7 Tips About Stock Investing - NerdWallet (2024)

Stock market tips likely won't make you a millionaire overnight, but a solid, long-term investing strategy might make you a millionaire over 20 years. Need to back up and learn some basics? Here's our guide for how to buy stocks.

7 stock tips for beginner investors

Here are seven stock tips that might actually help you build wealth over the long-term.

1. Practice with fake money

2. Actually invest your money

3. Explore funds over individual stocks

4. Research stocks the right way

5. Check your emotions at the door

6. Keep an investing journal

7. Know your strategy

1. Practice with fake money

If you're nervous about putting your hard-earned dollars in the market you can try it out with fake money first. Paper trading allows you to practice investing without risking your cash. You can use a stock market simulator to help you get the hang of the market and become comfortable with its daily fluctuations before putting in real money.

2. Actually invest your money

It's important to know what's an investment versus what's an account. For instance, a Roth IRA is a type of investment account. If you add money to a Roth IRA you aren't invested in anything. You have to purchase investments, such as funds or stocks, from your investment account. Some investors add money to an account and wonder why it hasn't grown over the years. This mistake can cost you in the form of lost compound interest.

3. Explore funds over individual stocks

Many new investors are focused on finding the right stocks to invest in first, but financial advisors often caution against investing heavily in individual stocks. Funds, such as index funds, exchange-traded funds and mutual funds are baskets of individual stocks grouped together. Funds let you invest in lots of stocks at once. That means if one of the stocks in your fund goes out of business your portfolio likely won't tank. If you had put all your money into that one stock, it probably would have.

4. Research stocks the right way

If you do decide to invest in individual stocks, you’ll come across an overwhelming amount of information as you screen potential companies. You might be attracted to a company because you like its product — and that's a great starting place. But you also want to know how this company operates, its place in the overall industry, its competitors, its long-term prospects and most importantly, if it's profitable.

5. Check your emotions at the door

“Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” That's wisdom from Warren Buffett, chairman of Berkshire Hathaway and an oft-quoted investing role model for investors seeking long-term returns.

Keeping a cool head when the market is plunging can be difficult, but it's usually better to stay invested through the low times and allow the market to recover. This will typically allow you to recoup your losses and then some.

6. Keep an investing journal

Writing down why you're invested in each of your investments can help you make better decisions when you're trying to figure out whether you should buy or sell them.

Why I’m buying: Spell out what you like about the investment and the opportunity you see for its future. What are your expectations? What metrics matter most and what milestones will you use to judge its progress?

What would make me sell: Write out an investing "prenup" that spells out what would make you sell. We’re not talking about stock price movement, especially not short term, but fundamental changes to the business that affect its ability to grow over the long term. Some examples: The company loses a major customer, the CEO’s successor starts taking the business in a different direction or a major viable competitor emerges.

7. Know your strategy

Time, not timing, is an investor’s superpower. The most successful investors buy investments because they expect to be rewarded over years or even decades. That means you can take your time in buying, too. If dumping a bunch of money into the stock market at once makes you nervous, here are two buying strategies that reduce your exposure to price volatility:

Dollar-cost average: This sounds complicated, but it’s not. Dollar-cost averaging means investing a set amount of money at regular intervals, such as once per week or month. That set amount buys more shares when the stock price goes down and fewer shares when it rises, but overall, it evens out the average price you pay. Some online brokerage firms let investors set up an automated investing schedule.

Buy in thirds: Like dollar-cost averaging, “buying in thirds” helps you avoid the morale-crushing experience of bumpy results right out of the gate. Divide the amount you want to invest by three and then, as the name implies, pick three separate points to buy shares. These can be at regular intervals (e.g., monthly or quarterly) or based on performance or company events. For example, you might buy shares before a product is released and put the next third of your money into play if it's a hit — or divert the remaining money elsewhere if it's not.