Over the last two weeks, I’ve covered a bunch of topics on investing and saving for retirement including investment options, investing fees, saving for retirement, and the size of a retirement nest egg. Today, I’ll close out investing for a while with how you should probably be investing. Most people don’t have an interest in investing in the stock market, and that’s okay! Most people don’t have the time to research individual companies to purchase their stocks, and that’s okay! Most people are their own worst enemy when it comes to investing.
Keep It Simple
The best way for most people to invest is to simply buy mutual fund target date funds or index funds, whether they are mutual funds or exchange traded funds (ETFs), and just hold them for the long term. This is a ‘hands off’ approach to investing.
For most people, probably more than 95% of people, the best strategy for investing will be to buy stock and bond mutual funds and ETFs, specifically index funds. You can read more about index funds in my post about investment options.
Should you buy individual stocks?
I’m going to list a few questions below. If you don’t know the answers without looking them up, you probably shouldn’t be investing in individual stocks on your own.
What is a Form 10-K?
What is a Form 10-Q?
What is the difference between market capitalization and share price?
What are P/E and P/S?
What is a Form 4?
If you don’t know the answers to the 5 questions above, you probably shouldn’t be investing in individual companies on your own. A Form 10-K is a company’s annual financial report. A Form 10-Q is a company’s quarterly financial report. Market capitalization is equal to the number of shares a company has issued multiplied by the share price. A share price is the value of a single share of a company. P/E is the Price-to-Earnings ratio, which is the share price of a company divided by the earnings per share for that company for the prior 12 months of reported earnings. P/S is the Price-to-Sales ratio, which is the share price of a company divided by the sales, or revenue, from the prior 12 months of reported earnings. A Form 4 is a form that is required to be submitted when company executives and large shareholders in the company buy or sell shares of the company. These topics are probably the minimum knowledge you should have before investing in individual companies.
Still Want to Buy Individual Stocks?
If you’re still determined to buy individual stocks, I would highly recommend getting a subscription to an investment newsletter, not a magazine. I have been a subscriber to financial newsletters from Stansberry Research for over 8 years, and I would highly recommend them for anyone interested. One of their mottos is: “We want to provide you with the research we would want if our roles were reversed.” Essentially, this means they will do well by you. While they provide plenty of newsletters and stock recommendations, the most valuable thing I have gotten out of my subscriptions has been an education in the financial markets. There are multiple levels of newsletters with varying costs, but if you are getting started in investing, I would recommend starting with the Stansberry Investment Advisory or Retirement Millionaire. If you do subscribe, please make sure you follow their recommendations. Most of the time they will use stops (hard stops or trailing stops) to exit stocks held in the portfolio. Stops are meant to preserve capital and keep losses manageable, so they don’t destroy the value of your portfolio.
Even if you don’t subscribe, there is a ton of free information if you just want to start reading some of their material:
Health and Wellness Bulletin (free daily e-letter)
Daily Wealth (free daily e-letter)
Stansberry Digest Archive (an archive of a daily e-letter)
Stansberry Newswire (a daily feed of ongoing events while the stock markets are open)
Note: I am not affiliated with Stansberry Research other than as a customer. I receive no benefit or commission from any products you may purchase from them. I just think they do incredibly well by their customers. If you do sign up for any products, you will receive promotional emails, but they are a business after all.
Wrapping Up
Investing doesn’t have to be hard. You can buy and hold for the long term, as long as you can actually buy and hold for the long term and don’t sell out of fear when the stock market bottoms.
Disclaimer
Any of the stocks, bonds, mutual funds, or exchange traded funds (ETFs) mentioned in this post or any other post are not a recommendation for purchase. Always do your own research to make an investment decision or consult a finance professional if you so desire. When considering selling any investments, you should consult a tax professional to discuss tax implications.
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