Wide diversification is only required when investors do not understand what they are doing.
~ Warren Buffett
I like to invest my own money. This blog in fact is all about helping you achieve a great life by learning to do the things that you can do yourself and choosing to do those things that you want to do and that you enjoy.
I believe that learning how to invest your own money is perhaps one of the best skills to learn and also one of the most fun.
It is very rewarding to see the stock that you have bought go up in value over time thanks to the research and the effort you put into choosing it. How to invest money is not very hard and honestly, nobody cares as much about your financial health as you do.
I hope that the investing advice and tips that I hope to share will be of value. I know that you will be able to use this advice to invest in anything, but this is not specifically a tutorial on how to invest in oil or about investing in silver.
This is more specifically about how to invest in stocks. Though you may be fearful to learn how to invest your money you shouldn’t be. It is simple and easy and just requires some common sense.
So let’s get busy and learn about stock market investing as I share the best way to invest in stocks.
Business owners are the richest people
If you’ve ever looked at any Forbes billionaires’ list, you’ll notice that well over 95% of them are business owners.
This is my first tip to investing in stocks. You need to think like a business owner, because really, you are becoming a business owner when you buy any stock. In fact you are investing in that business and you have a say in how it is run through shareholder meetings and voting.
Invest in stocks that are in businesses that you understand. I only buy stocks in businesses that I understand. Good stocks that you invest in are ones that you understand. I understand banking so I have invested in some banking stock.
Make sure the chefs are eating their own cooking
If you go to a restaurant where the chef never eats his own cooking, you’ll never be certain of consistent quality because the chef just doesn’t know how his cooking tastes.
What this means when it comes to investing in businesses is that the companies to invest in should be the ones where management have skin in the game. Here’s some investment advice. I like to see management owning at least a double digit percentage of the company they’re running. This isn’t mandatory but it helps.
Are shareholders picking some fruit from the tree?
Investing for beginners becomes easy when you try and keep things simple and one of the ways I keep my investing simple is by choosing to buy businesses that offer proceeds of their profits to their shareholders.
I want to taste some of them apples from the tree and so I invest in dividend paying stocks. Historically it has been proven that dividend paying stocks do better over the long haul than growth stocks.
Investing money wisely is about finding the best place to invest money which is very often in dividend stocks like the dividend aristocrats the dividend champions and the dividend achievers’ lists. There are over 100 companies that have paid dividends for at least 20 years. These are the ones to consider.
Keep a small basket of eggs but make the basket crash proof
My last bit of advice on how to start investing is to stick to the 100+ companies that have paid ongoing dividends for over 20 years. These are safe companies that have proven their muster during good times and bad.
Keeping your basket small means to invest in just a handful, no more than a baker’s dozen or so stocks. If you want sub par or average results then buy like a mutual fund and invest in dozens of companies.
If you want better than average returns then buy just a few juicy companies that pay dividends and have done so for a long time. Also buy stocks cheap. How do you know when stocks are cheap? I like to buy companies when their dividend yield is at least 5%. Sometimes you’ll have to wait years for that possibility.
However, in the venue of investing in stocks the patient man is handsomely rewarded. And the great thing about investing in high dividend paying stocks is that you are investing for income and growth. Dividends are high because the stock is priced cheaply.
The historic average dividend yield of the stocks in the S&P 500 has been around 5% or just less. Current dividend yields of about 2% to 2.5% are obviously abhorrent and so you should seek out value stocks that pay dividends.
I hope that this brief tutorial on how to invest in stocks for beginners has been helpful. Investing in the stock market should not be hard if you keep to a few simple and reliable methods. Dividend investing is all about how to invest money wisely and using high yield investing to lock in great growth gains and long term income for many years to come. Good luck!