Diversification is considered to be the only free lunch in investing. (If you are new to this concept, check out Introduction To Diversification, The Importance Of Diversification and A Guide To Portfolio Construction.) In a nutshell, by investing in a range of assets, you reduce the risk of one investment's performance severely hurting the return of your overall investment. You could think of it as financial jargon for "don't put all of your eggs in one basket".
Disclaimer: It is our organization's primary mission to provide reviews, commentary, and analysis that are unbiased and objective. While StockBrokers.com has all data verified by industry participants, it can vary from time to time. Operating as an online business, this site may be compensated through third party advertisers. Our receipt of such compensation shall not be construed as an endorsement or recommendation by StockBrokers.com, nor shall it bias our reviews, analysis, and opinions. Please see our General Disclaimers for more information.

There are no guidelines for dollar amounts per investment. The best rule is to select many different investments, and put no more than 5% or 10% of your money into any one investment. That way a single failure will not hurt you too badly. That's why mutual funds and ETFs have become so popular: they allow you to be invested in many different stocks, bonds, or commodities at once.

** J.D. Power 2018 Certified Contact Center ProgramSM recognition is based on successful completion of an evaluation and exceeding a customer satisfaction benchmark through a survey of recent servicing interactions. For more information, visit www.jdpower.com/ccc. The ranking or ratings shown here may not be representative of all client experiences because they reflect an average or sampling of the client experiences. These rankings or ratings are not indicative of any future performance or investment outcome.

Warren Buffett is the best example to hit this point home. In 2008, he bet some hedge fund managers $1 million that they wouldn’t be able to make more money in a decade than a cheap, boring index fund. An index fund uses simple investing algorithms to track an index, and doesn’t require active, human management. Conversely, hedge funds stack management fees on top of trading fees to pay for the time and knowledge actual strategists are putting into your investments.
By far and away the biggest question every beginner wants to know the answer to is what stocks are best for investing in? If you’re hoping this is where you find a list of stocks to invest in, then you’re about to be let down! There is no magic list of what stocks to invest in. (And be wary of advice from anyone who says otherwise!) Instead, there are a few things you can look for in stocks and shares that make them worth your money.
An online brokerage account likely offers your quickest and least expensive path to buying stocks, funds and a variety of other investments. With a broker, you can open an individual retirement account, also known as an IRA — here are our top picks for IRA accounts — or you can open a taxable brokerage account if you’re already saving adequately for retirement elsewhere.
Now that you know how to buy and research stocks, the question is: Why should you risk your money? After all, aren't bonds a much safer prospect? A bond is a debt instrument wherein you lend the issuer a certain amount of money in exchange for interest payments at a predefined rate and a return of your principal once the bond comes due. Though bond prices can fluctuate based on market conditions, as long as you hold your bonds until maturity and the issuer doesn't default, you get to collect the interest you're entitled to as well as get your full principal back. 

Investing in stocks for beginners is all about finding stable stocks that have a high chance of gaining value and low chance of dropping. To do this, you should look for businesses with a strong track record. Companies that show their stocks have increased in value over time, and are continuing to do so. This shows you there’s some stability there, and that you won’t be investing in stocks from a business that’s been up and down for years.
Based on 1,820 data points, our top pick for beginners is TD Ameritrade. New investors have access to a user-friendly website, hundreds of monthly webinars, videos, and free premium courses and quizzes. TD Ameritrade is the only broker to gamify the entire learning experience, offering customers a points system tied to progress tracking, and even badges to encourage continued learning. Oh, and customers can practice trading with fake money. Read full review
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
Stock investing is filled with intricate strategies and approaches, yet some of the most successful investors have done little more than stick with the basics. That generally means using funds for the bulk of your portfolio — Warren Buffett has famously said a low-cost S&P 500 index fund is the best investment most Americans can make — and choosing individual stocks only if you believe in the company’s potential for long-term growth.
The performance data contained herein represents past performance which does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For performance information current to the most recent month end, please contact us.
You can also open a Roth IRA through a robo-advisor, which uses computer algorithms and advanced software to build and manage your investment portfolio. Robo-advisors largely build their portfolios out of low-cost ETFs and index funds. Because they offer low costs and low or no minimums, robos let you get started quickly. And they require little to no human interaction (still, many have human advisors available for questions).
Sometimes, companies are impacted by forces that are even beyond their control. Samsung could have issues making screens and that could delay the release of the iPad with negative effects on the stock price. Increased or decreased taxes on imported components of the device could impact the price and sales of a device, which in turn could sway the market feeling about a company.

Dividend reinvestment programs are often coupled with cash investment options that resemble direct stock purchase plans so you can regularly have money withdrawn from your checking or savings account, or send in one-time payments whenever you feel like, perhaps as little as $25, buying more shares of stock in a business as you might purchase something from a mail-order catalog.
Finding the best stocks to buy and watch starts with knowing what a big market winner looks like before it takes off. As noted above, IBD's study of the top-performing stocks in each market cycle since the 1880s has identified the seven telltale traits of market winners. Your goal is to find stocks that are displaying those same traits right now. Traits like explosive earnings and sales growth, a strong return on equity, a fast-growing and industry-leading product or service and strong demand among mutual fund managers.
The goal of your financial adviser/broker is to keep you as a client so that they can continue to make money off of you. They tell you to diversify so that your portfolio follows the Dow and the S&P 500. That way, they will always have an excuse when it goes down in value. The average broker/adviser has very little knowledge of the underlying economics of business. Warren Buffett is famous for saying, "Risk is for people who don't know what they're doing."
Individual stocks. We won’t sugarcoat it: Buying individual stocks requires a fair amount of research, ongoing diligence and a stomach for risk. Those aren’t things that most retirement savers want to deal with. In fact, many 401(k) plans don’t even allow participants to buy individual stocks within the plan. If buying stocks sounds exciting to you, we recommend devoting no more than 10% of your retirement portfolio’s overall value to them.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

However, do not equate the ease of opening an account with the ease of making good investment decisions. It is generally recommended that beginners speak to a qualified financial advisor. New investors should read "The Intelligent Investor" by Benjamin Graham. Smart investing can be highly satisfying so take it slow, do your research, and seek out an advisor that has your best interests in mind.
Short selling can be dangerous, however, because it's not easy to predict a drop in price. If you use shorting for the purpose of speculation, be prepared to get burned sometimes. If the stock's price were to go up instead of down, you would be forced to buy the stock at a higher price than what was credited to you initially. If, on the other hand, you use shorting as a way to hedge your losses, it can actually be a good form of insurance.

Intimidating as it may seem, investing is one of the premier ways to grow money over time. While the stock market attracts the most attention for those looking to build wealth, there are plenty of other investments to pick from, such as bonds, mutual funds and certificates of deposit (CDs). As a beginner, though, it can be hard to know where and how to get into investing. In the end, a determination of your long-term financial goals, like retirement, will dictate what types of investing strategies are best for you. It can also be helpful to enlist the help of a financial advisor to help you make smart investing decisions based on your specific needs.
With that in mind, there are certain types of stocks that make excellent long-term investments, especially for beginners. There are many things to look for in your first stock investments, but just to name a few: You'll want to learn basic ways to value stocks, identify durable competitive advantages, and understand how a business makes money. Of course, our writers at The Motley Fool regularly suggest some good beginner stocks, like these examples.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.

Do not day-trade, swing-trade, or otherwise trade stocks for very short-term profits. Remember, the more frequently you trade, the more commissions you incur, which will reduce any gains you make. Also, short-term gains are taxed more heavily than long-term (more than one-year) gains. The best reason to avoid ultra-short-term trades is that success in that area requires a great deal of skill, knowledge and nerve, to say nothing of luck. It is not for the inexperienced.
Over the past few months I have had the opportunity to talk with three first-time investors. In addition to my friend's daughter mentioned above, I've also spoken with two friends in their twenties. One had never invested. The other had a 403(b), but really no idea how to create an investment plan or how to evaluate the mutual funds in his retirement account.
Traditionally, Americans have tended to stay close to home when it comes to their equity portfolios, but this is now changing as more investors realize the diversification and growth benefits of investing in the global economy. Indeed, U.S. companies constitute only about half the value of all world equities, and that piece of the pie is slowing getting smaller. Virtually every portfolio should have a good slug of international stocks.

Another thing to consider if you're debating between a mutual fund or ETF is whether this $1,000 is a one-time investment or the start of a plan to put money away every month. If you can afford to sock away some money every month toward your retirement, a mutual fund is a good choice (and even better if you're contributing to an IRA or a 401(k) plan, both of which have tax advantages).


Ordinarily, the plan administrators batch the cash from those participating in the direct stock purchase plan and use it to buy shares of the company, either on the open market or freshly issued from the business itself, on predetermined dates. The average cost of the purchases is weighed out or some other methodology is used to equalize the cost among investors with the stock allocated to the account of each owner. Just as you get a statement from the bank, the direct stock purchase plan statement arrives, in most situations quarterly, with a listing of the number of shares you own, any dividends you've received, and any purchases or sales you've made.
The truth of the matter is that the stock market has always been more volatile than the bond market. It's also, however, historically delivered much stronger returns. Between 1928 and 2010, stocks averaged an 11.3% return, while bonds averaged just 5.28%. So let's say you have $10,000 to invest over a 30-year period, and you put it in bonds averaging 5.28%. After three decades, you'll have about $47,000. But if you were to put that same amount of money in stocks instead and score an average 11.3% return, you'd be sitting on $248,000 after 30 years.

Stock investing is filled with intricate strategies and approaches, yet some of the most successful investors have done little more than stick with the basics. That generally means using funds for the bulk of your portfolio — Warren Buffett has famously said a low-cost S&P 500 index fund is the best investment most Americans can make — and choosing individual stocks only if you believe in the company’s potential for long-term growth.


Billionaire investor and CEO of Berkshire Hathaway, Warren Buffett, wanted to enable everyday investors to get in on his stock while not splitting the existing stock (making one existing share worth two or three shares, etc.). While splitting stock can attract new investors, it can also encourage speculative investment from those looking to make a quick profit by buying into the new, cheaper stock and getting out a short time later after making a quick profit when the stock goes up. If enough people were to sell too quickly, it could seriously devalue the stock.
In terms of diversification, the greatest amount of difficulty in doing this will come from investments in stocks. This was illustrated in the commissions section of the article, where we discussed how the costs of investing in a large number of stocks can be detrimental to the portfolio. With a $1,000 deposit, it is nearly impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies (at the most) to begin with. This will increase your risk. The World's Worst Stock Investment Advice
×