Are you looking to start investing, but you don’t want to bet the farm? Well, there are several wise ways you can go about this. The best way is to invest long-term, do your research, and regularly invest in companies you know, use, and trust daily. Buying into index funds is also a good way for beginners to safely invest in a broader range of the market for the long term. Short-term trading, shorting stocks, derivatives, and day trading are for experienced traders. It’s a fantastic way to lose all your money and get taxed to death. As they say, it’s all about time in the market, not timing the market. That said, pay attention to what other insider investors are doing with their investments. While the average Joe doesn’t have access to the same level of market knowledge as Warren Buffet, you do have access to their trading histories. Let’s take a quick look at how you can apply these maxims to profit in your investing.
Begin with your investment opportunities. How much can you afford to invest? How much risk are you willing to take on to get a return of X%? As we don’t have to give 20% of our income to a King or a Church in tithes any longer, why not, as an example, say that we’re going to put that 20% of our annual income into the market? Assuming that the median US household income is around $68,000, that would mean $13,600 to invest in the market as you see fit.
The first step is to pick up a notepad and a pen and take a tour of your own home. Now, this may sound silly, but if you bought it, then some man in a factory made it, and there’s an excellent chance that if you bought it at a store, from a grocery, or online that many, many other people did too. Write down everything you see in front of you. Do you have a 2 liter of Coke in the fridge? Write that down. Those shoes over in the corner are Nikes. Write that down too. That laptop is an Apple; again, write all these down and others like Tide, Pyrex, or Starbucks.
Create a spreadsheet and begin tracking these and the other stocks of products you find around your house. These companies are likely to be stable for long-term investment because they are staples of the larger consumer economy. Hewing closely to Maslow’s hierarchy of needs, people need to have their basic needs met. Home products are the foundational basis of every human economy; things like food, shelter, clothing, and accompanying necessities will likely never change. You bought it, so, likely, around 300 million of your fellow citizens did as well. So, you can count on their parent stocks to remain profitable, possibly for years to come.
Now, moving into a bit more risk, what about stocks in companies that you can’t find in your kitchen cupboards? Here, buying index funds can be a good way for beginners to participate in the broader range of the market. At its most basic, an index fund is an investment in one or more of the ‘indices’ or a specific index, like the Standard and Poor’s 500 (S&P), for example. The Dow Jones gets all the attention on the nightly news, but broader indices track the progress of the overall market in more granular detail. The S&P is a collection of tracked stocks, weighted by market capitalization, the aggregate of which comprises a diverse range of companies throughout various economic sectors, which are thought to collectively represent the broader US economy’s health.
Okay, so what of it all, then? Well, you can invest in these index funds the same way you would invest in a mutual fund; it’s a very similar kind of thing. For example, an investor like yourself can buy into an index fund with an outfit like Vanguard for no additional or minimal fees past the fund’s purchase price. Such management fees typically come with almost every managed mutual fund. Still, because index funds are not typically managed (because it’s just a list of stocks on a particular index), there are no real managers placing orders to grow the fund. Often investment firms will tout the growth and prowess of these fund managers; however, it’s all just marketing. As often as not, they aren’t worth their salt and fail to beat or exceed the rate of return on your money in the market. A monkey throwing darts at a list of stocks taped to a board has done better than many of these so-called expert fund managers.
Now, unlike monkeys, there are real experts out on the broader economy, and, that said, although you won’t have direct access to the same level of market knowledge as they do, you do still have access to their trading histories. Often, these experts are the CEOs, Presidents, Chairman of the Board, or CFOs of their respective companies, namely experts in what’s really going on inside the walls of their particular organizations. So, not infrequently, Congressmen will have access to market-changing moves long ahead of their announcement to the broader marketplace.
They will place large orders ahead of going public with that information, and thanks to the insider trading scandals of the 1980s, the SEC requires them to post their trades publicly. You, dear citizen, have access to these trades via websites like openinsider.com, FinViz, and Yahoo Finance. You’ll look for large purchases of stock by the CEO or CFO, typically 5,000 or more, the prices, and look for a graph illustrating a developing period of inactivity, where the stock is overall trending upwards but is briefly flat. If the trade date is towards the right end of that period, it’s a good bet that there’s news that the stock is going to move upwards very soon.
Each of the methods described here carries some risk, as all investing does. Markets go up, and markets come down—sometimes in spectacular fashion. However, these conservative approaches could serve you well when you decide to begin investing in the market for the first time.
This article is not financial advice. Seek the advice of a trained professional familiar with your financial situation.