In less than two months the Dow, S&P and all other indices in major markets. And due to this global pandemic, the global economy is staring at a recession. So, does not matter if you invest on your own or you have a portfolio manager, your portfolio bled money. And now investing in this bear market can be nerve-wracking. Because we do not know when this bear market is going to be over. We do not know if we have seen the bottom yet. This April is going to get worse. Many more great souls are going to catch the COVID 2019 virus. And this whole social distancing and lockdown in different regions globally might turn this pandemic into a financial crisis, a recession, and nobody knows when we will go back to a prospering economy.
so, how to Invest on your own? While the economy remains on a ventilator, we will still need a few companies. Many people will lose their job. So, they will spend less money. Like, they will probably not visit restaurants so often, or buy a car anytime soon. But they will still consume data on their phone, or watch movies on Netflix. They will keep gas or electric running. They will make trips to the grocery stores for grocery stores, Walmart or Costco. You need to find these companies, and invest in those with a zero-commission brokerage account like Robinhood.
Now, before you go out and buy stocks there are many points to consider, and that is not about valuing a company or determining if the company will survive this slump. While the US government is printing money and sending checks out, but there is a major portion of the US workforce is going to lose the job. And we should all make sure we have an emergency fund saved. That is most important right now.
To be honest this pandemic caught me off guard. While I have a portfolio, which is down significantly, but I do not have enough liquid cash for an emergency. And if I lose my job, I will be in trouble. I realized this just day before yesterday when I received an email from my employer ( this email was sent to the whole organization) stating that they are suspending bonuses, increments, promotions effective immediately. And that email made me worried and helped me realize my mistake. I do not you to make that.
First, build an emergency fund. That means you should have liquid cash ( that means you can access the cash immediately, not even CD) worth 6 months expenses in any account you can access. My suggestion would be to keep your money in an interest-paying account. I made a post suggesting a few ideas or options you can consider to keep your emergency fund.
What are the best stocks for beginners?
As a beginner the primary problem will be with attitude, emotions etc. Stocks are not like hard asset. It is liquid unlike the hard assets like physical metals, real estate etc. People can buy one stock or sell mostly whenever they want. Unless the market is closed, be it because it is weekends, public holiday or there is a lower circuit due to sudden fall in price.
So, before you invest, you need to be 100% sure that you can handle a 30 – 40% drop in portfolio value. Even Warren Buffet had to see his portfolio drop by 50% 3 times. So, you can only afford to invest the amount you will not need in next 5 – 10 years. Make sure you have the emergency fund like I told you before.
Then look for stable businesses. Something that you are familiar with. I prefer to be a customer, an user. You can choose such companies too, such as Apple, Coke, Microsoft. Now, to be on safer side, you can buy an index fund too. That will be well diversified and it will cost you less than mutual fund.
How to pick your own investments?
Let me make it simple for you. Open an account in Robinhood. Take a Gold membership so you get to see morningstar reports.
Research the company, but as I said, make sure you understand the business. You need to check the balance sheet, to make sure the company does not have a ton of long term or short term debt. Mr. Buffet prefers, debt to equity ratio of 0.5. Think very hard if that business will survive in the next 10, 20 years. If the business is still growing, then you have selected a great business. You need to look into the management too. Read the annual report for the last 10 years, and verify if they delivered what they promised.
Then again, if these all look like too much work, go buy a low-cost ETF fund, which is well diversified. Continue buying regularly. If the market falls 5 – 10%, put in more money.
How to start investing with a small amount of money?
IF you have little amount of money considering by little you mean few hundreds, you can again go back to Robinhood. Why? If you have little money left to invest after having an emergency fund and after funding your retirement account then, Robinhood is a great platform for you. It does not charge you any brokerage. And you can buy fractional stocks. That means, although a stock of Coke costs around $44 today, but say you have $20 to save/ invest, you can buy $20 worth of Coke. Robinhood is a perfect place to start investing with little money. And little might mean $100 or $1000 or even $10. And what should you buy? By this time you already know where to start.
What is the best way to make money investing?
Investing carries an implicit commitment. You buy a stock, which is a part of a company and you continue holding the stock until the reason for your purchase expires. While I say this, let me add something else, capital appreciation could be one reason behind investing, but cannot be only or primary reason. Either way, you can buy a stock or index fund or mutual or closed-end fund and hold it for capital appreciation. You will get a dividend, which is pretty cool because the dividend yield is often more than your checking account. And, finally, you can sell puts or calls to generate income while you wait with the stock. These are 3 ways I make money.
Let me know if you are a stock trader? What assets do you trade? Or let me know about the first stock you invested in.