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Is it a good time to invest right now? What stocks should I buy? How do I build my wealth? These are all questions I asked myself when I started investing. Here's 3 stock market tips that I wish I knew when I first started investing:
1. Just get started
The biggest mistake that I believe that you can make in your financial life is to be complacent and not invest. Remember, it’s important to build your wealth as early as possible and have multiple sources of income, rather than just relying on your earned income, which for most of us is our 9-5 job. Truth be told, unfortunate things happen all the time, so the question isn’t if, but when it’s going to happen and are you ready for it. Are you ready to pay for an unexpected expense? What would happen if you temporarily lost your job? And this might seem a little far away, but are you able to retire comfortably, not if, but when the time comes?
If you haven’t done so already, you can start investing by opening up a brokerage account. If you’re a millennial like myself, you might like using Robinhood or Webull because you’re able to easily invest with your phone. If you want to go with another brokerage company with a little bit more history, some popular ones include TD Ameritrade and Charles Schwab.
Once you sign up, you can start by just buying one stock. That’s it! Just one stock! And from there, just see how the price of that stock fluctuates over time. The goal of just buying one stock is to help you build your confidence and getting used to the price fluctuation.
2. Invest in companies that have strong fundamentals
A couple of fundamental qualities you can look at is if the stock has consistent increasing revenues and if their business model is profitable and advantageous in the current time we live in. For example, I personally would not invest in any retail stocks, like Macy’s and JCPenney. Why? It’s because fewer people are shopping at malls and shifting to online shopping instead. It just makes sense! Companies with strong online stores don’t need to rely on brick and mortar buildings and hiring employees to run them, which is a huge overhead for companies. Online shopping has never been so easy since you can purchase anything on your phone and have it shipped to you in less than a week. I personally love online shopping because it not only saves me time, but a lot of deals nowadays are only available if you use the companies’ app. On top of that, most online stores allow you to have free shipping and free returns. It’s a win-win for both online stores and online shoppers!
Hey, I’m a frugal guy and I love cheap deals. However, it’s not a good idea to buy stocks only because they’re cheap. And guess what? These stocks are cheap for a reason. If you don’t already know, stock market prices are formed from the supply and demand of the stock. So if a stock’s highly demanded, the stock price will be higher. If the stock’s demand is low, then yeah, the stock price will be cheap. Cheap stocks are cheap for a reason. It’s because nobody wants them!
Believe it or not, the price of a stock isn’t really influenced by retail investors like you and me. Smart Money, which include large banks, institutions, and money managers, are the ones who are able to drive a stock’s price super high or drop them super low. They are the ones with billions of dollars that actually move the market. Think about it, if the large institutions don’t have faith in cheap stocks, why should you?
Once in a while, you might come across some stock market guru online, or have that one friend at work, or have that one uncle at your Thanksgiving dinner table telling you what cheap penny stock to buy, gambling on the hope that the price will triple in the next couple of days. Look, investing and gambling are two different things and I believe that growing your wealth is not something you can do overnight. Sure, your friend or uncle might get lucky once or twice, but if it’s not consistent, I don’t think it’s a good idea to do it. Disciplined investing and growing your wealth takes time. It’s a marathon, not a race. You want to slowly nurture and grow your acorn into a large oak tree, rather than grow weeds with no foundational roots underneath.
Okay, if you are still worried about choosing the right stock or not, you can also consider investing in an exchange-traded fund, or ETF for short. An ETF is kind of like a basket of stocks, so you don’t actually have to pick and choose specific stocks. One popular ETF is the SPY, which mimics the growth of the S&P500, or the top 500 companies in the United States. If you like stocks in the Dow Jones 30, such as Walmart, Cisco, Coca-Cola, McDonalds, and Visa, you can invest in the exchange-traded fund, DIA. Or, if you’re into technology stocks, like Google, Facebook, Apple, Amazon, and Microsoft, you could also consider investing in the exchange-traded fund, QQQ, which mimics the growth of the NASDAQ100. Just make sure that whatever it is you invest in, you do your due diligence with your research.
3. Don't time the market
How many times have we thought, “Oh I shouldn’t invest right now because prices are too high and they might drop”? Or when stock prices do drop, we think, “I shouldn’t buy right now because the stock is going to crash even more and I’ll wait until then.” It’s impossible to time the market. Even with all the experts out there saying they know what’s going to happen, it’s all not always true.
When I started investing, I read so many articles saying their experts or analysts or algorithms knew exactly when the stock market was going to crash. And to be honest, I would even freak out sometimes! Even now, without fail, I see articles on my Google feed saying the same thing week after week. Of course, pullbacks, corrections, and bear markets are natural and often healthy events that always happen in the stock market. And because of this, I don’t worry what happens or what the so-called experts say. As long as I know that the stocks I invest in are making consistently increasing amounts of money and are fundamentally strong, stocks will retrace. I learned that most, if not all of these articles were click-bait and wanted to gain reader’s eyes to make money off their site. And remember, the stock market as a whole has grown an average of 7-10 percent each year over the past 25-30 years. There will always be money, and it has to go somewhere. And guess where it likes to go. That’s right, the stock market!
So, to summarize, the three ultimate tips for stock market newbies is to get started in investing as early as possible to grow your wealth, invest in companies with strong fundamentals, and not to time the market. Thanks for reading; until next time!
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