Investing for Beginners: The various ways to make your money grow

Investing for Beginners

Investing for beginners: Making your money work the safe way

  • Savings account = collecting between 0.01%-0.06%APY
    • Some high yield savings accounts go up to 2%APY
  • Money Market account = collecting between 0.5%-2%APY
  • CD = collecting between 0.5%-2.5%
  • T-bills = short term, collecting between 0.1%-2.6%APY
  • Bonds = fixed income security. Loan to the borrower.

* Understanding that inflation is a big enemy. Current inflation being around 2% you are losing money if you have anything under 2%.

Investing for Beginners: Making your money work!

  • Stocks = fractional ownership of a company. Day trading, swing trading, investing, and short selling. Technical, fundamental, sentimental, quantitative, systematic, macro, algo, high frequency trading. 
  • Bonds = Government or corporate bonds. Kind of like a loan. You receive interest payments as well as face value at maturity.
  • Options = financial derivative security. Can be a buyer or a seller, long or short, and can be used to speculate, income or hedge/protect your positions.
  • Futures = Is the obligation to buy or sell an asset a later date at a set price.
  • Real estate = Flipping, renting. Or can invest in trust and groups. REIG (Real Estate Investment Groups), REIT (Real Estate Investment Trusts)
  • Mutual funds = Managed by an investment manager that charges a fee. Bucket of stocks, bonds, and securities. 401K and other company retirement accounts
  • Commodities = Oil, metals, corn, grain, animal product
  • Forex = Foreign Exchange. The exchange of national currencies. 
  • Cryptocurrency = Digital or virtual currency. Buy, sell, hodl, or mine crypto.
  • Precious Metals = Most popular ones are Gold and Silver

Investing for Beginners: Investing in the stock market and cryptocurrency

  • Stop blindly listening to “recommendations” on social media or any other news stations. Do your own research
  • Make sure it’s money you can lose. Investing in stocks and crypto come with substantial risk.
  • Make sure you are in a financially stable place
  • Don’t use borrowed money, if you are going to use margin, make sure you fully understand
  • Unless you are using money in a tax deferred account, you still have to pay taxes. So remember to set aside some funds for uncle Sam by the end of the year.
  • Never stop learning. There are plenty of good books and resources out there.
  • Be patient

Should I have an investing advisor?

  • First thing to consider is advisors do charge a fee, also there is no guarantee they could make you money.
  • Who cares about your money more than you… No one

Which stock broker should I choose?

  • There are a lot of brokers out there. Typically to buy and sell stocks in the stock market are commission free. Most brokers have their own trading platforms that can be downloaded to your computer or Apps that can be used on your smartphones. Some have paper trading options as well. Paper trading is practice trading. Some brokers have learning section so you can expand your knowledge.
    • TD Ameritrade: Think or Swim platform. Lots of Research tools. Does have paper trading and is great for beginners
    • Charles Schwab: Great IRA account. Great customer service.
    • Fidelity: Good all around. Good research and mobile app. Good research tools.
    • Interactive Brokers: Best for Pros
    • E*TRADE: Good for active traders
    • Merill: Good for all types of investors. Good customer service
    • TradeStation: Good for active traders
    • Webull: Exceptional
    • Robinhood: It’s an efficient platform

Which Cryptocurrency should I choose?

  • There are tons of different coins being created every day. That being said it is hard to figure out where to start.
    • Popular cryptocurrencies: Bitcoin-BTC
    • Altcoins (alternative coins to Bitcoin): Ethereum-ETH, Litecoin-LTC, Bitcoin Cash-BCH, Stellar-XLM, Chainlink-LINK, Monero-XMR, Cardano-ADA, Polkadot-DOT, Dash-DASH
    • Stablecoins: USD Coin-USDC, Tether-USDT

Which Cryptocurrency exchange should I choose?

  • List of exchanges
    • Coinbase: Has the most popular cryptocurrencies. It is also publically traded on the stock market as of 4/2021.
    • Binance: Low fees
    • CEX.IO: Large selection of cryptocurrency
    • eToro: Popular trading platform
    • Voyager: Great APY
    • Kraken: Best safety and security
    • Crypto.com: Good trading platform
    • Gemini: One of the most trusted exchanges
    • Coinmama: Great customer service. Good security

I’ve heard of penny stocks should I invest in that?

  • Penny stocks are considered very high risk
  • It is a speculative investment like gambling
  • Most penny stocks are small companies starting out so they try to attract investors.
  • Like any small business, it takes time to be profitable and could go bankrupt.
  • Stocks can be very volatile.
  • Prone to fraud and scams such as pump and dumps.

What are Dividends?

  • Dividends are money that the companies pay you just for owning their stocks.
  • Usually you will see a $ amount and or a % 
  • Depending the company they have different payout dates some are every month, yeartly, most common are every quarter
  • DRIP (Dividend ReInvestment Plan), when you purchase a stock that pays a dividend, they will ask you if you want to reinvest the dividend. On the dividend payment date it will purchase more shares of the underlying stock or take the dividend payment.
  • Higher the dividend yield% = higher the risk
  • Companies can stop or drop the yield% they pay at anytime
  • Typically a good company will pay up to ~7% 
  • Typically dividend stocks are not growth stocks but there are some that do pay dividends.
  • Check out the dividend Aristocrats and Kings for a list of great dividend stocks

Investing for Beginners: Which stock should I buy?

  • Blue chip stocks – Large companies that are established and have been around for many years. Companies on large indexes such as Dow Jones, S&P, and Nasdaq.
  • ETF (Exchange Traded Fund) – Collection or basket of stocks, bonds, or commodities. You can spread your risk since you are not betting on just one company.
  • Valued stock – Stocks are lower priced relative to their sales and earnings and have a lower P/E ratio. Typically pay dividends
  • Growth stock – Typically more expensive and are expected to grow sales and earnings quicker than the market average. Typically have a higher P/E ratio and can be volatile. Usually do not pay any dividends
  • IPO (Initial Public Offering) – Going from private to public. Can be very risky for beginners due to a lack of fundamental and technical analysis.

What should I do before I buy stocks and cryptocurrency?

  • Have a Investment strategy
    • Investing vs trading
    • Fundamental, technical, sentimental, and quantitative analysis
    • Risk management strategy
    • Listen and read market news and events. MSN money, CNBC, Yahoo finance, Bloomberg, Barron’s, WSJ
    • Keep a log journal
    • Stock screeners – Can use screeners to scan the market by industries, dividends, market cap, and different technical indicators

Investing

  • Investing is for the long run. Typically you will hold for years or decades
    • Understand what the company does and how they make their money
    • Typically want to use Fundamental Analysis to research companies
      • Company health. Income statements, Balance sheets, Cash flow
      • Insider trading, CEO and board of directors
      • EPS, P/E, PEG, P/B ratio
      • Volume
      • 52 week range
      • Beta

Trading

  • Scalping, day trading, swing trading, momentum trading
  • There’s also HFT (High Frequency Trading), and Algo Trading.
  • Trading relies heavily on Technical Analysis
    • Japanese Candlesticks
    • Market indicators – Moving averages, MACD, RSI, Volume
    • Fibonacci
    • Elliot wave
    • Bollinger bands
    • Chart patterns and formations
      • Head & shoulders
      • Cup & handle
      • Support and Resistance

Investing for Beginners: Mistakes to avoid

  • Stay away from penny stocks.
  • Stay away from IPO (Initial Public Offering).
  • Staying away from using margin.
  • Blindly listening to the news, social media, and other’s advice.
  • Not using stop-loss orders.
  • Do not having a trading plan.
  • Not having a risk management plan.
  • Not using stop-loss orders.

Conclusion

As an active investor, continuous learning is the most important thing. Check out Investing Book Deals for discounts on books and book reviews.

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