It’s no exaggeration to say that there are thousands of stock-investing systems. But for those new to investing or brand new to the stock market, what are the smartest ways to begin? Here are four favorite techniques for investors who want to test the waters of the stock market and get a feel for what it’s like to put some money at risk. There are no guarantees that you’ll make or lose money, but following some simple methods can help cut losses and add an element of safety to anyone’s investing strategy.
Set a Portfolio Limit
Seasoned investors use a safety technique that limits their risk. They only place a predetermined percentage of their portfolio into the stock market, typically 10 or 20 percent. For beginners, this is a reliable way to protect against serious market downturns and protect capital. If your savings portfolio consists of CDs, IRAs, some gold or silver, and a small selection of stocks, then your risk is diversified. Consider setting a low percentage as a limit when first getting into stock investing.
Use Expert Advice to Select Stocks
The big financial websites and television networks all have their own in-house experts that make weekly or daily stock picks. These choices are usually carefully vetted to minimize risk and offer stable returns. That’s because those “experts” want to maintain credibility and thus tend to avoid risky picks. You can even examine their track records and see which professionals have the best picking abilities. It’s relatively easy to make a stocks to watch list from all the weekly TV and online experts’ selections.
Only Buy Blue Chips
One of the oldest techniques for investors is to only buy so-called ‘blue chip” stocks. It’s no guarantee that you’ll make money, but buying shares of well-established, large corporations that lead their sectors, you are effectively minimizing risk. An added advantage of holding blue chip stocks is the amount of information available. You’ll have no trouble doing research on large, well-known companies, and that makes investing easier for beginners.
Use Dollar Cost Averaging
When starting out as a stock investor, it’s wise to only spend money you can do without. A corollary to that rule is to only invest money you won’t need for five years. Don’t look for fast returns. Aim for the long haul and you’ll be a much happier, and financially better off, investor in most cases.
A popular, simple strategy that abides by those guidelines is called “dollar cost averaging,” or DCA for short. In a DCA system, investors buy the same amount of stock each month, regardless of the share price. For example, a DCA plan for buying XYZ company shares might mean purchasing $50 worth of the stock 12 times per year, no matter what the prevailing share price is month to month.
“Paper-Trade” a Stocks to Watch List
One of the best ways for newcomers to learn about the stock market is to engage in “paper trading.” This method involves using fake money in a fake account to buy stocks. There are dozens of websites that let users create simulated accounts and trade fictitious shares. It’s a smart way to learn the ins and outs of trading without any financial obligation.