Getting Started in Stock Investing
April 27th, 2007
So this year the tax return fairy brought you $100, and you finally want to get started with investing the stock market. Good for you!
A friend of mine recently posed a similar question to me about how he can get started in with investing with a small sum. This, in short, was my answer.
The best way to get started in a hands-off way is to buy a stock or instrument that will closely mimic of the stock market as a whole. Because the market as a whole has increased in value over the years, they best you can do is invest in everything. Because you can’t do that, you’ll need to buy shares of an index or spider vehicle. Here are a few suggestions:
- Vanguard Total Stock Market VIPER
- iShares MSCI-EAFE
- iShares Lehman Aggregate Bond
- iShares Dow Jones US Real Estate
- iShares Dow Jones US Basic Materials
- S&P 500 Spider
Now, if you’d like to take a little more hands on approach, I would recommend putting 50% of your available cash in one of the above vehicles. This will help to ensure that you don’t lose everything.
To pick stocks for investment first make a list of companies you’d like to buy. Once you have a list of 10-15 companies you’re interested in, head over to your favorite finance website (Yahoo! or Google are good choices) and look them up. What you are looking for is a stock with a P/E ratio under or below 15. This basically means that the stocks are undervalued compared to what the company earned in the most recent period.
(For a more in depth explanation of P/E ratios, see http://en.wikipedia.org/wiki/Pe_ratio)
Buy a few of the stocks on your list that meet the P/E requirement and hold them for 1 year. At the end of the year check the stock’s stats again. See if you think you’re going to make more money in the next 12 months, if not, wait for the opportune time to dump the stock. If so, hang on to it!
Whenever you have some extra cash for investing, put half in the spider, and the other half in the next stock on your list.
Try it out and see how it works for you!
Entry Filed under: Finance Concepts, Finance Principles, Financial Investments, Investing Concepts, Personal Finance FAQs
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