In terms of diversification, the greatest amount of difficulty in doing this will come from investments in stocks. As mentioned earlier, the costs of investing in a large number of stocks could be detrimental to the portfolio. With a $1,000 deposit, it is nearly impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies (at the most) to begin with. This will increase your risk.


To be perfectly clear, knowing how to identify great businesses is more important than being able to identify cheap stocks for beginners. A great business will typically be a good long-term performer, even if you buy in at a bit of an expensive valuation. On the other hand, a bad business that you invest in at a cheap valuation will seldom work out well.

But this isn’t your typical market, and you can’t show up and pick your shares off a shelf the way you select produce at the grocery store. Individual traders are typically represented by brokers — these days, that’s often an online broker. You place your stock trades through the broker, which then deals with the exchange on your behalf. (Need a broker? See our analysis of the best stockbrokers for beginners.)

3. Get an education. Warren Buffett has suggested in the past that every investor should be able to understand basic accountancy principles, an annual report and stock market history. You probably do not need to become an accountant, but being able to understand the scoring system of the game can only help. There are thousands of books about investing and trading - you don't need to read them all, but you probably ought to read a few to enhance your theoretical knowledge.
Phrases like “earnings movers” and “intraday highs” don’t mean much to the average investor, and in many cases, they shouldn’t. If you’re in it for the long term — with, say, a portfolio of mutual funds geared toward retirement — you don’t need to worry about what these words mean, or about the flashes of red or green that cross the bottom of your TV screen. You can get by just fine without understanding the stock market much at all.
One of the most common mistakes in stock market investing is trying to time the market. Time the market, or “market timing,” means trying to figure out the best time to get in the market, or invest. It also means the best time to get out of the market, or sell. It’s not easy to be right on both ends. It can be unsettling to experience market volatility, so that’s why it’s important to understand the difference between savings (which are more stable) and investments (which can be more volatile). It’s the time in the market that is more important, not necessarily timing the market.
You can buy stock directly using a brokerage account or app. Other options exist for those who are employed—either a 401k plan or a 403b plan if you work for a non-profit. Then there's the IRA—be it a Traditional IRA, Roth IRA, Simple IRA, or SEP-IRA account. You can also set up a direct stock purchase plan or dividend reinvestment plan (DRIP). Each type of account has different tax implications.
Use stop-loss orders: Possibly the single most important tactic for investing well in penny stocks is to use stop-loss orders. Basically, you commit early on to immediately sell your shares if the price dips to a certain point. If you stick to this self-imposed rule, you limit your downside, but at the same time you remain open to the tremendous upside that penny stocks could provide. You may see better overall trading results by selling your losing positions very early and letting your gains run.
Intuitive Surgical (NASDAQ:ISRG) -- Intuitive Surgical is a healthcare company that makes surgical robots and is the clear leader in the space. There are tens of thousands of doctors trained on the company's da Vinci surgical robots and more than 4,400 of the robots installed worldwide. As more surgical applications are found for the technology, these machines become more valuable to the hospitals that own and use them.
The most feared words on any stock exchange are margin call. A margin call is made when a position is losing money and more money is required by the broker to keep the trade open. If and when a stock ticker moves quickly, there can be people whose borrowing levels literally bankrupt them as things get worse ... fast. Volatility can be either a blessing or a curse, but if you have too much leverage, it can break a trader.
Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) -- As a beginning investor, it wouldn't be surprising if you haven't heard the name Alphabet before, but it's likely you've heard of the company's main subsidiary, Google. As the dominant leader in internet search, Google has an effective duopoly on internet advertising, along with Facebook. Its massive stockpile of consumer data makes its ads extremely effective, and it's tough to imagine any competitor stealing any significant percentage of the market. And Google has the second-most-valuable brand name in the entire world, with an estimated value of more than $130 billion, according to Forbes. The fact that Google's brand has become synonymous with internet search and several other functions gives tremendous pricing power when it comes to selling ads.
Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) -- As a beginning investor, it wouldn't be surprising if you haven't heard the name Alphabet before, but it's likely you've heard of the company's main subsidiary, Google. As the dominant leader in internet search, Google has an effective duopoly on internet advertising, along with Facebook. Its massive stockpile of consumer data makes its ads extremely effective, and it's tough to imagine any competitor stealing any significant percentage of the market. And Google has the second-most-valuable brand name in the entire world, with an estimated value of more than $130 billion, according to Forbes. The fact that Google's brand has become synonymous with internet search and several other functions gives tremendous pricing power when it comes to selling ads.
In the professional world, one of the key concepts is diversification. Harry Markowitz is a Nobel prize winning economist and one of his major discoveries was that adding new asset classes can dramatically alter the overall risk profile of a portfolio. His finding was that a portfolio that contained very low risk assets would normally benefit from lower volatility and higher returns if a higher risk asset was added. This is due to the likely lack of correlation between high and low risk asset classes.
3. Get an education. Warren Buffett has suggested in the past that every investor should be able to understand basic accountancy principles, an annual report and stock market history. You probably do not need to become an accountant, but being able to understand the scoring system of the game can only help. There are thousands of books about investing and trading - you don't need to read them all, but you probably ought to read a few to enhance your theoretical knowledge.

Remember that free stock picks usually exist because of the vested interests of the company or the promoter. There are some exceptions, such as in the case of top book publishers, like John Wiley & Sons, who produce works like, "Penny Stocks for Dummies." Their exhaustive vetting process alone is usually thorough enough to provide you with some serious confidence in who they choose.


The most feared words on any stock exchange are margin call. A margin call is made when a position is losing money and more money is required by the broker to keep the trade open. If and when a stock ticker moves quickly, there can be people whose borrowing levels literally bankrupt them as things get worse ... fast. Volatility can be either a blessing or a curse, but if you have too much leverage, it can break a trader.
We want to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and safe by following our posting guidelines, and avoid disclosing personal or sensitive information such as bank account or phone numbers. Any comments posted under NerdWallet's official account are not reviewed or endorsed by representatives of financial institutions affiliated with the reviewed products, unless explicitly stated otherwise.
×