How do I initially begin buying and selling stocks? Should I look into day trading penny stocks ? Or should I invest larger amounts into a few companies and wait until I can sell the stock for more than I paid ?
Hey Vernon great question. Stocks are a very interesting thing to follow but I would preface it by saying it can also be very risky. I invest personally, but a good thing to think about is that you could potentially lose all of the money that you invest. So I would only get involved if you are able to take that risk and know that there is no guarantee that you will make money.
That being said, there are a few websites out there that make buying/selling stocks relatively easy. I personally use Fidelity but other popular ones are E-Trade and Charles Schwab. They all have good statistical tools built in to help you compare stocks.
As far as what stocks to buy, I would first recommend finding an industry that you are interested in, and start paying attention to headlines for those companies. That way you can easily follow the news and see if something good/bad is about to happen to the company. If you watch channels like Fox Business or CNBC, they also provide good coverage on stock opinions and how the overall market is doing. I would recommend to just sit back and follow the stock market either on TV or online for some time before investing.
Personally I have never traded penny stocks. My view there is that the likelihood of large growth is slim and they may not make money at all. But you could potentially find a few good ones with a lot of research.
Something you may look into is investing in what are called ETF's, which follow either a group of companies within the same industry, or follow a specific index such as the NASDAQ, which is a selection of a bunch of companies from different industries. The reasons I mentioned ETF's are that they are not as impacted by one particular company doing bad. For example if you had a bunch of stock in Apple, and Apple's stock goes down, your entire investment is impacted by that. But if you have an ETF that includes Apple among other companies, it helps diversify your risk. Also sites like Fidelty have ETF's that you can buy through them that do not charge you a fee each time you purchase shares. An ETF that follows something such as the NASDAQ can be a safe bet over the long term too, since the overall chart for the NASDAQ is positive over time, even with recessions factored in.
Anyways I hope that information helped. The unfortunate thing about stocks is that it's hard to be certain about anything, and with your own money on the line it is not something that everyone should risk. Everyone has an opinion but essentially no one knows for sure what will happen. That being said, the more homework you do on the stock market, the better your chances of success can be.
Hi Vernon: Thank you for your interest in the stock market and investing. I got started investing when I was 24 years old by buying large index funds like the S&P 500 and the Dow 30. I am now 56 years old. By investing in the Dow and S&P, it was a great way to get started in the stock market owning the 500 largest companies in America. And, I learned a lot by simply owning the "Dow Jones 30" and following those 30 companies.
For you to begin buying and selling stocks, you will need to open up a brokerage account where you can buy/ sell stocks. I recommend Charles Schwab. I have had my brokerage account with Schwab for over 20 years. And, when you buy stock, I don't recommend selling or day trading. In fact, I don't recommend selling EVER. When I started investing in individual stocks on my own in 1997, I bought the following companies:
Bank of America
Vernon, I have never sold. I bought these stocks in 1997. I have never sold. General Motor went bankrupt 10 years ago. So, I lost a little bit of money on GM. But, all these other stocks have risen dramatically in value.
I hope to retire in a few years. And, all of these stocks listed above are the Foundation for my retirement. Which helps me answer your last question: I do recommend investing larger amounts in fewer companies. In all, I own about 25 different stocks that I have accumulated over 20+ years. Other companies that I have purchased include Apple (bought in December 2000!!!), American Express, Berkshire Hathaway, Columbia Sportswear, Facebook, Hilton (IPO), Malibu Boats, Sirius XM, Under Armour (IPO), Verizon, Visa, and Workday (IPO).
I am saving for retirement. I am still saving for my future.
I have no plans to sell any of these stocks. And, when you start investing and saving in the stock market, I do recommend BUYING.... I don't recommend selling.
It is phenomenal how much money grows over time by being invested in the stock market.
Thanks for the question back to me Vernon. I will reap the benefits of "not selling" my investments in a few more years when I retire with no financial worries at all. I have tremendous "peace of mind" knowing that I have lived well below my financial means for 35 years... and will retire very comfortably. I'm very excited about my future financial fate.
Good for you for thinking about investing at such a young age. If I was in your shoes, I would take a step back and think about what your plan for this money is. If this is money you will be needing in the next few years, I would not put the money in the stock market. Instead, I’d recommend stashing the money in a high yield savings account or money market fund. You should be able to get something that makes you over 2% interest. These have essentially no risk.
Keep in mind, the stock market can be highly volatile. For example, in 2008 the stock market went down 37%! Assuming you kept your money in the market, it would have taken you until 2012 to recover your initial investment.
If you are saving for something far away in the future (at least 5 years from now), the stock market is the ideal vehicle. Long term, the US stock market has averaged around 10% return annually. The most effective way to invest in the stock market is through index funds. This means you will own stakes in thousands of companies in just one simple investment and pay a very low fee. By owning thousands of different companies, you are less at risk for one company having a bad year. You have a less than 15% chance of earning a better return buying individual stocks compared with simply buying an index fund. To learn more about index funds, I’d recommend reading a book called Little Book of Common Sense Investing by John Bogle. My high school teacher gave me this book for graduation, and it’s fantastically useful. Please make sure before you start investing in the stock market, you have enough cash and savings for emergencies and have all your debt paid off.
Source for market returns: https://ycharts.com/indicators/sandp_500_total_return_annual
Jimmy recommends the following next steps:
First, you need to figure out what your goal is for getting into investing. For example, are you trying to actively trade to earn income on the side? Are you saving for retirement? Your end goal should drive your investment decisions. It wouldn't make too much sense to day trade penny stocks with your retirement funds since that would be extremely high risk. I encourage you to read investment books like "The Intelligent Investor" and read about investing through websites like Investopedia to learn more about investing.
Only invest money which you can afford to lose. Start early is key to making money in the long run. I personally have done a lot of researches on companies that I want to buy. You can look at their spreadsheets and understand key metrics like dividend yield, P/E ratio, obviously their histories and future potentials. You want to think about buying companies and into industries that are necessary for people like technology and energy. I do like big tech companies are tech are the future and here to stay. And I do like index funds that track some index. I have invested in VOO index fund which tracks S&P 500 and they paid 2% in dividends. And in Microsoft and Apple are great as well.
Right now should be a good time to buy some stocks as the market has dropped due to COV-19.