There are many ways to go about investing. Regardless of your experience, you’ll need to decide which type of investment can best fit your risk tolerance and financial goals. For example, if you plan to invest long-term and prefer more stability, you should choose mutual funds, ETFs, or corporate bonds. But if you can take on high-risk and aren’t swayed by volatility, you should consider investing in growth stocks. Whatever your goals are, make sure your decisions are always well-thought-out, calculated, and heavily researched.
But for now, let’s consider that you want a growth portfolio. With that in mind, here are two things to consider if you have $1,000 dollars to invest:
Pick the Right Stocks!
According to CNBC, if you had invested $1,000 dollars in Netflix in 2007, you would have made over $50,000 dollars by the end of 2017. CNBC also shows that if you had put $1,000 dollars into Apple or Amazon 10 years ago, you would have profited more than $7,000 dollars or $19,000 dollars today respectively. This goes to show that choosing the right stocks is integral when you first start out.
But that’s easier said than done.
There are a few factors that go into choosing the right stocks to invest:
Are you familiar with the company’s products?
Peter Lynch once said, “Only invest in what you use and understand.” The idea is that if you use the products on a daily basis, you’ll begin to understand what works and what doesn’t. This then will help you build intuition about the company’s future. For example, if you are an avid fan of Apple products, there’s a likely chance that you’ll also know what’s going on with the company. This approach is geared towards beginner investors because it is easier to apply than complicated valuation models.
Have you done your research?
The key to becoming a successful stock investor is to do substantial research before you invest. Below is a list of questions you can ask before you make your decisions about which companies to invest in:
- What are the company’s sales and earnings?
- Has the company incurred any debt? If so, is it lower or higher than last year?
- Is the company in a growing industry?
- Are you familiar with the company’s price-to-earnings ratio?
- Have you read any news reports regarding the company?
What do people around you say?
A great way to gauge your progress is to ask the people around you about the companies you want to invest in. Do you have any friends or family members who actively invest in the financial markets? If so, why not ask them for some advice? If you want professional advice, you can seek out financial advisors or visit wealth management companies. The more information you get, the better off you are about making your investment decisions.
QARA’s financial and analytics application KOSHO also provides investment information as well as financial forecasts to the general consumers. It utilizes the latest CNN & RNN deep learning technology to analyze over 30 years of market history and study nearly 400 million data. The app is free to download and the information is readily available each day. Again, there’s no harm in getting a second opinion about the companies you want to invest in. The more you know, the better. To download KOSHO, click here.
Diversify, Diversify, Diversify!
Once you have the companies in mind, you’ll want to diversify your portfolio. Diversification is the act of allocating your assets to various financial instruments, industries, and other categories. This will help reduce risks and maximize returns.
There are several ways you can go about diversifying your portfolio. In most cases, investors will divide their assets into classes or industries. For example, they’ll allocate some funds for U.S. stocks, bonds, or real estate and then further diversify them by industries.
With $1,000 dollars, you can divide your funds into a few general sectors. The most common ones include Information Technology, Financials, Telecommunication Services, Health Care, and Consumer Staples. Keep in mind, a standard diversified portfolio will include 20–30 stocks. If you are just starting out, having a long list of stocks with limited capital may do more harm than good. Each time you buy a stock, you’ll have to pay a transaction fee that can add up to hundreds of dollars. For example, if you buy 10 stocks, you may pay up to $100 dollars for transaction fees and be left with merely $900 dollars to invest. Once you amass more capital, then you’ll have the chance to add more sectors within your portfolio.
A general rule that many seasoned professionals practice is they keep their investments under 5–10% for each sector. This means that if you have $1,000 dollars to invest, you should only invest a maximum of $100 dollars for one industry. However, this rule is subject to change based on the investors’ preferences.
What happens after you complete your portfolio is totally up to you. Depending on your goal, you can either monitor your company’s performances on a daily basis and make a decision to sell or buy, or you can put away your stocks and keep them for long-term if you think the companies you’ve invested in will be stable for years to come. Whatever your choice is, make sure that it aligns with your goals.
Takeaway
There’s a popular saying that “practice makes perfect.” With investing, practice means doing your research and familiarizing yourself with related terms and concepts. $1,000 dollars is a good amount to start, but that doesn’t mean it can’t be lower. As long as you understand the risks involved and know the companies you want to invest in, there’s no harm in starting anytime.
