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Stock investing 101 PDF

This article will condense the main principles and elements of stock investing every beginner needs to grasp into a single page stock investing 101 PDF.

Most people’s relationship with and approach to investing changes over time as their needs change and experience grows. Ironically, changing your investment approach can be one of the worse things you can do.

Stock Investing 101

If your investing strategy gives you opportunities to change course, then the chances are that emotions will take over and you will jump ship and sell out at the bottom from an approach that was just about to turn around and deliver above-average gains.

I am not advocating that your approach should not be flexible. You will need to adjust to your changing needs, making a transition from renting to owning real estate, starting a family, saving for a child’s college. Your investment plan needs to incorporate ways to handle such changing needs but without changing your investment strategy.

So let’s imagine that you adopt an intelligent stance, do all the necessary research, choose a strategy, and stick with it.

But let’s backtrack for a moment.

What are your goals

Setting goals is always the first step.

Establish your goals doesn’t just mean decide how many millions you want to amass. Everyone will want to maximize the results of their investing endeavors. What it does mean is to map out your investing and payout periods over the years ahead.

For how many years will you be investing, over what period will you expect to receive the payout, as a lump sum or regular payments. What lifestyle do you expect to have after you retire, about the same, more frugal or more extravagant? For more on this check here.

Risk tolerance

What is your risk tolerance

You need to have an honest conversation with yourself about risk. You will need to get comfortable defining yourself as an investor somewhere along the spectrum from conservative, risk-averse at one end, to aggressive and risk embracing at the other end.

For a detailed examination of how to determine your risk tolerance and risk profile, check here.

What kind of investor or trader are you?

There are two considerations here. They are indeed related in a way that a student of Aristotle’s logic might find interesting.

Financial Sophistication

What is your level of financial sophistication? This is not entirely independent of your risk tolerance. It is possible to be a highly sophisticated conservative and risk-averse investor. It is also a comfortable place to be a simple passive investor running your own low-risk portfolio that requires almost no financial sophistication at all.

On the other side of the coin, it would be a very perilous venture to attempt to trade in the short-term without developing sufficient knowledge about markets and the financial instrument you are trading. So short-term trading is really only for the financially sophisticated. Or maybe the lucky – at least while the luck lasts.

If you are conservative and risk-averse you can only really afford to be an investor. Having said that, it is possible to build and manage your own long-term stock and bond portfolio and use it to generate additional income from options while managing your risk to within acceptable levels.

But if you have a tolerance for higher risk it may make sense to be both an investor and a trader dividing your funds between long-term investments and shorter-term trading activities.

Early on in your investing journey, your level of knowledge and experience may be low and growing. You may decide that you will devote considerable time and effort to building your knowledge and gaining experience so that you could envisage actively running and managing your own investments.

Risk returns

To invest or to trade or both?

The other question to answer is whether you want to be making long-term investment decisions or short-term trading decisions. Are you going to be taking long positions in stocks, ETFs, and bonds and riding them out, or are you looking to manage a portfolio of shorter-term speculative trades? This is a question of your investment decision horizon, whether that is measured in years, months, weeks, days, or minutes.

The two should not be seen as mutually exclusive. It is quite possible and even in some ways desirable to both invest and trade. Even a day trader would be well advised to invest profits from trading into longer-term financial instruments.

In many respects, the distinction between investing and trading is linked with the distinction between passive and active investing. For a thorough examination of this issue, check here.

Pick a system that fits you and the circumstances

By now you should have a good handle on your investment horizon, the period over which you expect to receive payouts, your risk tolerance, your level of sophistication, and how that may change over time. All of these inputs will lead you to select an asset allocation and investment strategy that works for you.

Asset allocation

Your risk profile and level of financial sophistication will determine the right asset allocation.

Simple approach

If your risk tolerance is low and you would only be comfortable with low-risk investments, then your portfolio should be weighted towards bonds with the remainder in stock ETFs. If you consider yourself not to be very sophisticated financially then find yourself some solid ETF’s that give you access to a range of bonds and other ETF’s the give you access to broad market index stocks.

The best approach is to make regular monthly contributions, then just use these to buy into each fund according to your set allocation.

If you want a simple approach and you have a high-risk tolerance then your allocation to bonds should be much lower and it would make sense to build the rest of your portfolio with growth-oriented ETFs. Again, keeping it simple select a few growth ETFs and maybe one bond fund and add the same dollar amount every month to each.

Sophisticated approach

Looking at the other end of the spectrum, if you have a high level of financial education and a low level of risk tolerance then you should stick with a portfolio weighted towards bonds. In addition, it makes sense to set aside a small portion of your portfolio for options hedging strategies to minimize downside risks.

If you can prove to yourself that you can successfully hedge downside risk with options, this can give you the confidence to reduce your portfolio allocation to bonds. This is particularly relevant in the current financial environment since bond yields are not keeping pace with inflation. If you are comfortable with options you can also sell covered options for the ETF or stock positions you hold as a source of additional income.

A sophisticated approach to high risk investing opens up many opportunities. This can easily lead to failure. This is where you are likely to invest and trade and the systems you adopt and discipline you are able to bring to bear will impact your long term results.

Dice

Speculative pitfalls

There are many dangers here. You may find that your trading inclinations lead you to take positions in speculative high growth areas. You may also decide to build a long-term investment portfolio with growth stocks. If you are not careful you can find yourself undermining the diversity of your own portfolio. Under these circumstances, if you are not careful to hedge then a significant market downturn can hit your long term positions and your short term positions in equal or in compounding measure. A classic double whammy.

Value, growth or income

Across the spectrum of high and low risk and high and low sophistication, there are natural places for value, growth, and income investment strategies.

A value investment strategy is appropriate for a simple and low-risk approach. A sophisticated low-risk approach can afford to adopt a mixed value and income investing strategy.

A growth investment strategy fits well with a high-risk approach whatever the level of sophistication. It is also possible to mix income strategies, particularly during the payout period.

To learn more about investment strategies, check here.

Advisory service or self-managed?

The other aspect to consider is whether to use an investment management service or to manage the portfolio yourself. There is no hard and fast rule.

An investor with a conservative low-risk tolerance who had either little inclination or appetite to manage their own investments will be more inclined to use a professional investment manager.

A more sophisticated investor is more likely to want to manage their own portfolio.

The investor’s worse enemy

So much has been written on this topic it seems almost superfluous to repeat it. On the other hand, this warning is so frequently ignored.

The simple fact is that the investor’s own emotions are the worse enemy. It is all too easy to be drawn into taking a position either through greed or fear of missing out. It is even easier to abandon a position out of fear of losing even more than you already have.

Experience and studies show that when emotions are in the driving seat of investing and trading decisions, that is when the worse decisions are made.

Find your system and stick with it

All the evidence suggests that you increase your chances of success if you find an investing system that has a proven track record and stick with it.

Here is a summary of Stock Investing 101 as a PDF, you can download it here.

Stock Investing 101 PDF


I hope you found this article interesting and useful. Do leave me a comment, a question, an opinion or a suggestion and I will reply soonest. And if you are really inclined to do me a favor, scroll down a bit and click on one of the social media buttons and share it with your friends. They may just thank you for it.


Disclaimer: I am not a financial professional. All the information on this website and in this article is for information purposes only and should not be taken as investment advice, good or bad.


Affiliate Disclosure: This article contains affiliate links. If you click on a link and buy something, I may receive a commission. You will pay no more so please go ahead and feel free to make a purchase. Thank you!


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22 Comments

  1. Very detailed and simple to understand. As you said the first and foremost thing is the exit strategy or the goals you have, that will ultimately change your investments. There are also other factors like you mentioned like risk tolerance, sophistication, and so on. If you narrow it down it comes to the three e’s: education experience and excess cash. I am a person who lacks in experience and excessive cash, but I am willing to educate myself.

    • Hi and thanks for your comment. I sincerely hope that you are able to find even a small amount of excess cash to get you started. One hundred dollars or less should be enough. Your willingness and desire for education will start you on a good and I trust profitable path. I wish you the very best of luck. Best regards, Andy

  2. I have very little experience or knowledge with investing since I’ve never been very “cash rich” in my life. I do own some cryptocurrencies because I “felt” that they were the future of currency transactions. I’m not really sure how they will play out but so far they are in a losing position. I think your article is accurate in saying that people lose in investments because they fear of missing out or they jump ship too soon because they can’t tolerate the ups and downs of markets.
    I think that everyone interested in learning about investing but know nothing about it should read this article for common sense guidance.
    thanks for sharing!!!

    • I bought a little Bitcoin and Ehtereum myself recently when they pulled back after the March tumble. They still have a way to go on the upside from a technical perspective. So far Bitcoin has always returned a good profit over every 4 year period so you might just have to wait a bit to get your money back depending on when you got in. Most people seem to be trying to trade them within ranges but I think there are also some steady buyers out there. It is interesting how so many market and investing experts make that same observation that uncontrolled fear and greed are what drive most inexperienced investors out of the market. Practically every decent book in interesting says that and yet so many of us have the learn that lesson for ourselves by experience. Thanks for your comment. Best regards, Andy

  3. A really useful Post Andy so thanks for sharing. As someone who has chopped and changed over time, some of your comments / suggestions do resonate. Whilst my tolerance for risk has also changed as I get older, I’m far more patient now so with a reasonable level of diversity and a longer term approach fingers crossed I get to the finish line with a bit of excess $$ left.

    All the best – Jason.

    • Hi Jason, and thanks for the comment. I most sincerely hope you do get to the finish line with substantial excess $$. Best regards, Andy

  4. I really enjoyed reading this article, Andy! I have been conducting a lot of in-depth research about stocks, bonds, and various investment options, and I find the investment/trading world to be like a maze-so many twists and turns. Haha It definitely takes a sophisticated financial mind to navigate upswings, booming investments, and avoid losing money (as much as possible, at least). I definitely have a lot more to learn, but your site is helping me beautifully! God bless you!

    • Hi CN and thanks for the comment. I am glad you enjoyed the article and found it interesting. Please do look over some of the other articles and if you have any other comments, suggestions, or questions please don’t hesitate to leave a comment. thanks and best regards, Andy

  5. The stock market is all greek to me but I find your articles simple to understand. If I ever dive into this side of investments I will surely take your badinverstmentadvice 🙂 Just out of curiosity, can a non-US resident invest in US stock exchange?

    • Hi and thanks for the comment. I am glad you found it an interesting and accessible read.
      As regards your question, as far as I know, you may be able to open an account with a US-based broker if you can provide an address in the US and if you have a US tax ID number. From a practical perspective that is only likely to be the case if you own property in the US as a foreign national whether you live there occasionally or not. Depending on your circumstances a regular broker operating in the country where you live may enable you to trade US equities and funds. In the US there are many international equities that can be traded on the exchanges using American Depositary Receipts or ADRs which are certificates issued by US banks for a given number of shares in a company based in another country. I remember from the times I lived in European countries that it was possible to buy and sell the shares of major US-based companies through regular retail stockbrokers. Thanks again for your comment and question and I hope this helps. Best regards, Andy

  6. I certainly know about making bad choices I was trading CFDs in February just after Trump closed the US borders.
    In 2 hours I had made $10,000 by selling then closing out the deal and then reinvesting it all back into the next one.
    But living in Australia it was the middle of the night when I finally went to bed, I had forgotten to adjust the stop loss and that was the night that the markets had a resurgence and went all the way up again and I ended up losing $3,000.
    I only think what if I had stayed up that night I would have made a fortune from the volatility of the US dollar that day. 🙁

    • Hi and thanks for your comment. As you say times of high volatility are times when big profits can be made but also big losses. I’m sure I’d have gone to bed too in that situation. I wish you better luck next time. Best regards, Andy

  7. I love how “in detail” you have explained this. Goal setting which I totally agree with. A great read. Thank you for sharing this.

    • Hi and thanks for the comment. One thing I have learned underlines that all-important lesson of setting your goals first. The same applies to a long term investment plan and to a short term stock or derivative trade. Thanks and best regards, Andy

  8. Hi Andy interesting article packed with useful information and ideas. It is very comprehensive and the only advice I would add is a section on where you would suggest the best places products commodities to invest.

    You might have the three highly recommended investments on a monthly basis and set up own investment network 🤔

    • Hi Trevor, thanks for the comment and the suggestion. Tempting though it may be to give stock tips I feel it is more important to point people in good directions where they can educate themselves and make their own investment and trading decision. It is a good suggestion and I will nevertheless not forget about it. Thanks again and best regards, Andy

  9. What a nice post you wrote ! I really enjoyed reading it and could not be silent about your post so I decided to leave my comment here and say Thank You for sharing this quality post. Actually I was looking for information about the stock investing and when I landed on your website and read this post, it answered all my questions in details and it was exactly what I wanted to know.

    I’m happy that you’ve decided to write about this topic and share it with others. It’s very useful post in my opinion and can definitely be used as a great source for everyone who is interested to know about this topic.

    I will definitely come back to your site again to read more posts. Keep up quality articles! 🙂

    Best,
    Ali

    • Hi Ali
      Thank you for your very positive comment and feedback. I am very glad that you found it useful. I have had the intention of condensing all the important steps needed to approach investing in stocks into a single page as many of the comments I receive and the interactions I have with people on this topic suggest that the understand some of the elements but haven’t been able to integrate the necessary information into an actionable approach. Please do come back to this site, and don’t hesitate to leave comments ask questions, or make suggestions.
      Kind regards
      Andy

  10. Hi Andy,
    I am really a fan of your website and I like to read your articles because they are always beneficial and informative. I believe as you that the most important step in every business is to set one’s goals. I learned new tips of advice such as this one: the investor’s own emotions are the worse enemy. It is all to easy to be drawn into taking a position either through greed or fear of missing out

    • Hi Rania
      Thank you for your comment. Planning and goal setting are indeed all-important in a business venture including investing. If there is anything ironic about the knowledge that the emotions of fear and greed are the investors worse enemy – it is that this is so widely known and yet so little heeded. I think when it comes down to it, it’s a lesson we only learn and internalize through personal experience. We just have to hope that the personal experience isn’t financially terminal!
      Thanks again and kind regards
      Andy

  11. Now, this is really very well presented. Though I am a forex trader, I don’t actually trade in the stock market because the amount of data required is way too broad and massive. However, you have simplified it all down here to a very manageable size and I am delighted that you have shared something like this. It is actually very interesting and I will look into it henceforth.

    • Hi and thanks for your comment. I am very pleased that you found it so useful. Best regards, Andy

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