This is most common question we receive.
When it comes to investing everone thinks they will become an overnight millionaire. But the reality is; if you can’t manage $1,000 you can’t manage $1,000,000. Yes it probably is easier to make money faster when you have that $1,000,000 but what knowledge do you have?
- What stocks are you going to buy?
- When are you going to sell?
- How will you hedge your current long term position when the market is red?
- How will you set your stop losses?
- What is your risk/reward ratio?
- What chart time frame are you going to look at? 1m, 15m, 1hr, 4hr, 1day, 30day, 180d?
- How will you diversify into different sectors?
- What season is it?
- Whats hot vs. what is everyone talking about?
- What stock is overvalued or undervalued?
We recommmend that if you are a new investor you start with a smaller account balance and work your way up. Don’t go all in on one trade, but don’t be afraid to invest into something that you are very confident in.
Classification of Stocks
- Blue Chip Stocks
- Blue chip stocks are shares in large, stable companies that are continually profitable. They grow slowly and their earnings are extremely dependable. These stocks are expensive but provide the lowest risk and have an established track record for earnings
- Speculative Stocks
- Startup companies with little financial history typically issue speculative stocks. These companies often develop new, untested products, or they explore untapped markets. High amount of risk becuase these stocks don’t always succeed.
- Growth Stocks
- Growth stocks are issued by companies that are expected to have high earnings. However, the earnings are reinvested back into the business to fund development. These stocks pay low dividends, if any. This doesn’t deter some investors, because as the company grows, its stock value is likely to increase.
- Value Stocks
- Value stocks are viewed as undervalued in the market, but investors see potential. Investors believe the company’s shares are trading at a discount and will become more valuable in the future when the company’s industry improves or the company grows.
- Income Stocks
- Income stocks often are blue chip stocks from well-established companies. The stocks normally pay high dividends; at times this may include the majority of earnings. Companies with this type of stock are usually in stable industries such as energy, finance, utilities and natural resources.
- Penny Stocks
- Penny stocks are low-priced stocks with very high risk. They trade at no more than $5 per share and sometimes as low as 1/10 of a cent per share. This type of stock typically is issued by small startups that need to make money. If the company does well, the stock’s value can increase exponentially. Most stocks in this category fail to thrive so these investments are either day trades or swing trades.
- Cyclical Stocks
- Cyclical stocks are dependent on the health of the economy. During strong economic times, the stocks flourish. During tough economic times, they lose a substantial amount of value. The companies that issue these types of stocks can be found in the airline industry, electronics or car manufacturing.
The Differences Between Small, Mid, and Large Cap Stocks
What is market capitalization?
Share Price multiplied by the number of shares outstanding (purchasable shares).
- Small Cap
- $250 Million-$2 Billion
- Tend to have a greater chance of larger or faster growth
- Mid Cap
- $2-$10 Billion
- Large Cap
- $10-$100 Billion