Let me guess. You’re thinking about investing in the stock market, but you’re struggling to pull the trigger due to fear?
Many beginners don’t ever get started because of that fear. It’s usually the fear of losing your money, which links to the fear of not knowing what you are doing.
And rightly so. I’d be cautious too.
Many beginners make terrible decisions when they start investing, and they go on to lose everything they put in. In a way, they deserve to lose.
Fortunately for you, I’m going to give you my Top 5 tips for getting started investing in stocks and shares safely and successfully.
Follow my advice, and by the end of this article, you’ll instantly leap ahead of 90% of beginner investors.
Tip #1 – Only Invest Surplus Income
This first one may seem obvious to you, but many beginners who join my investment club make the tragic mistake of investing the money they need. So desperate they are to become an investor, they don’t stop to think if they are actually in a position to invest in the first place.
I have had some members come to me to explain they’ve had to halve their portfolio value due to making a significant withdrawal as they found they needed the money to spend.
Withdrawing your investment capital essentially cripples your long-term investment strategy.
You should only invest capital you won’t need for 10-20 years.
Firstly, you don’t need the stress of putting money at risk that you’ll need later to pay next month’s mortgage.
Secondly, money makes money. A 25% return on £1000 produces £250. The following year that 25% on £1250 pays £312. Yet a 25% return on £10,000 pays £2500. And then £3125.
Again, this is basic maths and perhaps obvious to you. But the more you withdraw, the slower your portfolio can grow.
Are you putting money into savings every month? If so, that’s the time you want to be investing. With inflation up at 8% or whatever it is today, your savings are losing their spending power at 8% a year. So if you have £10,000 saved, you need to make an 8% return a year just so that it keeps its current spending power.
If you struggle to save money or have nothing left at the end of the month, you should not be investing in stocks. Instead, you should be investing in yourself. My book ‘The Clean Guide to Making More Money from Today’ would be an excellent £9.99 investment in yourself right there as it will teach you how to increase your income and improve your financial situation.
Tip #2 – Open a Stocks & Shares ISA
There are many ways to purchase stocks. One of my favourite ways, especially when starting, is through a stocks and shares ISA.
They are tax-free. Well, that’s not strictly true.
Any profit you make from the first £20,000 you invest is tax-free, which is excellent. But what’s better is the £20,000 allowance you get refreshes every tax year. So unless you invest more than £20,000 annually, you will never be paying any tax on anything you make.
But that’s not everything.
You see, that £20,000 limit in Year 1? Any profit from that is tax-free. Even the profit you make from it in Years 2 and 3. So £10,000 invested in year one, making a 20% annual average return yearly, would grow into £188,000 over 20 years. And that £178,000 growth would all be tax-free gains. If you invested £3000 in Year 2, that would be an additional £49,000 in 19 years. Again, tax-free.
Why a ‘Stocks & Shares’ ISA?
This ISA allows you to select the exact shares you buy and how much of them. You build your portfolio. No tracking of the underperforming FTSE 100 index. No money managers deciding for you what stocks to buy. Instead, you decide. This control is critical if you want to make substantial returns. Mutual Funds are perfect for those who don’t want to do any research. But there is a trade-off in terms of the results you will be able to achieve.
Want help in trying to find the right Stocks & Shares ISA provider? You can click on my article here, where I look at the Top 3 Stocks and Shares ISA providers in the UK.
Tip #3 – Know What You Are Buying
This one is huge.
If you don’t know what you are buying, expect to fail. It’s the key to success and is a whole separate article.
In a nutshell, most beginners, when starting, don’t know which stocks to buy. So, they do the same thing everyone else does. They buy companies they’ve heard of or whose products and services they enjoy.
This is a terrible investment strategy.
If a friend of yours asked you to become a part owner of their takeaway business, but you found out it was losing money and was struggling to pay its debts, would you invest in it? Unlikely, unless you knew how to turn it all around. Even then, it would be a considerable risk to you.
Yet this is precisely what many beginner investors do. They invest in companies based on the brand name. Or the fact they liked the product they produced. Yet if they did their research, they would find that these companies are all losing money and are continually borrowing debt to keep the business alive.
Granted, not all are failing so badly.
Beginners flock to stocks like Tesco, BP, Royal Mail, Centrica, and BT. British staple businesses. But these are poor investments. These companies make less than a 2% profit margin annually; that’s IF they make profits. They can’t afford to grow. And for that reason, their share price sits flat. Take a look at Tesco. Twenty years ago, their share price sat at £2.50 a share. Today? About £2.50 a share.
And what happens when you buy some random stock, and it starts to fall in price? What if you buy it for £10, but it falls to £8? What do you do? Do you hold on or sell it for 20% less than you bought it? That’s a fast way to lose money investing. Let’s say you stick. What if it falls to £7. Then to £5? Do you sell now? At 50% discount? Why not sell at £8 then??
When you don’t have a reason to own an investment, you shouldn’t own the investment.
Only buy what you know.
That way, you’ll always know what to do.
Imagine that £10 stock falls to £5, but you know without a shadow of a doubt that they are making a 30% profit annually. Imagine this company is expanding into Europe over the next five years, and their German pilot went exceptionally well. Let’s suggest they have no debt whatsoever to worry about as well. With that knowledge, you’ll know the right thing to do is to buy more at £5 as underneath the price is a great business that is bound to grow.
Knowing your investment is crucial.
Tip #4 – Don’t Follow The Crowd
Listen, there’s some good school of thought in everyday life that it’s sometimes good to stick with the crowd. It keeps you safe. Safety in numbers, right?
But when it comes to investing money, you must treat everyone else as a moron.
It’s harsh but true. Beginners love making out that they know what they are doing. It’s a predominantly male industry, so you’ll find egos flying everywhere. This is fine, but you need to see it for what it is.
It’s the blind leading the blind.
You’ll find investors only 1-2 years into their journey, leaving comments on Facebook telling you which stocks you should be buying. Half of them don’t even own the stocks they say you should buy. Others are so married to their stocks for the wrong reasons that they feel compelled to push them onto others.
Hell, there are many, many reasons not to follow everyone else.
They may have a different strategy to you, for starters.
When the pandemic happened, investing facebook groups went mad. People were posting how we’d never seen a crash like this before. That “this time it was different”. Investors were selling the stock they’d spent years accumulating for -40% discount. They had sealed in their failure.
I, however, left those groups and went and did what I knew was right. I bought more. At the height of the panic in March 2020, I purchased £11,600 worth of stock. But not just in any company. I bought stock in the companies I knew were doing wonderfully well and would continue to do wonderfully well. Those stocks were up +20% by the end of the year. I didn’t sell anything. And the stocks I already owned were back to their pre-crash price within six months anyway.
If you want to do well, stay away from the crowd. Don’t even read their worthless viewpoints. Even stock pick newsletters, and so-called ‘analysts’ get it wrong. I have emails from various analysts telling me which great stocks to buy. Some of those stocks are already out of business. And these are the so-called professionals!
To do well investing, you must do the research yourself or follow someone you trust with a confirmed track record of success in handpicking great solid stocks.
But the crowd will lead you astray. Don’t get your investment advice from people who don’t make any money from investing. Unless they are a contra-indicator for ‘what not to do’.
Tip #5 – Focus on facts
Finally, my last tip is to avoid prediction.
Listen, all investing is speculation to a degree. You are buying shares in a company in the hope and expectation that the company will do well and its share price rises following its success.
That is speculation. It’s a prediction of sorts.
However, most beginners try predicting a business’s success before any success has bared fruit.
They’ll invest in an alternative energy business. When I ask beginners why they’ll give me some cock ‘n’ bull story about how this energy will be the future.
Fine, they may well be right. But the odds will suggest they are wrong.
In fact, out of 957 stocks I’ve personally analysed for my members, only 54 have met the grade. Of those 54, only 19 are priced at a level that makes sense to buy at today.
The other 903 stocks I’ve analysed are worthless. Don’t buy them.
Yet a complete beginner will argue with me that this new alternative energy stock will be huge one day. Let’s overlook that they are losing hundreds of millions in losses every year and have huge debt they can’t pay back, and their entire success rests upon a significant turnaround.
Show me a company making a 30% profit NOW, and I’m interested. Companies that ‘might’ make a profit one day……you can have those. I don’t want them.
Don’t be a beginner investor who jumps on a stock at 43p a share just because you want to be first. That’s a decision driven by greed; first of all, not a good solid analysis. There’s a reason it’s at 43p, and that reason isn’t good. For every story of a stock rising from 43p to £40, 1000 other stocks went the other way and don’t exist anymore.
You can play those odds if you want. But expect to lose.
Instead, focus on facts. Not predictions.
Is the company making a profit? Have they been doing so for a long time? Does it seem likely that this will continue? Why? Have you done the sums? What growth strategy are they employing to achieve that future profit?
If you are buying a stock because you hope the business might be profitable one day….. you’re in for a world of pain.
I’ll take a company already making a 20% annual profit and happily pay £20 for it. I’ll ride it up to £40-£50 over the next few years, whilst the beginners are nursing losses as their 43p stock fell to 5p and trading in the stock has now been suspended.
So there you have it.
Those are my Top 5 tips for investing in stocks and shares.
Follow those tips, and you’ll immediately be head and shoulders ahead of most beginners out there.
Got any questions? Looking to get started but need a helping hand?
If you are just getting started and need any free assistance, why not drop me a quick email?
No selling you anything. Just happy to help.
Drop me an email with any questions, and I’ll do my best to help you in any way I can.