Picking Stocks: 5 Simple Steps For Investment Virgins
Investing is risky and picking stocks is right at the top of the spectrum of risk. These 5 keep it simple stupid tips focus on what you should do when wanting to scratch that investor itch.
1. What do you want from your investment?
Reel in your flights of fantasy for a minute and be honest about what you’re seeking:
- Wealth preservation: Are you’re looking to protect your money in lower-risk stocks?
- Risk-takers: Are you looking for big gains by gambling with money you can afford to lose?
- Income-based investors: Are you’re looking for stocks that have low-growth but periodic dividend pay-outs?
Know what you want from your investment before pickings stocks.
2. What are you genuinely interested in?
If you’re an active reader or listener to a certain industry’s news, then you’ve already dipped your toe into stock market research.
So, before picking a specific company’s stock ask yourself, “what am I genuinely interested in?”
For example, if you love technology, you’ll read technology news, and understand some of the landscape tech companies live in. By picking stocks in a field you’re interested in, you’ll have more chance of keeping up-to-date with industry developments, and breaking news.
3. Five questions to answer about each stock
Once you’ve picked your sector of interest you need to research the stocks. What you need to ask includes:
- “What is the company’s operating history?”
- Good financial records showcase longevity and security.
- “Is the company profitable/have liquidity?”
- Good profitability and liquidity signal financial strength.
- “How much is the stock valued?”
- This determines whether the stock is worth buying/selling at that moment.
If the numbers look good, the next questions to ask are:
- “Is the company investing in research and development? Is it innovating in its field?”
- “Is the company’s management stable?”
If a company is innovating and stable you know the numbers found during the first three questions have a probability to continue. Yet absolutely nothing is guaranteed.
4. How much can you honestly afford to risk?
By this point, you’ve spent a heap of time picking stocks with good prospects in a sector you’re interested in. You’re no doubt itching to jump two-footed into the stock market. Stop for a minute and ask yourself the hardest question on this list.
“How much can you honestly afford to risk?” For most the answer will be “very little.”
If the capital you’re planning to invest isn’t money you can lose then don’t do it. Pick an amount you can lose without causing harm to yourself or your family and start small, or even delay investing until you’re in a better financial situation. Remember, investing in stock is a gamble.
One super-simple way to accumulate investment money is to cut out one or two weekly luxuries and instead put that money into an account you can’t access easily. For example, by just cutting out two Starbucks coffees each week, in a year you’ll have over $500 to invest.
5. Picking the right stock trading app
By now, you’re likely looking for the best stock trading app. Our top-three are:
- Pros: Commission-free trading, no account minimums, and super easy to use. You can even invest in cryptocurrency through the app.
- Cons: No retirement accounts, no mutual funds, and no bonds.
- Pros: Fantastic learning features, automated guidance features, no account minimums, and fractional shares.
- Cons: Can cost up to $9 in fees monthly, and no tax-loss harvesting.
- TD Ameritrade:
- Pros: Access to most investment opportunities, commission-free stock, ETF’s, and Options trading.
- Cons: Looks complicated, high margin rates, and high short-term fees.
Tell us what stocks, apps, and unique questions you ask when picking stocks on Facebook now. Or listen to our Michael Lee’s latest financial news below.
Bonus: Automate Your Investment
If you want to invest but don’t want the hassle of picking stocks, why not try the Acorns App?
The App automates investment by putting small amounts of your money into a low-risk portfolio as you spend. For example, you spend $9.40 and the App will invest $0.60.
This completely passive way of investing means you no longer have to spend time picking stocks. And is ideal for students.