Best Stocks for Beginners: How to Build Your First Stock Portfolio

Best Stocks For Beginners: A lot of beginning investors get nervous when they start building their stock portfolios. It’s understandable considering that you work for your money, you don’t want to lose the fruits of your labors, and you have so many investment options!

Creating a shortlist of the best stocks for beginners could help you feel more confident. Instead of making the same mistakes so many others do by looking for fast profits or risky stocks, we’ll boil down a list of top stocks for you to consider.

But first, a few tips to get your into the right mindset before taking the plunge. Top of the list is to….

Follow Warren Buffett’s Advice

As of 2020, Warren Buffett’s net worth exceeds $69 billion. At the stock market’s 2019 height, he had a personal value of nearly $89 billion. As the fourth-wealthiest person in the world, Warren Buffett has more authority than practically any investor.

Much of Buffett’s wealth comes from his company Berkshire Hathaway. As an individual investor, you don’t necessarily want to follow the same guidelines as Berkshire Hathaway. Luckily, Buffett has advice for individuals, too.

According to Buffett, you should pretend that you have a punchcard that lets you add 20 holes. Each time you choose to invest in a company, you add a hole to the punchcard.

This thought experiment forces you to think strategically about which 20 stocks you should buy. Often, having too many options makes it impossible for people to choose.

The 20-company restriction makes it easier for you to put together a portfolio that will work toward your investment goals.

What Beginner Stocks Should You Buy?

The Buffett Rule helps you build a portfolio, but it doesn’t tell you which stocks to buy. Unfortunately, there isn’t a straightforward answer that applies to everyone.

However, there are some basic features that you should look for in companies. Once you know what to look for, you can select stocks that fit your portfolio’s goals, which will change depending on your age and how much risk you can accept.

Market Leaders

Market leaders add a lot of stability to your portfolio, so they work well for nearly everyone. You know that a company is a market leader when it dominates the marketplace and has a business model that other organizations can’t copy easily.

Alphabet (GOOG), the company that owns Google, is an excellent example of a market leader because it dominates the search engine market.

Google commands nearly 90% of the global market share of search engines. The company’s closest competitor, Bing, only has about 5% of global market share.

Adding a market leader like Alphabet to your portfolios helps ensure that you will earn money and add a counterbalance to riskier stocks that you might choose.

Competitive Advantages

Some companies have such a competitive advantage that other businesses couldn’t perform better than them even if they had access to unlimited funds.

Facebook (FB) has a competitive advantage over other social media platforms because it has such a broad base of dedicated users.

Other companies have tried to compete with Facebook by launching their own social media sites. They’ve all failed to upset Facebook’s dominance.

Even Alphabet decided to shut down its Google+ social media platform because it couldn’t attract enough users to make the site profitable.

Income Generators

If you’re nearing retirement, then you should add income generators to your stock portfolio. The top stocks for beginners near retirement need to make money consistently so you can maintain your lifestyle after you stop earning a regular paycheck.

Ideally, you want a divided producer like Coca-Cola (KO). Historically, Coca-Cola pays a dividend between $0.30 and $0.50 per quarter. If your portfolio includes 1,000 shares of Coca-Cola, you can expect to get paid between $800 to $1,000 per year.

Not all companies pay dividends to their shareholders. The governing boards of some companies choose to retain the money instead of distributing it to shareholders. You can still profit from owning stocks in a company that makes that choice, but you won’t get regular payments from them.

How Many Stocks Should You Buy?

Warren Buffett says that you should invest in 20 stocks. That’s fantastic advice, but you don’t have to follow it precisely. It’s fine to go a little over or under his recommendation.

The point of his advice, after all, is to choose valuable stocks that will work toward your goal. It’s not a hard rule. Plus, you may want to buy or sell stock in companies as their values increase and decrease.

You still need to set some concrete parameters that will keep your investment portfolio in line, though. Do not invest in fewer than 15 stocks. Going below 15 means that you probably don’t have enough diversity in your portfolio.

Also, a rule of thumb is don’t go over 30. If your portfolio includes more than 30 companies, you probably cannot keep up with their movements in the stock market.

You don’t want to own more stocks that you can track. Remember that news happens quickly! The latest story could push a stock’s value up or down significantly.

Which Broker Should You Choose?

You will need a broker to trade stocks. The broker that you choose depends on what you plan to trade. If that sounds complicated, it will get much clearer in a moment.

Brokers for Trading Stocks Only

Investors who only trade stocks should choose commission-free world-class platforms like tastyworks.

Traditional brokers will charge commissions to enter and exit trades. Some charge a percentage of your trade while others charge a flat fee. Either way, you don’t want to spend money on broker commissions. You want to put as much of your money as possible into your portfolio.

A broker like tastyworks should work well because they:

  • Stock commissions are nil (*clearing fees still apply)
  • Closing costs on options trades are zero
  • Have low minimum investments, so you can get started even if you have limited funds.
  • Work on mobile devices and in web browsers, so you can access your account from anywhere at any time.

open a tastyworks account

Brokers for Trading Stocks and Options

If you plan to trade options and stocks, then you will want to find a broker that understands derivatives. Again, tastyworks is a good option. You should also look into using TD Ameritrade’s thinkorswim platform.

Look for a broker that will give you:

  • Access via mobile apps.
  • Investment comparison tools.
  • 24-hour access at least five days a week.

What Companies To Avoid When Investing?

Learning to choose a suitable company for your portfolio means that you also need to know how to avoid companies that could hurt your investments.

Unfortunately, some companies can look very appealing when they actually have serious problems that will drag down your portfolio’s performance.

There isn’t a definitive list of companies that you should avoid. A list like that would change every few weeks or months. There is, however, a list of features that you should avoid when choosing stocks to buy. Don’t buy stock in companies that:

  • Carry a lot of debt.
  • Have highly volatile values.
  • Are new and don’t have a track record of success.
  • Have a lot of hype but no profits to show for it.
  • Don’t have a sustainable competitive advantage.

Also, beginners should probably avoid penny stocks. Penny stocks, which actually cost between $0.01 and $5.00 per share, hardly ever make much money for the “average” retail investor.

You may look at them and think, “Hey! I could buy 10,000 shares of this. If the value goes up by just one penny, I’ll double my money!”

In truth, you’ll probably just throw away $100. If the companies had much value to them, then their stocks would cost more than a penny. Be very cautious, no matter how attractive they may seem!

Rule of Thumb: Know What You Own

Finally, you should know the companies that you own. If you use a company’s products or services daily, then other people probably do, too. That makes it likely that the stocks will grow in value over time.

What counts as a company you know? For a lot of people, the list would include:

  • Starbucks because it’s such a popular, reliable place to get coffee.
  • Walmart because it has a large grocery store with competitive prices.
  • Google because you and everyone else uses it to find information online.

Take some time looking at the brand names and logos of the items sitting around your house. The company that makes your toothpaste may not seem as sexy as a tech disruptor, but it probably has years of solid performance and products that millions of people use daily.

You’re not building a portfolio that looks cool. You’re making one that will earn money!

The Top 15 Stocks for Beginners

If you don’t want to do a lot of research right not, you can start investing by purchasing these top stocks for beginners. They have proven records of success, so they will almost certainly help you make money.

Of course, every investment comes with some risk. These options are about as low-risk and high-reward as it gets, though.

Alphabet (GOOG)

Alphabet owns several companies. Google stands out as the most impressive, but putting Alphabet in your portfolio will also help you make money from Verily (formerly Google Life Sciences), Google Fiber, and DeepMind, an artificial intelligence company.

In 2020, Alphabet became the fourth American company to reach a market value of $1 trillion.

Amazon (AMZN)

Amazon has become the apparent winner in the e-commerce sector. That isn’t the only reason to buy its stock, though. Amazon is also the world leader in cloud computing services.

In fact, cloud computing accounts for most of Amazon’s operating profits. As the need for cloud-based services grows, so will Amazon’s value.

Walmart (WMT)

Walmart might lag behind Amazon in e-commerce, but second place still makes a lot of money! It certainly helps that Walmart continues to become an important retail spot for groceries as well as electronics, home goods, and clothing.

Walmart consistently pays dividends, so it’s a must-have for investors nearing retirement.

Procter & Gamble (PG)

Procter & Gamble owns an enormous number of brands that you probably have in your home. Brands under the company’s umbrella include Febreeze, Tide laundry detergent, Pantene haircare, Vicks cough products, Pampers diapers, Downy fabric softener, and Crest toothpaste. It’s an obvious choice for your portfolio.

Merck (MRK)

Merck makes pharmaceuticals and other chemicals that the world depends on to keep people healthy. Its products include drugs that treat asthma, high cholesterol, nerve pain, arthritis, allergies, and cancer.

Merck’s continued research will play an essential role in managing and curing some of humanity’s most significant health problems.

Starbucks (SBUX)

It doesn’t seem like any competitor can slow the success of Starbucks. The company keeps pulling in excellent profits, especially as it grows into Asian countries and converting more people into coffee-lovers.

Starbucks is also doing an excellent job of keeping up with food trends. It’s plant-based offerings make it an attractive option to consumers who avoid dairy products.

Johnson & Johnson (JNJ)

Johnson & Johnson makes pharmaceuticals, medical devices, and consumer products. The company makes a lot of money from drugs that treat autoimmune diseases, severe mental illness, and tumors.

You probably know it best for making oral health care, nutritional supplements, over-the-counter medicines, and baby care products.

Coca-Cola (KO)

Coca-Cola faces a lot of competition, but it rarely seems to lose. In fact, the company keeps expanding its line of products with beverages like vitaminwater, Powerade, Del Valle, and Coca-Cola Zero. It has the world’s largest beverage distribution network, so don’t bet against it.

American Express (AXP)

American Express obviously makes a lot of money from credit card interest and fees. The company also generates revenue from loans, digital payments, and other financial products. American Express has shown consistent growth for years.

No matter how the economy moves, people will need to access credit. That means American Express still has lots of room to grow.

Visa (V)

As more consumers decide that they would rather use credit cards and digital payment solutions instead of cash, Visa has become an increasingly important company.

It makes a lot of money from its credit cards and loans, but it also earns profits from its financial technology (fintech). As e-commerce becomes more important, so will Visa’s digital payment solutions.

VeriSign (VRSN)

You might not know VeriSign, but it’s an important company that plays an essential role in website development. The company handles website registrations with extensions like .com, .net, and .name.

It also makes back-end systems that help developers improve website security. Unless the internet disappears, VeriSign’s stock belongs in your portfolio.

Costco (COST)

Costco has been growing for years. So far, it doesn’t show any signs of stopping. More consumers become Costco members every year. Perhaps even more importantly, Costco raises its membership fee about once every five years.

Also, Costco is committed to paying dividends, so it’s a smart choice for anyone who wants to earn quarterly cash.

Oracle (ORCL)

Everyone in the technology industry knows that Oracle is one of the best companies at making software for customer relationship management, supply chain management, and human capital management.

It doesn’t sell many applications directly to consumers. Instead, it makes enterprise products that generate huge profits.

JP Morgan Chase (JPM)

All beginner investors should know JP Morgan Chase. It’s one of the most important financial institutions in the world. The company has products and services for banking, mortgages, commodities trading, credit cards, and index funds.

Jamie Dimon, the Chairman and CEO, might have more influence over the economy than anyone else.

ExxonMobil Corporation (XOM)

ExxonMobil isn’t just an oil and gas company. It’s an energy company that also developers alternative sources of energy like fuels made from algae and agricultural waste. Oil and gas will provide plentiful income for the foreseeable future. Eventually, though, its alternative energy research will become increasingly important, keeping it relevant for decades to come.

Best Stocks for Beginners: Conclusion

The top stocks for beginners will provide a steady foundation for your portfolio. As you become more experienced, you can branch out into other opportunities. As long as you take a data-driven approach, you should find that your investments generate strong returns.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.