I am interested in investing but have no idea where to begin. What are some tips for people just starting out from those more experienced?

If you are interested in investing you should check the site Quora out. There anybody can ask whatever they want and you get insightful answers from qualified people. It’s a good way of getting more informed.

This is what the person is asking: “I’m interested in investing. I’m young, no debts, budget ~5k. I wanted to know whether I should opt for more low-risk options or go for day trading. Not really trying to get rich quick. I won’t need to spend any money for at least a few years, and I’m thinking more in terms of long-term, for retirement or house funds.”

First of all, forget about day trading. In order to a day trading operation successfully you need much bigger funds than those you have at your disposal. In a decent day traders world your whole budget is looked upon as small change and not anywhere near what you would need to be successful.

What I suggest that you do is to take a “value” approach where you honor the power of compound interest. What this means is that you will reinvest your dividends into the same stock and over time you will increase your wealth significantly. As an example, an interest rate of 10 per cent (which is not unthinkable in the stock market, price appreciation and dividends combined) will double your money in seven years.

What kind of stocks you invest in depends on your temperament. If you are so inclined you can look into small-cap stocks and find really cheap ones based on their recent earnings. Here it gets a little bit tricky because the free financial web pages only give out a momentary price to earnings (P/E) ratio – while what you are really looking for is consistency in earnings and cash flow. The only way to really figure this out is by going to the annual reports and write down the numbers either in a spreadsheet or in an old-fashioned notebook with a pen.

Otherwise I would stick to the bigger companies and make sure that I do not pay too much for what I get. The argument about the P/E ratio above also holds here. In order to make sure that the earnings of the company that you are interested in are consistent, you can go to your local library and pick up a recent edition of Value Line and figure this out.

Welcome to the exciting world of investing!

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