Simple Debt-Free Finance » 10 Investment Tips for Beginners

2009, year in review.

Joe — Thu, 31 Dec 2009 03:23:55 +0000

What a year it’s been!

As the history books close on 2009, I thought it might be nice to take a look back on the topics that were hot on Simple Debt-Free Finance over the past year.

401(k) Plans.

2009 saw a lot of talk about the future of the 401(k). It seems only natural, given that it is one of the major means of saving for retirement for many American workers who had just seen those savings drop like a stone in the 2008 stock market crash. A lot of the talk was centered around ways to “fix” the 401(k) when it isn’t broken. This bothered me enough to blog about it in that post as well as Fixing What Isn’t Broken and Why 401K Retirement Plans Really Don’t Work And How To Fix Them

Many workers, like myself, saw their company contributions to 401(k) plans cut or “temporarily” suspended. My response to that was to give my 401(k) some TLC, a move which paid off when my balance returned to pre-crash levels in the 3rd quarter of 2009.

Bank Failures.

Another hot topic of the beginning of the year was bank failures. So many failures naturally led many to wonder what the FDIC insurance limits cover.

Investing.

2008 was a big year for gold, and 2009 was even bigger. Such a bullish environment for gold led Rosland Capital to offer Gold Eagle coins for IRA accounts.

The 2008 crash created an historic opportunity for investors to “buy low”, but it also offered many reminders of what not to do. To that end, I shared Jim Cramer’s 10 commandments of stock trading.

Since the crash created a great opportunity for new investors to get into stocks at levels unseen in a decade, I put together a list of 10 investment tips for beginners:

1 Follow The Rules
2 Be Aware Of Taxes
3 Don’t Confuse Investing With Trading
4 Tune Out The Media
5 Don’t Tune Out Too Much
6 Pay Attention To Risk
7 Don’t Avoid Reality
8 Don’t Fall For Hot Stock Tips
9 Don’t Try To Time The Market
10 Try Before You Buy

In other news, some investing sites seemed to want to attack index fund investing in all the wrong ways. I had to respond to their criticism of index fund investing.

Credit Cards.

Kiplinger was nice enough to provide a 1st phase of credit card consumer protection rules went into effect.

I had a couple of posts about 0% balance transfer offers, mostly because 0% balance transfer offers were coming to an end at the same time my wife received a 0.99% balance transfer offer.

Since it seemed to be a hot topic, for me anyway, I decided to share 6 things you should know about 0% APR credit card offers.

And all this at a time when Bank of America began imposing fees for paying off your balance… idiots!

Government Bailouts.

2009 is likely to be remembered best for the bailout craze that gripped the auto sector, bank sector, heck – the entire nation!

credit card consumers got a bailout, the NASDAQ released a “government relief index” for tracking bailed out companies and cash for clunkers gave charities some competition

Debt.

What would a debt blog be without posts about, well, debt?

The year started out with discussions about toxic debt and ended with the mortgage debt relief program going until 2012.

In between was some discussion of whether debt settlement is a good idea, and why debt consolidation is (sometimes) a scam. When it’s not a scam, debt settlement and loan consolidation just doesn’t work, and you’re much better off taking a DIY approach to debt consolidation.

And just to round out the debt consolidation talk, I shared how it affects your credit score.

I asked, “Why are you in debt?”, but not too many people answered, so I got the top 10 causes for debt from BankRate.com.

10 Investment Tips for Beginners: #10. Try before you buy.

Joe — Thu, 23 Apr 2009 13:06:55 +0000

Once you’ve educated yourself and you’re feeling like you’ve got a handle on this investing thing, try our your ideas and methods in a simulator. A virtual stock market website will not only let you test your ideas – it will let you test your resolve. You may find out that after 6 months, you’ve fallen into the trap described in Investment Tips for Beginners #5 and stopped paying attention only to realize later that your fantasy portfolio is in the tank.

Here are 2 free stock market simulators I’ve used in the past:

Investopedia

Market watch

As I say, both are free and both let you create multiple portfolios with whatever amount of cash you want to play with set aside at the start. You can also compete against other investors if that’s your thing.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #9. Don’t try to time the market.

Joe — Tue, 21 Apr 2009 13:59:43 +0000

Timing the market is a fool’s game. Just admit that you don’t have a crystal ball or a time machine, develop a plan and follow it. If timing the market worked, we would all buy low and sell high… but then, there wouldn’t be anyone to sell to or buy from because we would all be timing the market and we would know it was low/high and so the market would just freeze. See the fallacy of timing?

Anyway, here’s a better method: Admit you can’t time the market. You can’t possibly know all that is knowable – you’re not omnipotent. A better approach is to develop a rating scale for the stocks in your portfolio, and update them once a week. When you update them, determine what price you’d buy more and what price you’d sell. Then put your stops and limit order in place, as covered in A Simple Secret to Successful Investing.

Then you can go back to blissfully ignoring the media noise for another week.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #8. Don’t fall for “hot stock tips”.

Joe — Thu, 16 Apr 2009 13:55:27 +0000

Here are 2 reasons hot stock tips are always bogus:

1. If the person giving you the hot tip really knew anything, they’d be guilty of insider trading for telling you – it’s illegal!

2. If the hot tip wasn’t some secret information about a specific stock, but a “system” to get rich in stocks, then the system would stop working when more people started using it.

The way to true wealth in the stock market is hard work, either by researching, practicing and learning to become a serious investor (think Warren Buffet) or by starting your own company and eventually going public and selling shares in the stock market (think Bill Gates). Everything else is largely a scam.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #7. Don’t avoid reality.

Joe — Tue, 14 Apr 2009 13:45:45 +0000

If you’re investing in individual stocks, be sure to stick with your plan. Too many investors hold on to their losers when the fundamental reason they bought the stock in the first place is no longer a reality. They tell themselves it will go back up, and they’ll ride out the current slump. But what happens if the current slump is the new reality and the stock is destined to languish at it’s new value until the company folds.

Admit when you’ve made a mistake and move on. Have a plan and stick to it. This is another one of those situations where having a ranking system helps. Once a stock’s price crosses a given threshold determined by you, cut it loose regardless of the reason it crossed that threshold. Remember: You chose that threshold for a reason – don’t rationalize yourself out of doing what’s necessary.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #6. Pay attention to risk.

Joe — Thu, 09 Apr 2009 13:42:00 +0000

Risk and reward go hand in hand in the stock market. It’s an inverse law which states that the higher the risk, the higher the potential reward. This is also where that adage “if it seems to good to be true, it is” comes into play. If someone is offering you a “risk free” 10% return on your money – run!

Be sure to invest only in things you understand, and know not only what the potential downside is but also what would cause the downside to become reality. Also, sticking to the plan will help eliminate some risk.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #5. Don’t tune out too much.

Joe — Tue, 07 Apr 2009 13:38:40 +0000

Many experts recommend that the long term investor should ignore the squawking heads on TV. and the financial press, since they’re often just trying to fill up the void of a 24/7 news cycle and paying too much attention can sway an investor from his path. But too much of a good thing is often a bad thing, and it’s no different here. Get carried away with ignoring the day-to-day noise and you may end up ignoring your investment portfolio altogether. This can be bad in the worst of times, but it can also be bad in the best of times.

During bull markets and bear markets, your portfolio can get out of balance and it’s important to dust it off once in a while and rebalance things. A good rule of thumb is to rebalance your portfolio every 6 – 12 months, either once a year near an anniversary or when you set the clocks back and then ahead again. Think of it as your ounce of prevention, a portfolio equivalent to changing the batteries in your smoke detector.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #4. Tune out the media.

Joe — Thu, 02 Apr 2009 13:34:07 +0000

Some members of the media know some things, but most are not worth their weight in salt. Much of the media is simply noise – a by product of the 24/7 news cycle. They can make mountains out of mole hills simply because they need something to fill their broadcast time. They can also overlook the truly important in favor of the shocking and sensational. Don’t confuse professional pundits with professional investors, or businessmen.

The one caveat to this is if you are engaging in trading. If you’re a stock trader, then knowing what the talking heads are saying about your stock or sector of interest is important. However, don’t be surprised when the spin fails to meet reality and you find yourself left holding the bag when sentiment turns the other way for seemingly no reason.

If you’re a long term investor, be a passive listener. Pay attention to big picture events that affect the long term time frame, and the general economic landscape.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #3. Don’t confuse investing with trading.

Joe — Tue, 31 Mar 2009 13:25:57 +0000

Investing can be viewed as buying shares of an appreciating asset, and holding for the long term time horizon. Buying shares of the Vanguard total stock index fund for retirement, is one example. Another example of investing is buying shares in a business when the share price is close to or less than the value of the underlying assets, but the business itself is sound.

Trading is buying an asset you plan to hold for a much shorter period of time, and may appreciate simply because of momentum or increased demand for the stock and not because the underlying business has increased in value. In general, investing is for the long term, while trading is riskier and sometimes thought of more like gambling.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #2. Be aware of taxes.

Joe — Thu, 26 Mar 2009 13:17:28 +0000

A lot of people let tax rates and events dictate their investment decisions. This is unavoidable to some extent, but taxes are only part of the picture. I am not saying you should ignore tax policy. Just know what the tax policy is and how it affects your investments.

For example, buying tax exempt bonds when your tax rate is 10% doesn’t make much sense. Know when it’s OK to pay taxes. Similarly, holding an index fund with little capital gains generation in your tax deferred account doesn’t make much sense either.

This is different than beware of taxes. The point is that tax policy should be a part of your investment decision making, but you should not let fear of paying taxes paralyze you into not investing, not selling, or investing in the wrong things.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

10 Investment Tips for Beginners: #1. Follow the rules.

Joe — Tue, 24 Mar 2009 13:01:15 +0000

I don’t mean rules and regulations for investing, I mean your own rules! Have a plan and stick to it! An example of this would be to determine your asset allocation and only buy stocks that fit into your allocation when you need to increase the amount of stocks in relation to the amount of bonds in your portfolio. Conversely, sell your winners when you are over balanced in an asset class.

Another example might be to sell a stock if it hits your trigger price, regardless of what the reason might be. The point is that you can always rationalize your behavior, but when you are simply acting according to plan, then you are much less likely to act out of emotions like fear or greed. You might check out Cramer’s Stock Ranking Strategy to help you develop an entry and exit strategy.

If you liked this, you may also like:

Jim Cramer’s 10 commandments of stock trading.

25 Investment rules from Jim Cramer.

Cramer’s Top 5 Picks for Stocks to Buy

Cramer’s Bottom 5 Picks for Stocks to Buy

Simple Debt-Free Finance » 10 Investment Tips for Beginners

2009, year in review.

401(k) Plans.

Bank Failures.

Investing.

Credit Cards.

Government Bailouts.

Debt.

Related Posts:

10 Investment Tips for Beginners: #10. Try before you buy.

Related Posts:

10 Investment Tips for Beginners: #9. Don’t try to time the market.

Related Posts:

10 Investment Tips for Beginners: #8. Don’t fall for “hot stock tips”.

Related Posts:

10 Investment Tips for Beginners: #7. Don’t avoid reality.

Related Posts:

10 Investment Tips for Beginners: #6. Pay attention to risk.

Related Posts:

10 Investment Tips for Beginners: #5. Don’t tune out too much.

Related Posts:

10 Investment Tips for Beginners: #4. Tune out the media.

Related Posts:

10 Investment Tips for Beginners: #3. Don’t confuse investing with trading.

Related Posts:

10 Investment Tips for Beginners: #2. Be aware of taxes.

Related Posts:

10 Investment Tips for Beginners: #1. Follow the rules.

Related Posts: