The biggest challenge for many new investors is simply knowing where to start.
There's no clear consensus on how to invest. Value investors will say the best stocks to buy are cheap ones and rattle off plenty of statistics to defend their stance. Growth and momentum investors will counter that investing in dominant growth stocks is the way to go. After all, you're not too likely to find an all-star like Amazon.com (AMZN) sitting in the bargain bin.
What about dividends? Or share repurchases? Various studies have shown that focusing on these factors can generate solid returns.
Despite all the attempts to quantify investing, it is often more art than science. No single strategy is right for all investors. Some excel at charting and other forms of technical analysis, while some fundamentalists find bargains by digging into the minutiae of the financial statements. And there's everything in between.
The best way for beginning investors to learn is to try a little of everything. You don't have to get it right the first time, and you don't have to put your capital at serious risk. So today, we're going to look at five of the best stocks to buy if you're new at investing. These may or may not beat the market over the next year. It would be fantastic if they did, but that's not our point here. We're simply looking to learn the ropes.
General Motors
Market value: $47.3 billion
Goal: Value/income
Sector: Consumer discretionary
Value investing has trounced all other disciplines of investing over the years, at least according to several academic studies such as Fama and French's landmark 1992 paper "Common Risk Factors in the Returns on Stocks and Bonds."
But there is no such thing as a free lunch. While value stocks may outperform over time, they can be painful to hold. Sometimes cheap stocks keep getting cheaper.
Consider automaker
However,
Value investing can be frustrating, but
Amazon.com
Market value: $979.1 billion
Goal: Growth
Sector: Consumer discretionary
Amazon.com (AMZN, $2,004.36) requires the largest chunk of change for any stock on this list, at roughly $2,000 per share. But anyone starting out with a decent-sized nest egg should consider buying arguably the single greatest growth stock of our lifetimes.
Amazon also is arguably the single most disruptive company in more than 100 years. Amazon revolutionizes every industry it touches, turning them upside down. First, it was the sleepy world of book retailing, where Amazon upended Borders and Barnes & Noble (BKS). Then it was electronics and general retail, which hit Best Buy (BBY), Walmart (WMT) and every other major retailer hard. More recently, it was the launch of cloud services via
"We've owned Amazon.com in many of our growth portfolios for a long time," says
Amazon's stock price has more than doubled over the past year and even briefly eclipsed $1 trillion in market value. It remains to be seen whether a company this large can continue to grow at this blistering a pace. But that's not the point. For a new investor, few companies are as exciting to watch as Amazon.
Realty Income
Market value: $16.4 billion
Goal: Dividend income
Sector: Real estate
Amazon.com is a growth miracle, but it's also a wildly volatile stock. That kind of investing isn't for everyone. A far more conservative option is
It's also a good option for any investor looking to explore dividend-focused investing.
This is the kind of stock that allows you to conservatively grow your wealth over time through steady performance and dividend compounding.
Berkshire Hathaway
Market value: $532.6 billion
Goal: Broad
Sector: Financials
If you don't quite feel ready to pick individual stocks, why not have the greatest investor of all time do it for you?
It's no secret why they call
Buffett doesn't beat the market every year, of course, and over the past five years he's actually trailed the market slightly. But in buying
Buffett traditionally avoided technology companies as he preferred to stay away from things he didn't understand. Yet today,
When you buy
Toyota
Market value: $183.7 billion
Goal: International exposure
Sector: Consumer discretionary
American stock prices are driven by numerous factors too complex to list. Frankly, the list would never end, as the potential risks facing every stock is theoretically limitless.
But no matter how complex American stocks might seem, international stocks are even more so. In addition to all the risks you'd find with an American stock, you also have currency fluctuations, tariff concerns and political developments a world away to contend with.
All the same,
If you want to get your feet wet globally, consider shares of
And at current prices, they're priced rather attractively at just 8.3 times earnings and 0.7 times sales.
Charles Lewis Sizemore, CFA, is a Contributing Writer for Kiplinger.