Stock Market For Newbies: 8 Tips You Should Know (2 of 5)

2. Avoid individual stocks if you’re new to investing

People often get into investing after they’ve heard about a particular stock skyrocketing in price. Who doesn’t wish they had invested in Game Stop when the price was under $4, only to shoot up to $325 within 6 months? Such gains are extremely unrealistic. Plus, people who brag about finding a stock that has performed well conveniently forget to mention all of the stocks they bought that did poorly. Instead, you should invest in index funds, such as a mutual fund or an exchange-traded fund (ETF). These consist of dozens or even hundreds of stocks.

3. Create a diversified portfolio

Instead of buying an individual stock in an oil company, the better option is to buy a fund that focuses on the entire oil industry. That way, if the entire industry is doing well as a whole, the individual performance of a single company doesn’t matter. You can even take things a step further by buying a broadly diversified fund that covers a huge range of industries so that if one is experiencing a slump, the success of other sectors of the economy makes up for this. In fact, it’s possible to buy the S&P 500 index fund, which contains every company on their stock exchange list! By focusing on a diversified portfolio, you never have to worry about putting all of your eggs in one basket.