If you've done your initial research on what the stock market is and how it works, then you're finally ready to build your own portfolio!
But deciding which stocks to include in your first portfolio can be a stressful task. What if the company you invest in isn't reliable? What if the stock you're looking at doesn't have the right level of risk for your specific risk tolerance?
Well, we're here today to talk about some of the best stocks you can buy as a beginner.
We'll break this article down into several different investing strategies so that you can pick out which stocks suit you best.
For even more information, head to the Investing Ideas section up in the toolbar!
The Best Beginner Stock
The best stock for a beginner portfolio…
…Isn’t actually a stock at all. It’s an ETF, or exchange-traded fund.
An ETF is like a mutual fund, except it’s less costly, easily tradable, and usually managed passively.
See, many investors are under the impression that they need to pay a big upfront fee plus management fees to join a big mutual fund so that they can make money and beat the market.
But in reality, actively managed funds typically aren’t that great.
In fact, according to S&P Global, less than 20% of large-cap funds in the U.S. have beaten the S&P 500 over the last decade.
So, if so many active managers underperform the market, why not just invest in the market as a whole at a lower cost? If you can’t beat ‘em, join ‘em, right?
You can buy an S&P 500 ETF and gain exposure to ALL 500 STOCKS in the index with very little management fees.
An S&P 500 ETF tracks the S&P 500, meaning that if the S&P 500 goes up 5%, your ETF’s price will go up 5%. If the S&P 500 goes down 3%, your ETF will go down 3%, and so on.
Some of the most popular S&P 500 ETFs include SPY (from SPDR), IVV (from iShares), and VOO (from Vanguard).
I know that we at Wall Street Survivor have given you this advice plenty of times, but the reason why we keep repeating it is because it’s SO important.
The ability to invest in a low-cost security that usually beats fund managers and comes pre-diversified is too cool not to share!
What About Individual Stocks?
The S&P 500 is a collection of large, reliable stocks that can be used to represent the stock market as a whole, and an S&P 500 ETF is a great introduction to the world of investing. But if you want to buy individual stocks, you’ll need to choose an investing strategy that suits you.
If you’ve gotten a feel for the stock market and you want to venture into individual equities, you can refer to the Investing Ideas menu up in the toolbar to help get you started.
Here are some examples of individual stocks for beginners taken from the different sections of the Investing Ideas menu.
Value investing is a true fundamental investing strategy.
It involves finding stocks that are underpriced by evaluating fundamental factors such as their financial statements, their leadership, and the economy as a whole.
You then buy the underpriced stock and hold it in the hopes that it eventually reaches its true value.
Some important value investing stocks on our Value Investing page brought to you by U.S. News are:
- Lockheed Martin Corp. (LMT)
- Vertex Pharmaceuticals Inc. (VRTX)
- Wells Fargo & Co. (WFC)
Dividend Stock Investing
If you’re less concerned about making money through an increase in a stock’s price and more concerned about making steady, reliable income from your investments, then an income investing strategy might be the right choice for you.
When a company makes a profit, its board of directors can choose to reinvest that money back into the company, give out the money to the company’s shareholders, or any combination of the two. Many companies give out dividends several times a year.
There are some companies that have even increased their dividend consistently over the last several decades, known as the Dividend Aristocrats.
Investing your money in stocks with reliable (and constantly rising) dividends is a great way to earn passive income; you can sit on your stocks for years without worrying about constantly having to buy or sell stocks.
Here are some great stocks from our dividend stock investing list, brought to you by the Motley Fool.
- Lowe’s Companies Inc. (LOW)
- Realty Income Corporation (O)
- Johnson & Johnson (JNJ)
Small Cap Investing
If you’ve done some research into the world of investing, you’ve likely come across the term market capitalization, or market cap.
Market cap is a number used to measure the size of a company and is calculated by multiplying the stock price by the number of shares outstanding.
The three big categories of market cap are small cap, mid cap, and large cap.
Large cap companies are big companies that tend to be more reliable and less volatile than their smaller counterparts.
Small cap companies are usually considered to be riskier investments as they tend to have more price swings.
However, small cap stocks can be a good way to take on some risk in the pursuit of big gains, or even just as a way to diversify your portfolio.
Here are some of the most promising stocks from our Small Cap Stocks list, courtesy of Yahoo!
- The Beauty Health Company (SKIN)
- Hostess Brands Inc. (TWNK)
- Eagle Bulk Shipping Inc. (EGLE)
If you’ve decided that fundamental investing isn’t for you and you want to try your hand at some shorter-term trades, then swing trading might be a good option for you.
Swing trading isn’t quite as intense as day trading, but it’s still a short-term trading strategy that requires research, time, and attention. It involves holding a stock for at least a day up to a few weeks in order to make a profit off of price changes.
Here are some solid stocks to swing trade according to InvestorPlace:
- Alphabet Inc. (GOOGL)
- Unilever PLC (UL)
- Goldman Sachs Group Inc. (GS)
Where to Buy Beginner Stocks
If you're looking for a platform to use for buying your first stocks, we've got a few in mind that we'd be happy to share.
First up, we have Robinhood. Robinhood has played a special part in the investing world over the last few years and it's a great platform for beginners. Robinhood was one of the first major brokerages to offer commission-free trading, which opened up the opportunity to invest to beginners and people with smaller portfolios. Now, the platform has millions of users that log in every day to trade, use the cash management account, and research stocks. Plus, you can get a free stock from Robinhood when you sign up today!
If you're investing from outside the U.S., then you won't be able to use Robinhood. That's why we named Interactive Brokers as our #1 brokerage for international investors! Interactive Brokers has a phenomenal lineup of advanced screeners and trading tools that give you access to 135 markets in 33 different countries.
At the end of the day, the best beginner stock is the one that suits your preferences and your investing style the best.
You should know what your risk tolerance is and how you want to earn money through investing before you buy your first stock.