5 Top Investing Tips for Beginner Investors

As a beginner at practically anything, the first task at hand is to educate yourself about the skill that you wish to master. It’s exactly the same when you want to become an investor, even if it’s just for yourself and not as a professional. Today’s blog will give you some excellent investing tips that you need to know as a beginner in order to start off on the right foot. Enjoy.

 

Tip #1: Always invest in something that you understand well

When you invest in an industry that you know well, and the businesses involved in that industry, you can avoid getting caught in so-called “stock market bubbles”.  During a crash, you can then remain (mostly) calm because you’ve already determined what a company’s true worth is. and know that they’ll be just fine when things get better.

 

Tip #2: The less debt a company has, the less risk they have for you

When you’re going about the task of choosing individual stocks, it’s very important that you look as closely as possible at a company’s balance sheet. If you see too much debt, you can bet that it will hamper their growth as well as their ability to weather any economic storms that might arise. Less debt = less risk.

 

Tip #3: Instead of selling stocks to balance your portfolio, use dividends

If you take dividends in cash you can then invest them in other sectors where you don’t have as much exposure, Improving your diversification while keeping your tax risk low when you go to sell.

 

Tip #4: Make sure that your mutual funds don’t own the same stocks

Many new investors make the mistake of thinking that they’re well diversified because they own a number of different mutual funds. However, if those funds own many of the same stocks, you could be burned badly in a bear market because your portfolio isn’t quite as diversified as you thought it was. Morningstar has an “Instant X-ray” tool that can help. (http://portfolio.morningstar.com/Rtport/Free/InstantXRayDEntry.aspx)

 

Tip #5: Although it pays nothing, Cash can still be useful to keep on hand

If there’s a market downturn, having some cash on hand to take advantage of it will be very helpful. The fact is, there hasn’t been a stock market correction of 10% since the end of 2011, and the market is overdue.

 

Bonus Tip: Patience is the key to being a great investor

Here’s a simple fact; not every stock that you buy will take off immediately, even if we’re in a bull market. Sometimes even the best stocks can stall but, if you’re patient and believe in long-term investing, you will often see that what you thought was a stinker turns out to be a keeper

5 Tips for Low Risk Investing

Many consumers don’t invest their money for one simple reason; they’re afraid of the risk that they’ll lose that money. Of course, keeping your money safe in a bank isn’t a great solution either because, at less than 1% interest, it will fall behind inflation and actually lose purchasing power.

With that in mind, today’s blog looks at 5 tips for low risk investing, so that you can grow your money without being too anxious. Enjoy.

Tip 1)  Diversify. Diversification, while it’s a big word, Is actually a term used for a very simple concept; spreading your investments around so that, should one of them fail, the rest will keep going and prevent financial disaster. It basically means that you should have a nice mix of real estate, commodities, stocks, bonds and other investments to spread out your risk among them. Even if one is a loser, the other winners will keep you afloat.

Tip 2) Put Time on your side. If you haven’t heard of compound interest, it’s time you did. Basically it’s the best way to grow your money without having to do anything besides leave it alone. Over time, compound interest will grow your money in any type of investment you place it, like a 401(k), IRA and so forth. Not only that but, if you’re young and your “time horizon” is long, you can leave your investments to grow and weather any ups or downs the market might have.

Tip 3) Start small.  If you’re worried about risk, you should just start small. Choose investments that, over the last 5 years or so, have performed well, and purchase them regularly in small amounts. You can get ideas on which ones are the “best” by talking to either a broker, reading an investing magazine like Money or Kiplingers, or even talking to the benefits administrator where you work.

Tip 4) Relax and let your investments do their job. Many people keep such a close eye on their investments that they end up making bad decisions because of what the market happens to be doing at a particular time. The fact is, like the ocean, the market will ebb and flow, go up and down, and have times of turbulence as well as times of tranquility. Through it all, if you want to be a good captain of your finances, you really just need to steer it straight and realize that, at the end of the day, the ocean’s not going anywhere and neither is the market.

Tip 5) Make good choices. If you want to keep your risk low, investing in poorly rated junk bonds is probably not a good idea. Aggressive growth stock funds are the same because they have much more risk then, for example, income stocks funds. If you don’t know the difference between one investment or another, as far as risk is concerned, educate yourself more by talking to someone who does, doing research online or reading investing magazines.

They say that if you want to learn something new, you should seek out an expert and let them teach you.

When it comes to investing, the top expert is definitely Warren Buffett, regarded by many people to be the greatest investor of the last hundred years (and also one of the top 5 richest people on the planet).

If there was ever a true expert at investing, Mr. Buffett is that person. With that in mind, we’ve put together a little bit of his best investing advice from over the years. Some of it might not be as specific as you’d like but, went taken as a whole, it’s advice that will help you to make much better investing decisions.

During a panel discussion after the documentary I.O.U.S.A,  Mr. Buffet told the audience that “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”

What he meant was that he looks for businesses that are extremely strong, product and service-wise, so that no matter who is running them the chance of them going under is slim, greatly lowering the chance that his stock purchase will go with them.

In his 2008 letter to shareholders, something that Berkshire Hathaway shareholders anticipate all year long,  Mr. Buffett had this to say about buying stocks;  “Price is what you pay: value is what you get. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

In other words, the combination of an excellent company and a low-priced stock is what you should be looking for as an investor.

When talking at the Berkshire Hathaway annual meeting in 1997, Mr. Buffett had some things to say about the “margin of safety” that many investors look for when purchasing a stock.  “If you understood a business perfectly, and the future of the business, you would need very little in the way of a margin of safety,” he said.

What he meant was that the more vulnerable a business happens to be, the larger the margin of safety (i.e. lower price) that you’ll need in order to make a purchase, and vice-versa.

Finally, there’s possibly the best bit of advice that Mr. Buffett has given over the years, from his book ‘The Tao of Warren Buffett  (2006).  “Rule No.1: never lose money: rule No. 2: don’t forget rule 1”.

It doesn’t get much better than that.

With one of the most diverse economies on the planet, the United States drives global growth and has, for the most part, the best framework for shareholder protection. That’s why investors have always avoided investing in foreign stocks, because there simply wasn’t a need to take the extra risk. Besides that, there’s plenty of opportunity to get international exposure if you own stocks like ExxonMobil (NYSE: XOM) and Yum! Brands (NYSE: YUM).

The fact is, you don’t need to invest abroad but, that being said, it’s also recommended that you own at least one stock from an international company. Many may argue that investing in foreign companies is risky but the fact is that there is just as much risk investing in an American company as there is in a foreign company, and possibly more reward depending on the company itself.

For anyone that says investing in a foreign company is more risky, think about this; is it really riskier to invest in BHP Billiton (NYSE:BHP) that is to invest in FuelCell Energy (NASDAQ: FCEL), just because the first calls Melbourne, Australia home and the second is based in Connecticut? In fact, BHP has been generating billions in free cash flow while FuelCell, since 1998, hasn’t generated any.

If you look at them as a group, there is no more risk in investing in international stocks than investing in US stocks. Just like US companies offer substantial diversity, foreign companies offer it as well including companies like China Life Insurance (NYSE:LFC) and Vodafone (NYSE: VOD), both of which have seen massive cash flow, and VimpelCom (NYSE: VIP) which is surging at the moment.

In some ways, foreign stocks might actually be less risky than US stocks. As nearly every major currency in the world has gained value against the dollar, those investors who have invested heavily internationally have seen excellent benefits from this diversification. Anyone who’s got investments in pounds, rupees, dinars and other denominations is earning more than those who have invested in US dollars.

One reason that some people are looking even harder at foreign stocks is simply because so many money managers are telling them they shouldn’t. When you think about it, the fact that all of the foreign markets together exceed the total size of all US stocks, does it really make sense that allocating 25% of your portfolio to foreign stocks should be considered aggressive?

In many investors’ opinions there is a true lack of investment allocation in foreign companies, especially considering that there is a much more diverse volume of industries available internationally.

So the question of whether or not investing in international stocks is risky is pretty much a moot point. Yes it’s risky, but investing in US stocks is just as risky. From Finland to Taiwan, India, Brazil, Canada and China, there are plenty of intriguing stock bargains around the world that definitely are worth investigating.

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