Introduction
Picking sticks might seem an easy task. However, it is an intimidating process. On that note you must know that there are 11 different stock sectors in all. Moreover, there are 69 unique industries and numerous companies participating in trades across the US exchange.
So, the question is where should you start as a beginner? Let me tell you in advance that there is no genuine algorithm that may help you do so. Meanwhile, there are numerous investing philosophies too. So, the question is how to pick stocks or stick to a single philosophy?
What should newbie investors do?
New investors in 2025 can always reexamine the tried and tested approaches that others have followed in the past. It will at least give them an idea of the basic principles that they should follow. Let me sum up the core principles for you:
1. There is nothing guaranteed in stocks trading
2. You should know that you are betting on yourself.
3. If you face losses, the liability will be fully yours
4. So, don’t go overboard and invest swathes of money at others’s advice
5. Know your investment goals in detail, research the time frame and
6. Understand your risk tolerance properly.
How to Check Your Goals and Risk Tolerance
Many new investors prefer to pick their stocks by themselves. They know the odds. However, they still prefer to stick to their basics. I think it is better than copying from day 1.
At least the investors will have a sense of ownership. If they fail, they will know they have to own it. Hence they will invest in small batches and won’t invest loads of money in each round.
But there are some tactics you must follow. If you are selecting your stocks, you must:
- Outline your investment needs and spare your money accordingly
- Set a timeframe and decide whether you want to invest in the long or short term
- Lastly, you must be aware of your risk tolerance
Let me share an example to help you detect your risk tolerance.
Risk Tolerance Planning
The golden rule in investment is that you have to invest 10 to 15% of your disposable income only. Not more than that. Especially when you are a budding investor or a newbie to the business.
Now let’s assume your disposable income is $1000. So, you should not invest more than $100 out of that. But how does that indicate your risk tolerance?
If you have $500 in your savings, it is easy for you to invest $100. Otherwise, you must reduce the limit. If your chronic turnover income is $100 only, then it is not safe for you to invest the whole amount.
The bottom line is that people with loads of savings and monetary leverage can invest frantically. If you are betting your regular earnings on stocks, you need to be very tentative. At the same time, you should not be aiming for short-term gains.
Short Term vs long term Gains
It is better if newbies in stock trading don’t invest in the shirt term. They may gain or lose. However, with no experience down their belt, their chances of losing are highest.
When first-timers lose the first time, they would be intrigued to play a repeat game. In this way, it would be a chronic scene. Remember, investing can be a very addictive behavior. So, don’t give in. You may be bankrupt soon.
Whereas investing in the long term is rather safer. Here you invest only token amounts in known stocks. And just wait and watch. With time, your winnings would be accumulated. Meanwhile, the winning additions would be added to your net portfolio too. So, you will be a gainer in all respects.
Don’t worry even if you lose out. The growth stocks are generally the best for long-term investment. Upon losing don’t lose hope. But keep retaining the stocks. After a while, the same stocks would be back on the winning path again.
When you observe the trajectory of the stocks for a while, you will also learn a thing or two about investments. After that, you may strat investing in the short term too.
Real Life Example
If you are young and carefree, chances are that you would be a swing for the fence investor. Usually, people at this stage want to build a profile that will leverage them to retire at 40. But that might not be a practical PoV at that age.
You will eventually develop the propensity of taking in the high-risk and high-reward stocks only. However, all experts say that you must follow a more balanced approach. So, don’t fill in your portfolio with the out and out growth stocks only.
Instead, you can think of diversifying the portfolio. It will not guarantee a nuanced growth in a matter of a few years. But it will save your portfolio from drowning when one or more of your stocks do not perform well.
Assets You Can Bid Upon
These assets blend the risk and security quotients in an investor’s profile:
1. Blue Chip Companies
2. Index Funds like the Dow Jones Industrial Average (not more than 5 to 7% of your budget)
3. ETFs
4. Government bonds and certificates of Deposits (CDs)
5. Real Estate and more
The Bottom Line
At first, you should develop a generous idea of your investment goals. After setting your goals, you have to streamline the range of your choices. After that your role is to check the risk and security of the choices you made.
The end goal is to ensure that your portfolio makes sense.
If the risk profile is too high, you may exhaust your budget and win nothing. After all, stocks are a long-term game. Neither you can win big and become rich overnight.
Nor you can click all winning baits. A bit of losing will redefine your strategies and help you to make it big one day!
