One of our core values in our Hashtag Investing community is to ensure people are taking the right steps before beginning their investing journey. Especially for younger millennials who are finding themselves with a bit of extra side money to play with, it's important for then to know the proper fundamentals prior to trading their first investment.
One our featured members who goes by the username @bauldwalk has been instrumental in teaching newer investors and getting on the right path to passive income. He's written out a detailed road map of how someone can get started into the investing wold in 2018. @bauldwalk has been investing for decades and has a great grasp of how to be successful. See below for his 4 step process.
- Have enough money to begin investing in the markets or cryptocurrency. Consider reviewing at least some of the major tenets of personal finance, such as a multiple-month living expense safety net (rainy day fund) and paying off high-interest debt, e.g., credit cards, before beginning investing.
- Go to Moneychimp -- http://www.moneychimp.com/ -- and Senzu -- https://senzu.io/ -- and Smart About Money --https://www.smartaboutmoney.org/ -- for introductions, overview and basics of personal finance et al.
- Begin to set aside a sufficient amount of money to open a brokerage account (discussed below; note that most brokers require a minimum opening deposit). Consider $1,000 or more as a minimum amount to do so. Lesser amounts, e.g., $100, 500, are insufficient to invest effectively. (The entire initial amount need not necessarily be invested all at once or in one stock. Rather it allows diversity in stocks, both in types of companies and timing of purchasing stocks.)
- Consider investing as a lifelong learning experience.
- Consider investing only the money you can afford to lose. Risking monies set aside for other obligations, such as but not limited to safety net and college funds, is not recommended.
- Consider investing in stocks as part of an overall strategy that may include participation in employee retirement plans, payroll savings plans and IRAs. There may be tax advantages to be had; your employer's human resources department should be a likely first resource.
- If investing for retirement, consider using an Individual Retirement Account (iRA) as part of your strategy. Age and income, present and future expectations, and restrictions on early withdrawal may factor into your decision. Your broker (discussed below) should help sort out your options.
- As you study the "how to", be aware of and recognize there are differences in philosophies and approaches to investing (longer time periods) versus trading (shorter time periods). Definitions may vary, and the writer's choice of adjectives may be confusing.
- Be aware of and recognize that stocks are just one type of investment product. Other product types include but are not limited to electronic traded funds (ETFs), index funds, mutual funds and bonds; you may choose to include such products in your holdings. (I use the term "stocks" generically, where applicable, to apply to all investment products in the discussion below.)
- Be aware that trading stocks as a novice is most likely a recipe for disaster. Day trading is not recommended. The literature is replete with evidence that the vast majority of those new to the market quickly lose significant amounts of money. This piece -- https://www.quora.com/Why-are-so-many-people-against-day-trading/answer/Will-Caruthers --
illustrates the point. Do take the time to read and study (discussed below) first and reserve the exploration of day and short-term and options trading for later.
- As a decades-long conservative investor, I am not trading forex or cryptocurrrencies. While I follow the topical news, other persons and organizations offer better information in these areas. If that is what you seek, I would refer you to the Wiley and Dummies books (discussed below) before wandering off into the myriad of websites and chat rooms -- for cryptocurrenct, see the crypto channel in https://www.hashtaginvesting.com/ -- discussing same. Get a grounding and weed out those that would relieve you of your funds.
- And an aside. One sees numerous posts asking such variants of questions on doubling an investment in a short period of time, how to turn a small four-figure investment into a million dollars, a list of guaranteed no-risk stocks, the "best" stocks to buy now for the next some number of years, what is the easiest way to make money and other unreasonably outlandish ideas. In my opinion these all are just noise. While there is nothing wrong about asking questions, generally my impression is that the writer hasn't attempted even a modicum of research on the internet or in a bookstore or library. As you begin your own journey, I suggest you do not be distracted by such outlandish postings.
- Go to (and bookmark for future reference) Investopedia -- http://www.investopedia.com/ -- for introductions, terms, references, dictionary, and encyclopedia. It has a Wikipedia-like format.
- Consider taking an introductory course or two at at an adult evening school or a 2/4 year college.
- Read a few introductory quick read "how to" investing books published by Wiley -- http://wileyfinance.com/ -- including their For Dummies -- http://www.dummies.com/ -- series found in most larger bookstores, where one can browse (and look at the author's writing style), and online. Well-indexed, these books also serve as a reference. (I prefer print books in hand compared to ebooks but that's me.) See a list of a few possible suggestions at the end of this post.
- Consider reading over time, as you continue with the steps below, at least some of the numerous books mentioned in similar question-and-answer (q&a) postings here; use search atop the page to find those q&a postings. Can't make up your mind on what books to read? Start with a non-inclusive list of recommended books on investment philosophies and concepts at the end of this post.
- Visit your local library; some libraries have online loans using software/apps like Overdrive.
- Use search engines (Google, Yahoo, et al). Have a question? Try typing the complete question into the search dialog box. The (Google) algorithms that parse a sentence or phrase as a search query are quite amazing.
- Don't give up. If these first two steps absolutely won't work for you, see "Safety Valves" below.
- Consider reading the Bloomberg, CNBC, Marketwatch, and Reuters Business websites on a daily or frequent basis.
- Watch Bloomberg, CNBC and Fox Business on cable TV or listen to them on SiriusXM radio. Bloomberg also has a domestic radio network that is also streamed on the internet.
- As an aside, my favorite TV show is CNBC's Fast Money (FM) airing at 5 pm Eastern weekdays. The traders provide insight as to why the markets moved that day, and much more. I DVR the show to ensure I don't miss it. The show also streams on the CNBC mobile app (and has video clips on its webpage).
- As another aside, I'll also watch CNBC's Halftime Report (HR) airing at Noon Eastern weekdays. Akin to FM, the traders cover what and why the market is moving midday. Though I don't DVR the show, if I am out and about I will listen to the show on SiriusXM (In the car or using the app).
- Consider signing up for Seeking Alpha (SA) -- http://seekingalpha.com/ -- to track stocks of interest to you. These websites/mobile apps are alive with news, comments et al. Apply your common sense filter to all material read. I find the news releases posted by SA editors to be especially useful. (One way to gauge a SA author's credibility is to research them on LinkedIn; no guarantees but perhaps some insight.) To prevent information overload, optionally enter the stock tickers of the companies you wish to follow.
- Consider using a Twitter -- https://twitter.com/ -- account to follow investing news and reports from at least some third-party websites rather than clutter your email inbox. The link will take one directly to the story or report.
- Use Investopedia as a reference and dictionary to look up terms and vocabulary not understood.
- Consider joining an investment discussion bulletin board such as, but not limited to, the Bull Market Board -- https://www.bullmarketboard.com/ -- and participate.
- Consider joining an investment live discussion chat room such as, but not limited to, Hashtag Investing -- https://www.hashtaginvesting.com/ -- and participate. Hashtag Investing is a long-running stock investing chat room with a diversified group of members, mostly from North America and Europe and a lesser number from east Asia and Oceania. Stocks, bonds, funds, options, IPOs, sectors, the economy, the exploding crypto arena (including mining) et al.
- Chose a broker. There are a number of websites -- exemplified by http://www.stockbrokers.com -- that review brokerage firms, but consider the timeliness and bias in reading reviews. Competition among brokers results in brokerage website and mobile app features changing rapidly, as do services and fees. Rather than accept such writings at face value, consider using such reviews and articles to formulate your questions to be asked when investigating opening an account.
- The cheapest or online-only broker isn't necessarily the best choice, especially for one starting out. For a number of reasons including face-to-face service and help with forms, applications and other documents requiring signatures, consider a broker that has a brick-and-mortar storefront (e.g., in the USA, Fidelity, Schwab, TDAmeritrade, etc.) near you.
- Consider visiting the broker's office to talk with a representative to talk about their services and website. Discussion items may include the features and usability of the website from both the perspective of a beginner and an advanced user, trading fees, research and analyst reports, education, training, banking services, IRAs and the like. Are you made to feel comfortable in the office? If not, move on to a different brokerage firm.
- Consider thoroughly exploring the broker's website, with special attention to the research section (including its stock screener, analyst reports and news coverage), to take full advantage of all the information within. The consistency of the presentation within the broker's website should be less confusing, facilitating comparing information across companies, than navigating the differing formats of the myriad of third-party websites.
- Do take full advantage of the training material, seminars, webinars and discussion forum offered by the broker of your choosing. Some offices have seminars on site, other brokers offer webinars on line, and some firms have both.
- Recognize that one only requires the broker's website or mobile (Android/iOS) app to buy and sell. Other third party websites and mobile apps only may provide news and prices of interest.
- If using a mobile device on a public WiFi network to access your brokerage account, recognize your account login information and security is at risk. Turn off the device's WiFi and use the cellular telephone network instead.
- Have trouble finding an office in your area? Use Google Maps and search for “stock brokers” or similar phrases. If that does not help, as telephone books are almost extinct, ask the manager of your local bank, Better Business Bureau, or chamber of commerce for references.
- Consider putting as much additional money as you can afford into your brokerage account to buy more shares. Note that doing so does not necessarily mean one should immediately purchase shares; opportunities may take time to evolve.
- Consider your risk tolerance when doing due diligence on choosing a stock, ETF or other investment product.
- Are you interested in or own shares in a company? Go to the investor relations and/or press relations page(s) of the corporate website and sign up for the email notifications of interest to you. You should be among the first to receive notices of SEC filings, product and services announcements, earnings and dividends.
- Recognize the basic differences between fundamental analysis and technical analysis. Both methods are useful in doing your due diligence; one method to the exclusion of the other is not necessarily the right course of action.
- Investing for the long term? Consider dollar-cost averaging and automatic dividend reinvestment. The compounding quickly adds up.
- Assuming all continues to be well with your choices, don't necessarily be in a hurry to sell. (It is not to say one should not take profits if appropriate.) Short-term and day-trading is at best stressful and may well result in loss of principal. (As you gain experience, then begin to explore such trading if you feel comfortable doing so.)
- Consider paying attention to rotations among market sectors -- https://www.msci.com/gics -- and perhaps adjust your holdings accordingly if necessary.
- Be wary of "sure fire" and "guaranteed" investing strategies or methodologies or "top" stock picks surfacing on websites and in your email inbox. If it sounds to good to be true.
- Don't waste time with penny stocks. Penny stocks are akin to juggling sharp knifes while blindfolded. The road is strewn with pump-and-dump boulders rolled out by those who would relieve you of your funds. Save your money and invest wisely in stocks of companies with proven track records.
- Are you confused, frustrated, bored, lack the time, over your head -- whatever the reason -- or just don't care about or like managing your money, investments, and retirement planning? Find a fee-based (not commission-based) financial advisor using a phone book, library resources, Better Business Bureau, or references from your bank. Interview for a good fit.
- Have the fee-based financial planner lay out a plan that meets your perceived needs and that you can follow with minimal stress and fuss.
- Recognize that a financial plan should not be static. The plan probably should be reviewed and perhaps changed or updated as one ages and significant life events, e.g., career changes, marital status, dependents, real property acquisition, occur.
- Should you also choose to hire an investment advisor, choose a registered investment advisor with a Series 66 license -- a person who has passed an exam by North American Securities Administrators Association (NASAA) designed to qualify candidates as both securities agents and investment adviser representatives -- working in a managed platform that charges a nominal annual 1% (or not much more) commission as opposed to commissions.
- Confused about types of financial specialists? FINRA (Financial industry Regulatory Authority) offers an unbiased explanation -- http://www.finra.org/investors/choosing-investment-professional -- and resources to help.
As you may not pay attention to tax forms, end-of-year statements, and IRA options, you may want to hire a tax accountant (interview for a good fit) to protect yourself from making mistakes. Be prepared to show the tax accountant the last few years of your federal and state tax returns. Be prepared to possibly identify and track unusual business/work or medical expenses.
- Consider taking notes, including questions to be asked in a class, forum or chatroom or of your broker's customer support, as you advance your knowledge. Paper and pencil works, but a cross-platform (desktop and mobile) software solution may be a better choice. Obviously there are numerous organizer and note-taking products -- including a word processor or text editor -- to choose from, and flexibility and breadth of capabilities vary. If you opt to try a few products, a hint: ensure there is a compatible file import and export capability so that notes can be moved to a different product without re-keying.
- I prefer and use the cross-platform Evernote -- https://evernote.com/ -- product for its note-taking, webpage (e.g., articles, email) and photo capture, tagging and so much more, but that's me. There is a limited free version; i opted for the full version that has a small (compared to my investments) annual fee. (These notes were assembled and now maintained in Evernote.)
Suggested readings (not inclusive, not ordered) on philosophy, concepts, strategies et al.
- The Intelligent Investor by Benjamin Graham with Jason Zweig
- The Only Investment Guide You'll Ever Need by Andrew Tobias
- The Bogleheads' Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
- A Random Walk Down Wall Street by Burton G. Malkiel
- What Works on Wall Street by James P. O'Shaughnessy
- All About Asset Allocation by Richard A. Ferri
- Common Stocks and Uncommon Profits by Philinp Fisher
- Stocks for the Long Run by Jeremy Siegel
- Common Sense on Mutual Funds by John Bogle
- Irrational Exuberance by Robert J. Shiller
- How Markets Fall by John Cassidy
- How To Make Money In Stocks by William J. O'Neil
A few suggested readings (not inclusive, not ordered), more to the point of how-to reads, of Wiley and Dummies offerings are examples of books readily in book stores and available on line. Note the Wiley and Dummies are less expensive at retailers, and epub-format books are available at even less cost. These are a few of many in the catalog. Do explore the full catalog to see the breadth of specific topics.
- High Powered Investing All-in-One for Dummies, 2nd Edition - http://www.dummies.com/store/product/High-Powered-Investing-All-in-One-For-Dummies-2nd-Edition.productCd-1118724674.html - by Eric Tyson
- Fundamental Analysis for Dummies, 2nd Edition -- http://www.dummies.com/store/product/Fundamental-Analysis-For-Dummies-2nd-Edition.productCd-111926359X.html -- by Matt Krantz.
- Technical Analysis For Dummies, 3rd Edition -- http://www.dummies.com/store/product/Technical-Analysis-For-Dummies-3rd-Edition.productCd-1118779614.html -- by Barbara Rockefeller.
- Getting Started in Options -- http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470480033.html -- by Michael C Thomsett or Trading Options for Dummies, 3rd Edition -- http://www.dummies.com/store/product/Trading-Options-For-Dummies-3rd-Edition.productCd-1119363705.html. -- by Joe Duarte Of the two, I prefer Thomsett's book.
Are there other books that could be recommended? Sure. Look to your local and college library.