The stock market is one of the best places to turn assets into wealth over the long term. If you simply put money into savings accounts or certificates of deposit, you might not make enough in returns to stay ahead of inflation. So, keep stocks front and center when you start thinking about making your first investment.
Investors should put safety first when making investments and build a strong base for their personal finances, according to Janet Bodnar, editor of Kiplinger’s Personal Finance.
“If you invest in any single stock, you’re taking on more risk than if you invest in a mutual fund that holds shares in many companies,” Bodnar said. “I’d recommend starting with a solid fund foundation. Then, if you have extra money and want to take a flier on a stock or stocks, you can do that.”
It’s not easy to learn how to invest in stocks — much less the best stocks — but you can do it. Investing for beginners takes time and patience.
What to Look for When Buying Stocks for the First Time
Bodnar’s advice highlights a critical truth: Picking stocks should not be an impulse decision. Thorough stock analysis can be time-consuming and challenging, but it’s crucial to investing success. When you purchase a stock, you buy a slice of a corporation. So evaluating a stock is the same as examining a business.
Keep this in mind when investing for any reason, whether you’re dealing with your regular accounts or retirement accounts. Make sure you pick safe investments. In general, you want to look for a company that:
- Grows revenues steadily
- Has viable plans for continuing growth
- Has a good position within the market
- Has a stock that is fairly priced
- Might pay out some of its earnings to shareholders as dividends
You can find this information by checking out the corporate web page and corporate press releases from the company; these sources should provide some insights. Also, look at corporate filings with the U.S. Securities and Exchange Commission. Finally, review research on websites such as Value Line, Nasdaq and Trefis.
Keep in mind that stocks might meet all of the qualifications of a safe investment one day, but not the next. Corporations are not stable. Valuations change as investors bid up the prices of stocks, and even good companies go bankrupt.
The following stocks are some of the safest investments available right now. All of them have been around for some time, and most offer a dividend payment that will give you a cash flow. These are typically larger, well-known companies, which tend to be less volatile than smaller, younger companies.
Note that the price-earnings ratios fluctuate and might have changed since publication of this story. And remember that no matter which stocks you choose, investing will expose you to some risk. The stock market will go up and down in price, even with safe stocks. But here are 9 of the safest stocks if you’re a first-time investor.
1. Berkshire Hathaway (BRK-A and BRK-B)
Adam Schwab, a chartered financial analyst and portfolio manager at Elgethun Capital Management in Sioux Falls, S.D., recommended Berkshire Hathaway, Warren Buffett’s well-known baby.
Berkshire is a bit like a diversified mutual fund with ownership in many diverse, well-managed businesses. Insurance is the cornerstone, although the company also owns Wells Fargo, American Express, Coca-Cola, IBM and many other stock market stalwarts. The P/E ratio for Berkshire Hathaway’s two classes of stock is 13.94 for both BRK-A and BRK-B.
2. Chevron (CVX)
Investor Arie Goren of Seeking Alpha recommended this major oil company. With Chevron, you get exposure to energy operations, including refining, gasoline and all aspects of the industry.
Currently, with energy prices in a slump, a new investor can buy shares in Chevron on sale. With a yield of 2.71 percent, you also get a nice cash flow. Chevron does not have a P/E ratio, as it took a large accounting write-down due to the crash in oil prices. As a result, these noncash charges resulted in a book loss last year.
3. Microsoft (MSFT)
Microsoft is an important technology company with a history of growing dividends, giving the investor a path to higher payouts. As a leading player in an important industry, Microsoft is a solid stock for the first-time investor. Investment advisor Bachar Samawi of Seeking Alpha recommended this company. The P/E ratio for Microsoft is 28.12.
4. PepsiCo (PEP)
PepsiCo is a household name that dates back more than 50 years, and its stable of brands include well-known names such as Frito-Lay, Doritos, Quaker and Pepsi. Seeking Alpha contributor Gaudi Schneider recommended Pepsi as a long-term holding. The company offers a 3.01 percent dividend and has a P/E ratio of 23.25.
5. 3M (MMM)
“Dividend aristocrats” are companies that have been increasing annual dividends every year for at least the past 25 years. One of these companies is 3M, which makes tape, library systems, Ace bandages, Post-it notes and Scotch-Brite cleaning supplies.
Chartered financial analyst Stephen Simpson recommends 3M. Simpson noted in his Seeking Alpha article that 3M has opportunities to grow in future years and has among the best margins in the industrial products world. The P/E ratio is 21.99 for 3M.
6. Dover (DOV)
Dover is one of the most important companies you’ve never heard of. Dover earns a spot on this list due to its long history of steady performance. William Stamm of Seeking Alpha noted that Dover has increased its dividend consistently for 60 years running.
Dover focuses on four areas:
- Refrigeration and food equipment
- Engineered systems
With this type of broad diversification, the company has a foothold in many industries. Dover’s P/E ratio is 21.06.
7. MasterCard (MA)
MasterCard is a revenue-generating machine, and a top pick of many stock analysts, according to Nasdaq. The MasterCard business model claims a payout every time a transaction is funneled through its network. MasterCard is also participating in new mobile payment platforms. With most of the world still transacting business in cash, there’s a lot of room for the company to grow. The P/E ratio for MasterCard is 30.12.
8. Starwood Property Trust (STWD)
This high-yielding commercial real estate investment trust is a top pick of Brad Thomas, a Forbes real estate investor.
“We believe that the floating-rate loan portfolio will outperform in a rising interest rate environment, and the company is well-positioned as a special service provider,” Thomas said. He added that Starwood Property Trust’s 9.3 percent dividend yield in August 2016 was especially attractive in this “thirst for yield” environment. The P/E ratio for Starwood Property Trust is 14.78.
9. Apple (AAPL)
Apple is a favorite of Wall Street analysts, with 28 of the 32 analysts tracked by Nasdaq recommending either a “buy” or “strong buy” on the stock. The company makes popular products like the iPhone, iPad and Apple TV. Apple’s P/E ratio is 13.21.
How to Buy Stocks for the First Time
Buying stocks for the first time is easy. Use an online discount broker, such as TD Ameritrade, Schwab, Fidelity or E*Trade. Choose one that requires a minimum investment you can afford. Check out trading costs as well. You can apply online or call the company, and a representative will walk you through the process.
After the account is open, you will have a dashboard where you can view the account. Choose from a menu item that says “trade.” Type the ticker symbol. Fill in the boxes that ask for a number of shares or amount. You will be asked to review and confirm your order before it’s placed.
After you place your order, go to the confirmation page to see if your shares order was filled and your shares were bought. The last step might take a few minutes to complete.
If you have any questions, an online discount brokerage firm representative will walk you through the entire process.
Stock Market Tips for Beginner Investors
Before investing in stocks, improve your chances of success by following a few tips:
- Diversify. Invest in stocks from a variety of industries so that when one industry is having trouble, another one will be healthy, propping up your overall portfolio.
- Watch valuations. If you overpay, even the best stock is no winner.
- Tune out the noise. Avoid checking prices and news on your stock every day. It will make you crazy, causing you to doubt yourself and possibly to trade too much. Don’t let your own fears or the fears of others cause you to act irrationally.
- Invest for the long term. Don’t expect your stocks to increase in value immediately. Pick good stocks and hold for the long term.
Final Advice Regarding Stocks for the First-Time Investor
Your work is not complete after you purchase a stock. Instead, you need to actively monitor the investment. Periodically, gather current information about the company. Visit the corporate website, look at company news and check the P/E ratio. Read what management is saying about the company.
Check the fundamentals of the stock every quarter. Look at the reasons you purchased the stock. Make certain your initial assumptions are still valid. If you bought the stock based on an Asian expansion and the company is pulling back from those plans, reconsider your stock purchase. Don’t be afraid to sell if the stock turns out to be a big disappointment, if your initial evaluation was wrong or if the stock tumbles and doesn’t look like it will improve.
Investing in the stock market requires research, study and ongoing monitoring. Over time, you’ll earn income from stock dividends and increase your assets with capital gains. And don’t worry — on occasion, all investors experience a loss.