When it comes to investing for beginners, my number-one tip is to protect yourself. That’s the name of the game if you want to win more than you lose.
So many new investors make bad trades, trade too often, and fail to learn the basics of investing. I feel bad for them, but there’s plenty of information out there. You’re making a good call just by reading this article about investing for beginners.
There’s so much misinformation and outright lies on the internet that when I find people who are new to penny stock trading and actually open to the potential profits this trading strategy has, I get excited.
If that’s you, congratulations! Kudos for cutting through the bullshit and trusting yourself enough to go after generational wealth with a trading strategy that promises real profit potential (not the 8–10 percent per year that so many financial advisors say you should go after).
I’ve been trading penny stocks for decades, and in that time, I’ve learned quite a few things. The tips I’m sharing with you now are ones that I’ve paid dearly for — both in terms of time spent going down the wrong path and money lost on bad trades.
Use them to cut your learning time and your potential losses.
Are you new to stock trading? Here are 7 penny stock trading tips to guide you.
Table of Contents
- 1 What Is Investing?
- 2 Investing for Beginners Guide
- 3 13 Smart Investment Tips for Beginners
- 3.1 #1 Take Off Your Rose-Colored Glasses
- 3.2 #2 Adjust Your Profit Expectations
- 3.3 #3 Respect Risk
- 3.4 #4 Keep a Trading Journal
- 3.5 #5 Take Care of Yourself
- 3.6 #6 Give Back to Your Community
- 3.7 #7 Investment Education for Beginners
- 3.8 #8 Think Long Term
- 3.9 #9 Invest What You Can Afford
- 3.10 #10 Do Your Own Research
- 3.11 #11 Be Fearful When Others Are Greedy
- 3.12 #12 Be Greedy When Others Are Fearful
- 3.13 #13 Diversify Your Portfolio
- 4 The Bottom Line
What Is Investing?
Investing involves giving another person or entity your money in exchange for a share of profits. Of course, profits are never guaranteed, so you can also lose money on investments.
For instance, let’s say your friend wants to start a restaurant. He or she asks you for a $20,000 investment to secure a location, buy equipment, and so on.
Your buddy starts the restaurant and fails. The business tanks. You lose your investment because there was no profit to be gained.
But let’s say that person sold you a 10 percent stake in the restaurant for your $20,000 and the restaurant earned $500,000 in profit during its first year. In that case, your investment was a clear success.
Investing in Stocks
In the stock market, you buy shares (pieces) of companies based on their stock prices. You can then sell your shares for a profit if and when the stock price goes up.
Many investors — including myself — also short stocks. This involves borrowing shares of stocks you think will fall below the current price point, then selling the stock and profiting.
Penny stocks are stocks that trade for less than $5 per share. That’s where I’ve focused most of my career. Stocks are primarily defined by market capitalization — small-cap, mid-cap, and large-cap stocks are distinguished by their value.
Investing in Fixed-Income Securities (Bonds)
While the stock market involves investing in shares of a company, which constitutes equity, bonds are all about debt. The company or municipality issues a bond to raise money and agrees to pay a specific amount of interest on that debt to anyone who invests.
Bonds tend to provide a lower return on investment, but they’re great when you need income and you have a low risk tolerance. While high-risk bonds exist, most pay back the entire principal to investors — in addition to the interest, of course.
Investing in Real Estate
I don’t invest in real estate, but it can be an excellent way to grow your wealth over time. It’s a diverse area of finance because you can invest in real estate for multiple purposes. For instance, you might “flip” a property after buying in cheap and fixing it up, or you could become a landlord and collect rent.
Investing in Options
Options trading is similar to regular stock market trading except you’re buying the option to purchase stock by a specific date. You can choose not to buy the stock and lose only the money you paid up front, or you can buy the stocks to turn a profit.
Investing for Beginners Guide
If you’re just getting started in the stock market or other securities, researching investing for beginners will give you the best chance of success. You don’t need a ton of upfront cash or a degree in finance, but you must study the stock market and learn how to evaluate stocks effectively.
How to Invest with Little Money
But don’t risk all your money on one play even if you’re starting with a small account. Practice with tiny investments at first so you get comfortable with the process and rhythm of trading.
How to Invest in Penny Stocks
As mentioned above, penny stocks trade for less than $5 per share. You can invest in penny stocks through the pink sheets or, as I recommend, the Over-the-Counter Bulletin Board. Learn to recognize and follow chart patterns so you can profit off these small, sometimes struggling companies.
How to Identify the Best Long-Term Investments for Beginners
If you’re interested in long-term investments, consider your risk tolerance as well as the types of securities that excite you most. For instance, you might want to invest in blue-chip stocks, take your dividends, and cash out when you reach a specific point in your life, such as retirement.
Real estate, bonds, and mutual funds can also constitute excellent long-term investments. Before you start, though, educate yourself on the market so you don’t take unnecessary risks.
How to Identify Retirement Investing Opportunities for Beginners
Meeting with a financial planner or advisor can prove useful if you want to build a retirement portfolio. They’re extremely knowledgeable about IRAs, 401(k)s, and other investment vehicles.
If you want to focus on trading, though, join my . I share everything I know about pennystocking and the stock market, so you can speed up the learning process and start building wealth for retirement faster.
Best Investment Tools for Beginners
If you’re going to invest in the stock market, you need an online broker and access to information about potential trades.
StocksToTrade is the most comprehensive stock market investing tool available today. You can use it to paper trade, research stocks, read charts, and more. Plus, the service provides lots of tips, strategies, and potentially lucrative opportunities that you can take advantage of.
13 Smart Investment Tips for Beginners
Here are some of my best tips on investing for beginners.
#1 Take Off Your Rose-Colored Glasses
Penny stock promoters are quick to sell you big stories about companies that are poised to blow up and change the world with their products.
The only problem? They’re full of shit.
If penny stock companies were legit companies, they wouldn’t be penny stocks. They’d be traded on the NYSE or the AMEX, where companies actually meet SEC filing requirements.
In my experience, 99 percent of penny stock companies will ultimately fail, and the odds that you’ll catch the 1 percent that do grow in the long run are pretty slim.
So, stop believing everything you hear and recognize the realities of penny stock trading. These companies may all be doomed to fail, but that doesn’t mean you can’t use them to profit.
#2 Adjust Your Profit Expectations
Another big piece of hype you’ll hear from penny stock promoters has to do with how quickly your money can grow. Yes, it’s possible that a penny stock will go from $1 a share to $10, and it’s possible that you’ll double — even triple — your money on a single play.
But do you know how much I try to make with each trade? Just $0.50–$0.75 a share.
Sure, I’m happy if I make a bit more, but keeping my trades small — getting in and out when I know the numbers are right — helps protect me from risking disaster and major losses that far too many traders endure.
If you’re constantly chasing big wins, you’ll force trades that aren’t really there. And it’s these kinds of mistakes that’ll take you out of the game before you even have a chance.
#3 Respect Risk
Part of the reason I keep my profits — and my losses — small is that I respect risk.
I mentioned above that most penny stock companies aren’t worth the paper their stock certificates are printed on. Penny stocks are thinly traded, and they can be hugely volatile. Both of these factors mean that things can change quickly. Many of my students know that I might take profits/losses too quickly, but that’s fine by me.
A stock that you think is on its way up can tank in a few minutes. A stock that you think is a surefire short sell can reverse course in the blink of an eye.
A big driver in the risk of penny stock trading is the simple fact that most of these companies don’t meet SEC filing requirements, and the people who trade them aren’t legitimate Wall Streeters, so they manipulate stocks when they want to. That’s why they’re traded on the pink sheets and the OTCBB. Believe me, they’d be on more prestigious exchanges if they could.
The bottom line is that you just don’t know what you’re dealing with when it comes to penny stocks. That press release you saw about a company’s new technology could be legit — or it could be a complete lie dreamed up by a promoter who’s been hired to pump and dump the stock.
You can’t fight this risk. But you can respect it.
Make sure you’ve never committed too much of your portfolio to a single play (the percentage amount is different for everyone; whatever makes you comfortable, and not a penny more), and that the position you take isn’t large enough to affect the stock’s price action. And always watch for good liquidity — ideally, at least a few hundred thousand shares traded daily as reasonable trading volume is the only way you can be reasonably sure you’ll be able to get in and get out when you need or want to.
#4 Keep a Trading Journal
As a beginning trader, one of the best things you can do for yourself is to set up a trading journal that covers what moves you made, what size positions you took, and whether you had a profit or loss on the trade. That diary will teach you so much about trading and about yourself that it’s an invaluable resource for you to utilize if you want to become a consistently profitable trader.
The best traders out there are methodical. They don’t make plays on a whim; instead, they carefully consider their past actions and use these experiences to make their future trades even better. Both of my first two millionaire students have spreadsheets galore!
Information about your past trades can be incredibly useful when it comes to improving your skills as a penny stock trader. But if you want to take advantage of it, you’ve got to track it from the start.
You can use pen and paper for this, or you can use a program like Profit.ly.
Either way, commit to keeping and updating your trading journal every time you make a move.
#5 Take Care of Yourself
Confession time: For the past few years, I’ve been so wrapped up in trading and teaching that I’ve put on some weight. Well, not just some — I’m up 50 pounds because I’ve prioritized helping others over my own health.
You truly have nothing else in this world if you don’t have your health. So, I know you want to stay up all night watching my free videos or reading my best-selling book (available for free here).
And when you’re watching stock charts all day and researching all night, it’s hard to remember to get up, cook a healthy meal, and get some exercise.
But, you guys, it’s so important. You’ll be a better trader if you’re healthy, and if you take care of yourself, you’ll be able to stick around longer.
Ditch the bad habits now. Don’t wait to make your health a priority — focus on it now when you’re just getting started as a trader so that it’s there to support you throughout your career.
#6 Give Back to Your Community
I wish it hadn’t taken me so long to get into charity work.
In 2015, I had the opportunity to help Make-A-Wish of Southern Florida get a child named Ewan the technology he needed to communicate with his family for the first time. It was incredible to witness.
I’ve had some amazing experiences in my life. I’ve traveled to more than 100 countries, bought my dream car and worked from some of the most beautiful tropical beaches in the world.
But I’ve never done anything as cool as this.
Right now, I’m focused on building schools in third-world countries so children there can get the education they need to succeed in life. In fact, since the founding of the Timothy Sykes Foundation, 40 schools have gone up.
Believe it or not, charitable giving makes me a more effective trader. It provides me with the motivation to go after plays that could turn into food, water, or education for people who don’t have access to it already.
I think that we, as traders, have a tendency to get caught up in our own hype. We bury ourselves in stock charts, brag about how much we’ve made on past trades, and subject our friends and family members to endless stories about our profits.
That’s just not what life is about, though. Let me tell you: Having the chance to take some of my hard-earned money and use it to make such a big difference in others’ lives is the best feeling I’ve ever had.
I highly encourage you to take time off of trading to give time or money to the causes you believe in. There’s really nothing like it.
#7 Investment Education for Beginners
I used to be cocky when I was younger, and I walked around acting like I knew everything there was to know about penny stock trading.
Sure, I’ve learned a lot in my 20-plus years, but do I know everything about stock trading? Of course not!
That’s why I make education such a huge priority, and why I recommend that you do, too. Find the people who have achieved what you want to get out of your life and learn everything you can from them so that you can become a stronger, better-informed trader.
That said, only 5–10 percent of traders out there are consistently profitable. Ignore what non-transparent traders say in far too many chat rooms, message boards, and “trader social networks.”
Of course, 99 percent of traders will tell you they are making money — especially if they’re trying to sell you something.
Learn How to Trade Stocks for Beginners
Read and watch everything you can get your hands on. Pay attention to people who publicly display their trades and admit to their failures.
Many of the so-called gurus out there can talk for hours about their amazing plays and huge profits. They don’t prove it, though, and I don’t recommend trusting them.
It’s not about becoming a millionaire or getting rich. It’s about achieving your specific dreams.
Maybe you want to be financially secure without the nine-to-five job, and you have modest tastes. In that case, a five- or six-figure income from trading would suit you fine.
However, it’s hard to learn on your own. I did it, but I want to help people avoid the problems and failures I encountered along the way.
#8 Think Long Term
When you decide to start investing, don’t think about the rent that’s due in two weeks, the vacation you want to take next month, or even the goal to start your own business in a year. Instead, focus on long-term strategies that allow you to build your wealth slowly and safely.
I don’t like risk. It’s unnecessary, especially in investing for beginners, because you don’t need to put up a bunch of money for a single play. Instead, acclimate yourself to investing so you don’t make as many mistakes and you start to get a feel for what works and what doesn’t.
#9 Invest What You Can Afford
Speaking of rent, if you can’t meet your current basic needs, don’t deposit any money in an investment account. Concentrate on growing your savings, and then consider investing in the stock market or other securities.
I like my lifestyle too much to put it in jeopardy. If I only had $30,000 in the bank, I wouldn’t deposit it all in an online brokerage account and put it onto a single stock. That would likely result in disaster.
#10 Do Your Own Research
Instead, do your own research and figure out what stocks entice you the most. Learn stock market terms, research online brokers, and otherwise familiarize yourself with the industry. That’s the only way you’ll build a successful investing career.
#11 Be Fearful When Others Are Greedy
When people start raving about a particular strategy or stock, I back away. It’s a surefire sign that those people will influence the price action and put my own trade in jeopardy.
#12 Be Greedy When Others Are Fearful
I’m looking for sneak attacks, and so should you. When learning investing for beginners, err on the side of too cautious.
However, if you see a potential play that others haven’t noticed, jump on it. Take a large position and see how the stock performs.
#13 Diversify Your Portfolio
I have several investment accounts, including a long-term investment portfolio, and I’m passionate about diversity. Without a diverse portfolio, you put too much of your total wealth at risk.
The Bottom Line
Remember that tip I gave you earlier about keeping a trading journal? It’s so important to me that I do it myself — and I make it available for everyone to see. Want to know what positions I took recently or how much I’m averaging on my trades? It’s all there for you to see in my Profit.ly account.
Most trading teachers won’t give you this information. And if they don’t, walk away from whatever they’re selling.
Your time is too valuable — and the money you have to spend on products is too limited — to work with anybody who won’t be 100 percent honest with you.
Want to work with a trainer that’s 100 percent honest and 100 percent committed to your success? I’m looking for new students to turn into millionaires through penny stock trading. Will you join me and be my next millionaire student?