people say the market is overpriced, and we're heading for a huge correction, maybe even a recession.
Fast forward 5 years…it's been a huge bull market this whole time. Can you imagine that people were saying that a crash was imminent in 2012?
The only way to live stress free in this kind of environment is to invest money that you don't need. I bought Apple at $500, and then it dropped to $390. I lost almost $1000 dollars in a matter of weeks. Then it rebounded, split, and now is my second biggest winner behind Lockheed Martin. Apple is a good company, it pays a decent dividend, and I think they have huge growth prospects in the next decade.
The key to being so care free is to invest money that you don't need. I'll tell you right now that if I needed that $1000 dollars for a house payment or gas I would be ripping my hair out every time news came out that Android is taking iPhones market share.
4. Don't Use Your “Gut” Feelings
This is a bit of a funny story, because I know first hand that gut feelings can get you nowhere. I was looking at Netflix at about $50 per share and had a ‘gut feeling' that it was about to turn around. I didn't buy because I was moving back to the US at that time and didn't really have the time to sit down and look at the fundamentals.
6 years later, it's trading about 10x that or more (I lost track). I really should have invested then. And then the next year. Then the next year.
Then I had a ‘gut feeling' that blackberry was about to turn around just as it hit $6 per share. Again, I didn't buy because I was scared of RIMM going out of business. Then it shot up to $18 per share. Another 300% gain in a matter of months. (Update: RIMM turned into BBRY, and is trading at about $9 per share, 50% of it's 2012 price)
I'm not an investment professional. Anyone who knows anything about investing can clearly tell that I'm just some guy earning money from a blog who is interested in making more out of his money than letting it lose value in a bank vault somewhere. But with a few simple rules and some motivation, anyone can get started. All you need then is a blog, and you can start giving advice!
What are your rules to investing (keep is simple!)? Let me know in the comment box below!