The first thing for any individual to figure out, aside from time frame, is the risk/reward of any investment. There is always a trade off, the lower the risk, the lower the return.
How much risk can you tolerate? If you would like to see for example, a little more risk in exchange for a little greater return, place a portion in the money market (low to no risk) and a portion in either a given equity, or a mutual fund.Do proper due diligence and find a fund you feel comfortable with, and make certain their expense ratio is low.Go no load and compare expense ratios and turnover or churn. Third Avenue funds are cheap, use them as as comparison regarding expense ratios and performance.The guy who writes the quarterly report for the Third Avenue Value Fund basically writes an introduction to market analysis ever time.
If you decide to pick one or two stocks, as a beginner, I would suggest you find one that has a history of paying consistent, preferably increasing dividends, and
always reinvest those dividends.
Most returns from stocks come from dividends, not simple share price growth. I would look into whether the company has a DRIP (direct reinvestment program) to avoid some fees...(but be careful, as there are fees associated with DRIPs.) For example, a company like Walgreens allows you to open a DRIP with as little as $50. This also allows you to not necessarily tie up all of your money any one stock, and diversification is also something to be highly aware of. Do not get carried away with diversifcation, however, at the start;it is always better to do the research, and then settle on the best one, two, or three stocks you like.
Trading and market timing are expensive, so I would avoid that trap starting out.Do it when you have some money to play around with, money that you feel you can afford to lose, as you will make bad trades, everyone does.
The most important thing is to realize that you must educate yourself. Observe the reasoning of present or past investment pros (Warren Buffett, George Soros et al) See what they buy, but more importantly, understand
why they are buying ( or bought) what they did.Look at their portfolios at a place like Stockpikr.com (look at most viewed, and you will see their known picks with some explanation of the thinking behind those choices.
Read classic investment texts, both in fundamental (Graham and Dodds
The Intelligent Investor would be one)
and technical analysis.Think long term.People go broke trying to get rich quick, and impulsive buying or selling is lethal, just as it is in betting.Recall Will Roger's thought that the best way to double your money is to fold it, and put it back in your pocket.
It can seem overwhelming at first, but it is not. Be informed. Read and understand business publications, WSJ, Barrons, etc.and of course be aware of current events, and world history.Time is more important than money, as you can always attempt to recapture lost money, but you
never get back lost time. If you wish to start making money while you are learning, go the money market route, and immerse yourself for a few months or a year in reading as much as you can.Do not feel compelled to make a real decision without preparation.
Watch, yes CNBC, or Bloomberg, or whatever, just to hear the logic behind some informed people's opinions.They have some interesting and very informed guests (However, take a guy like Cramer with a huge grain of salt, as he is an entertainer, but you also may want to read about his life story to get that that is not all he is.He has made serious money through investing before making more through entertainment).
Lastly, look up an investment club in your area. Know anyone who is on their way to becoming a CPA? Take her or him to lunch, and ask questions. Read
The Automatic Millionaire and heed its prosaic advice...it is not glamorous, but
compound interest is a wonderful thing.
Good luck.
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