Most investors make mistakes along the way. It is part of the learning process and to be expected. But you can reduce your investing mistakes by taking the time to research and plan where to invest money to get good returns.
At the Motley Fool we believe a long-term approach to stock market investing is the best way to generate steady wealth for a financially stable future. This follows the principles of value investing, as advocated by billionaire investor Warren Buffett. It is a tried and tested method that begins with a plan.
Make an investment plan
If you actively plan where to invest money to get good returns, you are more likely to make it happen. Creating a checklist to help you assess potential stock market buys, will make the process easier and your understanding greater. Buffett’s colleague Charlie Munger once said, “You must value the business in order to value the stock”. This is appropriate for the planning stage because in evaluating the business, you will identify whether there is value in it.
A simple checklist for beginners to investing could be something like this:
- Has the company earned positive returns using little debt?
- Is there potential for future growth?
- Is the company’s product in demand?
- Are there dividends?
- Is the price-to-earnings ratio below 15?
- Does management care about the company and its shareholders?
Where to invest money to get good returns
The alluring promise of life-changing sums of money leads many new investors to penny stock trading. At first glance it can look like a quick and easy way of investing for beginners, but it comes with massive risk. I think newcomers should avoid the volatility of the AIM index and stick to the reliability of the FTSE 350. This is where to invest money to get good returns in established companies trading at reasonable prices.
Avoid frequent trading
Consistent gains are what investors strive for, but often consistent investing is more important than share prices on a continuous rise. If the investment itself is building a bigger pot gradually, through dividend reinvestment, then you can ignore intermittent price fluctuations.
The most resilient companies will see their share prices ascend over the long term, but volatility will still occur during the short term. This is why it is important to set it and forget it rather than trying to cash in on sporadic price moves.
Watch out for broker fees
Broker fees can quickly eat into your investment. If you have a small amount to invest, such as £100 with a transaction fee of £10, that is immediately 10% of your investment. This means your stock purchase needs to rise 10% to break even and probably more if you then incur a selling fee. Depositing small, but regular cash sums is a common way to get started in investing for beginners. Some brokers offer a regular investment option, such as £1.50 a month, so if you can afford to invest £100 a month in a stock, then the £1.50 fee is only 1.5% of your investment. To discover where to invest money to get good returns, compare brokerage fees and regular investment options.
Avoid investing mistakes and become a successful investor by planning your strategy and sticking to it. The stock market is a powerful entity offering a pathway to wealth for anyone from any background.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.