How Should a Novice Investor Begin?

By Markets Fool.com

In this segment of theMotley Fool Moneypodcast, Chris Hill, Jason Moser, David Kretzmann, and Ron Gross share advice for a financial newbie who wants to know which stocks he should start his portfolio with and how he should think about investing.

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A full transcript follows the video.

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This podcast was recorded on Sept. 23, 2016.

Chris Hill:From Nick B. who writes, I'm a recent college graduate. I landed my first job a few months ago. Having built up an emergency fund for myself, I'm wondering where I go from here. I don't have a huge amount of money to work with, around $1,000, but I figured the earlier I start the better no matter how small. How should someone in my situation think about investing and what kinds of companies should I keep my eye on? Great question. Jason, I'll start with you. Great that he's starting. Congrats on the job, Nick. Great that you're putting money away.

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Jason: The emergency fund is great, too.

Chris: Absolutely. I think that sometimes when we get this question, it's OK, I get $1000, maybe not a huge amount of money. Do I go all in on one stock? Do I spread it out? How should Nick be thinking about this?

Jason: Yeah, I mean there are a lot of different ways to look at it and I would argue probably in Nick's case, I think that when you have that limited amount of money to work with, but then you also know that you got a lot of years to go. I mean I would look at that $1000 and maybe take half of that and put it in an S&P Index Fund, get that instant diversity. Then maybe the other 500, you could look at maybe adding an individual stock to your portfolio. As far as what stock, I mean you want to look at those names, or real solid state names that are part of our everyday lives that there are companies like Alphabet,Apple,Starbucks, things like that. Perhaps even a stock on our Radar might tickle your fancy.

Chris: Ron?

Ron: Yeah, Nick, the other thing I would say is be careful about the commissions as a percentage of the capital you're going to commit to any one stock. If you're going to pay $10 let's say, and spend $1000, that's a 1% commission you're paying, that's reasonable. Try to keep it under 2%. I would say if the $10, applies don't spend less than $500 on the stock.

Chris: David?

David: Yeah. The younger you are, the longer time horizon you have. Any companies you are looking at aim to own them for years and decades.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. The Motley Fool owns shares of and recommends Alphabet (A shares), Apple, and Starbucks. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.