10 Best Tips For Investing In Stocks As A Beginner

Investing in the stock market is one of the best ways to grow wealth for the future. The stock market is unique in today's world, in that investors can get their start with $100 or less. In the past, brokerage accounts levied significant fees for trading, holding assets, and other aspects of the investment experience. But this is no longer the case, thanks in large part to the revolutionary technology and approach offered by modern online brokerages.

The stock market acts as a great leveler for investors of all skill levels, experience levels, and funding capabilities. Anyone can build a winning portfolio of assets through savvy stock market investments and an understanding of how the investment world works. Even so, the stock market can be a scary place for those who don't have much experience in trading company shares — or any other commodity, for that matter.

In truth, time and practical experience through the course of an investor's journey will naturally demystify this financial atmosphere. Yet the seemingly complicated landscape can rise to the level of turning some off to the prospective rewards that the stock market offers over the long term. These tips can get you started off on the right foot when it comes to investing in the stock market. Let them act as a guide for making the space feel less alien as you begin to gain confidence and profits moving forward.

Focus on Research and Knowledge Building

The first and most important thing that a new investor can do is soak up as much research and knowledge as possible. Learning as much as you can about the market, and the commodities traded within it, will help you grow your confidence, financial assets, and history of successful trades.

As with any other pursuit, understanding the rules of the game and developing strategies for creating success is crucial. Some of the most successful investors in history spend an incredible amount of time studying markets, browsing through financial data, and trying to learn more about current trends and new developments in the world of business. When trading stocks, what you're really doing is buying and selling tiny pieces of real-world companies. A share of Microsoft, Tesla, or 3M is a small fraction of those real businesses; what this means is that the company's success is your success.

More pressing is the reality that investing in these companies means that you have to continuously maintain a knowledge base about how consumers are using brands, and how an individual brand sits within the greater marketplace. For example, Microsoft and Apple compete directly with one another in PC technology, and so movements in their stock prices can directly impact one another — yet each of these companies also compete in unique spaces that don't overlap with one another, making evaluation a slightly more difficult challenge.

Consider Trading Simulators as a Learning Opportunity

In addition to reading and hands-off learning opportunities, it's a good idea to consider using a stock simulator and other practical learning opportunities to gain firsthand knowledge and experience in the marketplace. 

Simulators are a great way to try your hand at investing without having to risk your own capital in the process. Investing can be financially hazardous for those who've never done it before, and so this virtual trading environment can act as a practice round while you gain understanding of the task ahead. Many brokerage firms offer trading simulators (like TD Ameritrade's paperMoney), or you can run a Google search to find an assortment of apps and websites.

Stock market simulator accounts are common in forex and other, similar markets, and they can be found in traditional stock environments as well. Anything you can do to ease yourself into the live trading space is it great idea. The more practical experience you can build before putting your own cash at risk, the better suited you'll be to making that leap into the world of investing, and hopefully earning for the future.

Lean on Index Funds

Index funds are a core element in portfolios of both large and already successful investors, and a great option for those who are just starting out on their voyage toward financial independence. Index funds are essentially a bundled investment product that brings together a basket of company stocks, rather than that of a single company.

When investing in a brand like Walmart or Nike, what you're really doing is buying into the future of that individual company's fiscal success. Purchasing a share of any company is, at its core, a signal of confidence in where that brand's future is headed. A company performing well will see expanded profits and a rising stock price (and poor performance will net the opposite). In contrast, an index fund is an investment vehicle that bundles together shares of multiple companies (sometimes hundreds, or even thousands of them) in order to limit exposure to potential setbacks that may befall any particular brand.

Index funds give you access to a wide variety of different companies, lowering your risk and offering the ability to invest in a diversified portfolio without needing enough capital to buy individual shares of dozens — or even hundreds — of different stocks.

Think About Products You Already Use

One great option for finding inspiration in the market is to look to the brands you already use (Rule One Investing frames this as investing in what you love). Because investing in stocks takes confidence in the future of any given brand, thinking about the brands that you trust can help you hone in on potentially lucrative investment options. 

A few different brands have been mentioned already, and these are companies that play an integral role in the lives of millions of Americans. While it can be hard to target specific brands that fit in with the day-to-day priorities, moral compass, and financial goals of every investor equally (and part of why suggesting stocks that everyone should purchase is a fool's errand), considering the brands that you already personally know and trust is one way to get started.

For example, you might think about the first few things you do in the morning for inspiration here: When you get out of bed, you likely brush your teeth with a toothbrush and toothpaste, shave, shower, and dress yourself. Then you might make coffee, eat breakfast, and get in your car to go to work. Each of these steps in your morning routine involves well-known brands. The 10 or 15 companies that make your morning routine what it is can act as a starting point for where your investment journey might begin.

Don't Freak Out When the Markets Retract

Another important piece of advice that all new investors simply must heed is the reality that markets will expand and retract in a seemingly random fashion. There will always be amazing bull runs that see stock prices soar to new heights, but to counterbalance these price explosions, the market will also slip into bear territory from time to time. The stock market has seen 26 bear periods since 1928, and this number is only going to keep rising over the long term. Fortunes will soar and they will fall with time, but if you keep your head in times of trouble, you are likely to see much greater results over the course of your many years invested in the stock market.

Investors who haven't experienced bear market conditions, or a sudden and sharp selloff, might panic and start selling assets to try to mitigate damages. This is without a doubt the worst thing you can do during a period of market retraction. According to J.P. Morgan Chase, over the past 20 years, seven of the 10 best market days occurred within two weeks of the 10 worst days. Keep calm and remember that as long as you don't sell, your profit or loss figures are hypothetical. They only become real once you execute a sale.

Over the long term, the stock market shows consistency in its upward trajectory, so believing in its longevity will see you through any period of temporary reduction.

Diversification Is Your Friend

In the same way that index funds provide diversity, seasoned stock investors bring in a number of unique assets to their portfolios to accomplish the same end. Experts suggest a minimum of around 20 unique company stocks in a well-diversified portfolio, and note that some highly balance investors scale this up to over 60 unique assets. When thinking about the way an index fund provides diversity, and therefore security to investors, it becomes obvious that more unique assets can quickly turn into a powerful hedge against temporary setbacks that any one company might experience.

However, depending on your priorities, it is possible to become too diversified in your holdings. Buying into a single company leverages all of your invested funds into the performance of that one brand. If its price suddenly rises by 10%, you earn a 10% buff to your portfolio's value. Although, with a well-diversified portfolio, you may only have 5% to 10% invested in any one brand: This makes the individual fortunes earned through any one company's performance subdued in your overall portfolio. Yet, with this minimized earning potential (in total dollars, not percentages) comes greater strength for the long term because a sudden 10% drop in pricing can spell disaster for your holdings if you are over-leveraged.

Compound Interest and Time Are Your Best Friends

Diversification is a great ally for creating stability for long-term growth. But, time is without a doubt your best friend when it comes to creating lasting financial stability. Compound interest is simply the process of continuously reinvesting profits to generate exponential growth in your holdings. In order for compounding to make its mark on your holdings, you'll need to let time play its part. Business Insider reports that the annualized return of the stock market as a whole is a little over 10%. In contrast, Forbes Advisor calculates an S&P 500 annualized return of 7.58% when eliminating dividend reinvestment (and 10.51% with it).

The longer your money works for you, the more it will earn. Put another way, your money (with compounding leveraged in your investment strategy) will double roughly every seven years, making every $100 invested 35 years ago worth $3,200 today, and every $100 invested 28 years ago worth roughly $1,600. Put another way: Working back from the U.S. retirement age of 67, you earn an additional, complete doubling of your money if you start saving at 32 versus 39, and a further doubling (making that $100 worth $6,400) if you begin retirement planning at 25.

Time is your best friend when it comes to saving, and coupled with smart investment fundamentals, will create significant wealth, even without the introduction of intense risk.

Company Stock Is Linked to an Incalculable Series of Unique Factors

It can be hard to predict what an individual company stock might do over the short term, and even more difficult to suggest where a company is headed in the long. Markets can change dramatically. The fiscal and competitive reality of a brand's current strategy may become unviable in the next quarter, year, or five. BlackBerry is a good example of this phenomenon. BlackBerry abandoned its operating system in January 2022, even though it once commanded 43% of the U.S. market for its cutting-edge devices.

Similarly, investors can point to Kodak as a shining example of how a brand can fundamentally misunderstand the future of its medium by placing investment in the wrong areas, or even wholly misjudging an emerging technology. The film giant's refusal to invest in the rapidly growing digital camera landscape eventually led to its downfall.

This isn't to say that companies are always facing impending doom. Rather, simply that it's important to remember that production of small parts, changes in the underlying technology, or seemingly unrelated events halfway across the world can influence the present and future of what a company is, and how it does business.

Keeping Your Investment Strategy Simple Will Carry the Day

Remembering that brands face a wide array of challenges and opportunities is important, but some of the best advice that any investor can follow is to keep their strategy simple. Simplicity helps keep an investor on the path to success and future fortunes. By getting in the weeds and evaluating minute details of company reports, market data, and other research, investors — especially newer ones — can get lost in all the complex jargon and information. This leads to a fundamental failure to grasp the bigger picture and to understand more generalized company performance in the grand scheme of things.

A simple strategy, at least to begin with, will help you gain confidence in the marketplace while you explore assets that make sense for your portfolio. The saying "Slow is smooth, and smooth is fast" has been repeated countless times by innumerable speakers, but this wisdom is crucial in trading and elsewhere in life. Adapting this approach to your investment strategy will help you focus on long-term winners and establish a routine of good habits.

Work to Maintain Strategic Consistency Over the Long Run

Lastly, strategic consistency will help you continuously perform at your best, now and in the long term. Thinking back on the way that index funds and ETF managers build holdings can act as a great blueprint for long-term success. Bringing together a variety of core essentials will help you maintain consistency and create profit for as long as you participate in the stock market.

At its most basic, a stock market strategy that employs asset diversity, solid research fundamentals, and brings together assets that the investor truly believes in is one that is typically bound for success. It also helps to understand the typical ebbs and flows of the market over time, how to enforce discipline when that happens, and most of all, remembering that time is on your side.

Utilizing these tools to further your fiscal goals takes discipline, but with it, you'll likely see the kinds of wealth-building that you are ultimately looking for.