Start the conversation
Investing in stocks is a great way to build wealth for the future. But taking that first step can be daunting. If you've ever felt that way, you're not alone. CNN says 46% of Americans aren't investing right now. And with over 630,000 publicly traded companies worldwide (according to Investopedia) it's no wonder.
That's overwhelming, to say the least. But it doesn't need to be. We'll not only show you the best stocks to buy for beginners, but we'll show you how to start building your own stock portfolio. You see, building a portfolio isn't just about owning the best stocks; it's about strategy.
And the method we'll show you today will help you build a stable, diverse portfolio with life-changing upside.
How to Invest in Stocks the "50-40-10" Way
Investing in stocks isn't just about finding stocks to invest in – it's about finding the right stocks to invest in.
Let's take a look at two similar stocks, for example. On the surface, Rite Aid Corp. (NYSE: RAD) and Walgreens Boots Alliance Inc. (NASDAQ: WBA) look a lot alike. They're both popular drug stores and national brands. You might have even visited both of them recently to fill a prescription or pick up a gallon of milk.
Their stocks, on the other hand, couldn't be more different.
Shares of Walgreen are up 113% over the last three decades, while paying investors a current dividend yield of 3.18%. Shares of Rite Aid are down over 98% in the same amount of time.
In other words, an investment in Walgreens would've more than doubled your money, while the same investment in Rite Aid would've wiped out nearly all of it.
Fortunately, that doesn't have to be you.
Watch Now: Serial entrepreneur Neil Patel reveals how to achieve the American Dream… for as little as $50. Click here…
We're going to show you the best strategy to build your portfolio to protect yourself from losses and maximize upside, and we'll even show you the best stocks to get started with.
Money Morning Chief Investment Strategist Keith Fitz-Gerald calls it his "50-40-10" strategy. It's a simple and effective way to manage risk while still owning some of the hottest investments on the market.
With 50-40-10, you're splitting your investment capital into three tiers based on risk. These tiers include:
- 50%: Base Builders – These are the vegetables your mom told you to eat as a kid. The ones you didn't want to eat but knew you had to. This tier includes stocks that are stable and have a history of consistent income. They're not the exciting stocks you see Wall Street salivating over. But they'll bring you consistent returns and stability, even during bear markets.
- 40%: Growth & Income Holdings – These stocks are like your mom's specialty lasagna. It's the food that tasted great and made you want more. But it also helped you grow. This tier includes big stars like Alphabet Inc. (NASDAQ: GOOGL). These are large-cap, well-known companies with growth potential. There might be a bit more risk here, but the rewards are much higher.
- 10%: Rocket Riders – These stocks are your soda and chips. You can't live off of them, but having them in small quantities is great. These are your high-risk and high-reward plays. They're the types of stocks more advanced traders comfortably dabble in. They consist of IPOs, small caps, startups, biotechs, and even options contracts. The appeal of your rocket riders is that they have the potential to yield the greatest profit. The downside is you could just as easily lose money on them. That's why you limit them to the smallest part of your portfolio.
By following this investment strategy, you maintain a stable and diverse portfolio with the potential to capture breakout gains.
And to help you get started, we're showing you a stock that can fit into each part of your portfolio. You'll want to keep adding more stocks to each tier to maintain diversity, but these stocks are a great building block to start from.
Check out some of the best stocks to buy for beginners below.
Best Stocks to Buy for Beginners: Base Builders
One of our best base builders is Vanguard Wellington Fund Investor Shares (MUTD: VWELX).
This fund has been around for 90 years. It's not only weathered the most recent market downturns, but also the Great Depression. On top of that, it's still going strong.
The fund consists of 66.3% stocks and 32.5% bonds, covering everything from real estate to energy, finance, healthcare, and more.
Plus, on top of its stability, it also offers growth. In fact, in the last two years alone, the fund has seen gains of 22%. That's what makes Vanguard Wellington Fund great to put into the 50% tier.
This base builder currently trades for $41.60 per share.
But Vanguard Wellington is a mutual fund, not a stock, so you'll want to speak to your broker about the best way to get into it. Or you can open an account with Vanguard.
When the market volatility jumps up again, you can have confidence that Vanguard Wellington's conservative balance will keep you stable.
Best Stocks to Buy for Beginners: Growth & Income Holdings
Your first growth and income holding is the superstar tech company Microsoft Corp. (NASDAQ: MSFT). This is a stock that Money Morning Defense and Tech Specialist Michael A. Robinson told our readers they absolutely needed to buy in 2012. And he was right.
Since then, its share value has skyrocketed 420%. That's 420% in just seven years from an already multibillion-dollar company.
But Microsoft has been at the forefront of computer hardware and software ever since it went public 33 years ago in 1986. In fact, it's almost impossible to not have used their products in one way or another in your lifetime. There's the popular Windows operating system and Microsoft Office.
Plus, its gaming console, Xbox, is one of the three core gaming consoles next to PlayStation and Nintendo that reportedly sold over $23 million in 2017. And its cloud-based service, Microsoft Azure, has become a $30 billion success. With these, Microsoft has become synonymous with all things digital.
What makes Microsoft great as a growth and income holding is that it's gained for the last 17 years. Between 2017 and 2018 alone, its revenue grew 14.27% from $96.6 billion to $110.4 billion. Plus, its net income has been rock solid for years. In fact, in 2018, its net income was $16.6 billion.
But it's also expected to continue growing. By 2020, its revenue is forecast to hit $138.73 billion. That's 26% higher than its year-end 2018 revenue.
What's driving this growth is Microsoft's continued innovation. Yes, it has its core products like Microsoft Office that it updates every year. But it also continuously dabbles in new technology like the cloud. In fact, in 2010, Microsoft released its cloud product, Microsoft Azure.
With Azure, Microsoft has its hands in several industries, like healthcare, finance, retail, government agencies, and even gaming. Azure has been a major catalyst driving Microsoft's most recent growth. In fact, Azure contributed $340 billion to Microsoft's revenue last year.
And it's become the second biggest cloud service in the world behind Amazon.com Inc.'s (NASDAQ: AMZN) AWS cloud service. But it's catching up fast. In fact, AWS made $25 billion in revenue in 2018. While Azure made 36% more…
Azure is so powerful, even Microsoft's biggest gaming competitors, Sony Corp. (NYSE: SNE) and Nintendo Ltd. (OTCMKTS: NTDOY), have made a deal to use Azure. Companies like ServiceNow Inc. (NYSE: NOW) have also partnered with Microsoft to use Azure.
Microsoft stock currently trades for $137.51 a share. But it has a target price range of $160 within the year. That's a solid 27% increase in the share price. Plus, it offers a 1.34% dividend yield to its investors.
And with a Money Morning VQScore™ of 3.45, it's undervalued with solid growth potential. If its score goes up to a 4, then it's an even better investment.
But the next tier of your portfolio is the most exciting. This is where you'll swing for the fences with IPOs, options, takeover targets, and more.
And one of the most lucrative rocket riders you can find is startup companies.
Retail investors used to be locked out of investing in these startup companies, but not anymore.
Now you can invest $50, $100, maybe $500 or more in a startup, and it can change your life…
Best Stocks to Buy for Beginners: Rocket Riders
About the Author
Daniel Smoot is a Baltimore-based editor who helps everyday investors with stock recommendations and analysis. He regularly writes about initial public offerings, technology, and more. He earned a Bachelor's degree from Towson University.