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Thoughts on Beginner Stock Investments

2013-08-04

I recently started purchasing stocks. Well, I really started about four years ago, but began with renewed focus just a few months back. The investments I made four years ago... didn't go very well. But I learned some about stock market investing and my recent ventures have been doing better. I don't claim to be an expert in any way, but I can tell you what worked and what didn't work for me. Here are a things to watch out for when you are a beginner in stock market investing.

1. Watch those fees

There are a lot of online stock trading sites out there. This is usually the best way for a beginning investor to get started. There is no minimum stock purchase, and all you have to do is connect a bank account to your trading account to transfer funds. Sharebuilder, TradeKing, Scottrade are all options for services you can use. I use TradeKing, and they have the lowest per-trade fee at $4.95/trade. One thing to check on before you open an account is the other fees. I unfortunately found out the hard way that TradeKing charges an inactivity fee if you don't make a trade for a year and have less than $2,500 in your account. This is a great trap for the beginning stock investor. That fee was just one nail in the coffin of my initial investment.

2. Picking winners is hard for a beginner

I know I'm essentially just telling how I lost my first $50 in the stock market, but this can help you avoid doing the same thing. The next thing to be wary of is choosing companies to invest in without doing research. If you're reading this, then you're already doing some valuable research into stock market investing. But I picked my first stock purchases with very little research. A beginner cannot make a wise stock purchase without looking into the companies of which they are purchasing shares. Really, even the experts doing full-time research lose money. So unless you have very little use for your money and just want to have fun, I recommend reading about stock market investing. A lot. I purchased stocks of two different companies without reasearch. One went bankrupt within a year and the other lost 3/4 of its value. There goes the rest of my first $50.

3. Start with some solid, proven companies

Start out with a large, time-tested company when buying your first shares. Check out GE, Coca-Cola, or Wal-Mart. These are stable companies that aren't going anywhere. They're great for long-term, non-traumatic investing. While the stock market is volatile and you can't avoid all risk, building a more stable portfolio will make your initial investments less stressful. My recent successful stock purchase was Facebook. While much less of a sure thing than the companies mentioned above, I think Facebook will be around for a while and I wanted a little more risk/potential for gain. It's worked out well (so far) and that purchase is up 35% since I made it.

4. Diversify with multi-stock funds

Another thing any beginner should be familiar with is diversification. As the old saying goes, you shouldn't put all of your eggs in one basket. This is very true when it comes to the stock market. And an easy way to split up your eggs is with a fund that incorporates many different companies. I recently purchased some shares of the Dow 30 Premium & Dividend Income Fund, which is a company that invests in all 30 stocks of the Dow Jones Industrial Average. It attempts to gain from the overall upward trend in long-term stock investing. You can also check out the very popular total stock market fund from Vanguard. It's a collection of thousands of stock holdings (3,554 right now) that will give great diversification throughout the market. Unfortunately, Vanguard requires a minimum investment of $3,000.

As I said above, I'm no expert. But hopefully these tips will help you get started with your stock market investments. I encourage you to read more about investing fundamentals.

Tags: Stocks, Investing