Everybody who invests has a starting point. They hope to experience profitable investing over the years. But, they may fall prey to bad stock tips, pump and dump schemes, or other investing pitfalls. On the other hand, they may choose solid dividend stocks or investments where they will not lose any money but will forego huge profits. Choosing the best investments of new investors depends on their risk appetite, risk tolerance, investment timeline, and the time and energy they have available for managing their investment portfolio.
Best Investments for New Investors Today
Over the long run, the US stock market is the best money-making vehicle available to the majority of investors. However, the entire market, whole investment sectors, and individual investments all have good and not-so-good periods. That being the case, what are the best investments for new investors today?
The Motley Fool has a good article about stocks to choose if you start investing in 2020.
One of the best ways to [make money in stocks] is to start with the stocks of strong, easy-to-understand businesses. This will make it easier for you to track the progress of your companies, which, in turn, will help you better determine when to buy and sell their stocks. Additionally, strong businesses tend to perform well over the long-term, even if you don’t buy them at the most opportune time.
Their five choices are Apple, Chipotle, Netflix, Planet Fitness, and Grocery Outlet. Despite their suggestion to choose easy-to-understand businesses, only the first three fit that recipe. Planet Fitness and Grocery Outlet use new approaches in old and established business sectors. Our take on their list is that Apple, Chipotle, and Netflix are good choices and Planet Fitness and Grocery Outlet are a bit more speculative.
Although Netflix is on a roll, it will have increasing competition from the likes of Disney, which is a stock that goes on our own list of safe investments for beginners. Apple became a holding of Berkshire Hathaway when Warren Buffet decided that its strong brand name and dedicated customer base differentiated it from other tech stocks. Chipotle has a well-run business and is growing, but like McDonald’s, it will need to constantly make adjustments to its menu and operations to stay ahead of competitors. Nevertheless, any or all of these three stocks would be good investments for new investors.
Choosing Investments for New Investors
When a new investor starts out with “household name” stocks, they still need to do a bit of homework to make sure that they are good investments. Companies that have been paying dividends and increasing their dividends over the decades are usually safe choices. Companies that have strong cash flow attract investors but tend to be overpriced. The key to investing in stocks is the ability to analyze intrinsic stock value. With this approach, an investor looks at the potential of a company to keep making money with its business plan into the distant future. He or she compares the stock price that this sort of fundamental analysis would predict with the current stock price. When the intrinsic value thus derived exceeds the current price of the stock, those are sound long term investments for new investors.