Last Updated on June 24, 2021 by MoneyVisual
Buying stocks is a major undertaking for every person. If this is the first time you are looking to buy stocks, it can be a frightening proposition.
There are many resources like Motley Fool’s Stock Advisor available to help you decide how and where to invest. Studying current stock trades is fun and exciting. But educating yourself on the investing process is a critical requirement in determining the best stocks to buy.
Following are several questions to consider as you start your stock buying venture.
What is Stock Investing?
When you purchase stocks, you are buying a small piece of a publicly-traded company. A person is putting their hard-earned money into stocks with the hope that their money will grow and increase in value. It is important to understand from the beginning that investing in stock comes with a risk of losing money.
What Kind of Investor Am I?
It is important to know how comfortable you are with the investment process before you begin buying stocks. There are several questions to ask yourself before you start investing. Are you the type of person who wants to be active in choosing stocks?
Or do you want to be the type of investor where others make the decisions for you? Be honest with yourself about your skills and abilities when deciding how active you want to be in picking which stocks to buy.
Risk aversion refers to how willing you are to take risks. A risk-averse person may be willing to buy stocks with lower returns but higher safety levels instead of riskier stocks that may make more profit. Understanding how much risk you are willing to take is one of the first steps in planning a stock purchase.
How Long Can I Stay Invested?
Jumping in and out of the stock market is not advisable. Stock investments make more money over longer periods. Panicking and leaving the market too early is one of the most common mistakes beginners make. Be sure you can afford to have your money tied up for as long as it takes to make a profit in the stock market.
What are My Investment Goals?
You may have a specific investment goal in mind, like saving for retirement or your child’s education. Most likely, you are investing in having a certain amount of money at a certain time for a particular reason. It will help to have the goal in mind as you face the ups and downs of stock market investing.
How to Invest in Stocks
There are several ways to invest in stocks. Full-service and online discount brokers are available to help you invest. Full-service brokers offer advice on retirement, investments, and any issues related to money. Full-service brokers usually charge substantial fees and work with higher net-worth clients.
Discount brokers usually provide tools and stock analysis to the consumers to allow them to decide for themselves which are the best stocks to buy. With discount brokers, you are more in charge of your stock purchase decisions.
How to Pick Stocks
Research the company before you invest. A company’s Annual Report contains a great deal of information that is beneficial to the investor. All publicly-traded companies provide an annual letter to stockholders that explains how the company has been doing in the current market.
Some Annual Report reports and analysis may be difficult to understand. It may be helpful to use the services of full-service or online brokers who often put this analysis into terms the average person can understand.
What are the Best Stocks for Beginners to Buy?
For the beginner, finding a company that has a competitive advantage in their market is the best way to go. Competitive advantage means a company is doing something better than other companies in their market. They may produce a better product or are selling goods or services cheaper than their competitors.
They may be more efficient or have greater brand recognition. These companies may be difficult to find, but many publicly-traded companies have a competitive advantage in their market segment.
Recommendations for three Stocks with a Competitive Advantage in 2021
The Walt Disney Company (NYSE: DIS). Disney’s Theme Parks are expected to rebound in 2021 as the lockdowns of the COVID-19 pandemic discontinue. The company’s new streaming service, Disney+ is expected to give the organization a new boost. Disney is a company to consider in 2021.
PayPal Holdings Inc (NASDAQ: PYPL) PayPal continues its fast growth as the largest company providing digital money transfer services. The company continues its consistent earnings and sales growth. PayPal management has a reputation for excellence, and the company continues to be a good choice for investors.
Netflix (NASDAQ: NFLX) Netflix is the premier streaming service. The company remains at the forefront of developing unique content and has great growth potential as it expands its international streaming market. Many investors are looking at Netflix as a good stock bet in the future.
Which Stocks Should Beginners Avoid
Beginners should avoid companies that are growing quickly without turning a profit. They should also avoid IPOs (Initial Public Offerings), which are companies that are just beginning to be publicly traded. Penny stocks, which are stocks with values less than $5.00 per share, are also not a good choice for a beginner.
These types of companies may seem attractive on the surface but are much too volatile for the beginner investor. Another company to avoid as a beginning investor is any business that you do not understand. There are many quality organizations with understandable business models more suitable for beginner investors.
Understanding investment principles and using readily available investing resources will help you select the best stocks as a beginner investor. Analyzing current stock trades is fascinating and educational. Finding the best stocks to buy will help ensure you and your family enjoy a prosperous and stable future.