How to Invest $1000 Dollars in Stocks
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Three strategies to invest 1000 dollars in the stock market
Whether you’re cashing in your bonus or just want to invest better, putting that first $1000 to work can be intimidating. In this video, I’ll share a complete plan for how to invest a thousand dollars in stocks.
I’ll show you three strategies and the themes every investor needs to know. I’ll highlight a few stock picks in each strategy and then reveal exactly how I would invest one thousand dollars.
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How to Invest Your First $1000 Stock Portfolio
Nation, you can start investing with any amount. Most sites will let you open an account with no minimum and you’ll get a free bonus stock on sites like Webull when you start with as little as $100 in your account.
But we did our 2020 investing plan in January, showing you how to grow a $1000 portfolio and the response was overwhelming! I got emails and comments asking how to invest that thousand dollars, the strategies and stocks I’d pick, so that’s what we’re going to do in this video.
I’ll start by showing you how to pick an investing strategy and some themes I’m following that could mean double-digit returns for decades. I’ll share some stock ideas and then reveal how I’d invest $1000 in my own portfolio.
I’ll be using the Webull app to show you how to invest. This is a new app I’ve been using since last year and love the features here. You can see all the upcoming IPOs to get in on those new stocks being issued. The earnings center here shows you when those quarterly numbers are expected from each company as well as what the Street expects the company to say.
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Having a Solid Stock Investing Strategy is an Advantage
Investing in stocks is a risky venture. It is important that the investor has a solid strategy to minimize risk and maximize returns on investment. In this article, we will look at some of the strategies that investors can use when they are investing in stocks.
One of the most important parts of stock investing is having a solid strategy. A good strategy can help investors make better informed decisions and take less risk.
A good stock investing strategy should be based on your personal goals, your level of risk tolerance, how much time you have to invest, and the type of investor that you are.
Some people like to take more risks in hopes that they will get higher returns. Others prefer to play it safe and stick with investments they know will be profitable.
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Having a solid strategy will help you stay disciplined and resist the temptation to buy stocks on a whim just because they seem like a good deal.
A stock investing strategy is one of the most important things for any investor because it helps them stay disciplined and resist temptation when buying stocks on impulse (just because they seem like a good deal). Strategies vary from person to person but there are some that are very popular with many people: slow and steady wins the race, eat healthy, don't put all your eggs in one basket.
An investor must have a clear understanding of what they want from their stock investment and what kind of return on investment they are expecting before they invest in a new company.
If you want to invest for short term gains, then it would be better to use a more volatile stock which includes high growth companies or micro-caps stocks. But if you are looking for long term growth, then it would be better to use stable companies or blue chips.
Three Strategies for Stock Investing
Before you can invest though, you need to know what kind of stocks you want to buy. There are lots of strategies out there but three every investor needs to know are growth, value and dividends.
I’ll detail each of these including what to look for and a stock example but they’re all pretty basic. Growth investing is looking for the companies that are growing their sales and earnings faster than peers. So think stocks like Tesla and Netflix. Value investing is a focus on paying less for shares, usually on a price-to-earnings basis. Here think shares of maybe General Dynamics and GM.
Dividend investing is then going to be a focus on that cash flow but can also look for strong growth and value.
I’ll show you how to find stocks in each of these strategies in a bit, some of the criteria I use and a stock example in each. First though, I want to talk about investing themes you can follow along with these strategies.
So a theme is going to follow an external factor like the growth of 5G or the revolution in artificial intelligence. These are universal forces that will develop over a decade or more and really drive growth for specific stock sectors.
Besides just looking for those growth stocks or value stocks like I’ll show you next, you also want to be thinking about which sectors will most benefit from these themes. For example, how 5G will benefit gaming or how AI will benefit the transportation industry. Because if you can find these, these unstoppable forces and ride that wave, then pick the best stock within a sector or two that will benefit, that’s where you’ve got the potential to find the next Amazon or Tesla.
Now on to each of those three strategies, some of the criteria I use and how to find stocks in each.
Growth stocks are companies with faster sales and earnings growth, often the stock price is rising much faster than the market and the shares are relatively more expensive.
That’s a problem for a lot of investors, those higher price-to-earnings ratios. The example I like to use for value vs growth is Netflix which trades for a price of over 100-times the earnings it makes versus Disney which trades for just 25-times its profits.
But a look at the stock chart for Netflix and Disney and it becomes painfully clear to the value investor that growth stocks need to be a part of your portfolio. Even though Netflix constantly trades at that ridiculous PE ratio, it’s managed to keep up that faster growth and the shares have surged almost six-fold over the last five years.
Finding growth stocks, you want to look at more than just the stock price or sales growth. Of course, sales and earnings growth are the really the definition here so I’ll look for companies growing sales at one-and-a-half or two-times their sector average. But you also want to make sure they aren’t growing at the expense of profitability.
You see, a lot of growth companies will just add scale wildly. They’ll add staff and spend marketing dollars without really paying attention to return on investment. Sure, they get the growth but it doesn’t help investors as much because profitability isn’t there and earnings don’t budge.
So I’ll look at the operating margin to see that it’s above peers or at least improving over the last couple of years. This is the operating income, so that amount of sales left over after paying operating expenses, then divided by sales and is the best measure of management effectiveness.
Finally for growth stocks, I also want to pay attention to the debt-to-equity ratio. Just like that profitability, a lot of growth companies will borrow billions to buy growth through acquisitions. Problem is that when the growth doesn’t pan out and that debt comes due, the shares crater, so I want to make sure a company isn’t taking on too much leverage.
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For our growth pick, and everyone in the Nation will recognize this one, I want to highlight Luckin Coffee. This is a retail store based in China, really the Starbucks of China, and I think you’re going to be hearing a lot about this one in the coming decade. It’s up over 30% in the last few months and that’s even against the Coronavirus outbreak in China.
The retailer increased its store footprint 24% in the most recent quarter alone and has increased sales nearly 600% over the last year. On top of this growth though, it’s also managed to improve store-level profitability by 12.5% so huge growth and getting more profitable.
LK is moving into a tea brand and vending machines and will be larger than Starbucks in China this year. Now I am more negative on the Coronavirus than most and think it could hit China harder than we’ve already seen but I’m taking advantage of any selloffs to add more to my position in Luckin Coffee.
Kind of the opposite of growth investing is finding value stocks which are companies with shares trading inexpensively on that PE ratio or below their fair value.
Investing in value stocks just makes intuitive sense and I’d say I’ve spent more time here than with growth stocks. We all love a good deal and it’s great when you can pick up some of these stocks and watch them rebound higher.
This is how we were able to beat the market with our 2019 challenge portfolio, investing in value names like HanesBrands for a triple-digit return and General Mills for almost an 80% return.
Finding good value stocks, we’re going to look for stocks that meet three criteria; first is for a valuation metric like the price-to-earnings or price-to-sales that’s lower than competitors. We also want to find stocks with sales that are increasing over the last couple of years and a lower debt-to-equity ratio than peers.
With these criteria, you’re not only finding stocks that trade more cheaply than others but that have a solid business trajectory. A lot of value stocks are cheap for a reason like sales or earnings are on a downward slide. By screening for companies with improving sales and a lower debt-to-equity ratio, which means they’ll have more financial flexibility than peers, then you’re going to find those value stocks with rebound potential!
My value stock is a controversial one and probably the riskiest we’ll talk about today; $33 billion Kraft Heinz trading at just 9.9-times earnings on a PE ratio.
KHC has been hurting ever since going public again in 2015 and just saw its shares rocked by fourth quarter earnings. The company was able to beat expectations for earnings but missed on sales because of lower volume.
Pricing was up 3% in the quarter though and the fact they were able to beat on profitability tells me management is doing something right. Warren Buffett’s Berkshire still owns a huge chunk of the company and you better believe he’s pushing for a turnaround.
Now a lot of you are going to look at that almost 6% dividend yield on Kraft and get excited but I do want to warn you. There’s a very good chance it gets cut this year to preserve cash flow and pay down the debt. If that happens, it could be a short-term drop in the shares but I think means an earlier rebound for the stock price.
Our last strategy before we get to how I’d invest that thousand dollars in stocks is my favorite, dividend investing. Now you can actually combine dividends and value stocks, so looking for good value plays that pay a dividend. Growth stocks don’t generally provide that cash payout because the company is growing so fast that it’s reinvesting all its earnings instead.
For dividend investing, it’s important to look for more than just a high yield or payment. With a lot of these super-high dividend stocks, you might see the stock price plunge or there could be a danger that they cut the dividend.
So for dividend stocks, we’re looking for a payout ratio that’s below peers in the same sector or industry. Now payout ratio is just the annual dividend amount divided by the earnings per share. This shows how much of profits the company is payout out as a dividend and how much is kept back for business growth.
So a company with a good dividend but a lower payout ratio than competitors is a great sign. It means that company has room to increase its dividend and that it has the potential to outgrow its peers which means greater market share and a rising dividend!
Besides the payout ratio, I’m also looking for stocks that pay at least a 3% yield. Any lower than that and it’s not much of a dividend stock. I’m also looking for stocks that have increased their dividend payment for consecutive years.
This is an important one and some great research out of the Ned Davis firm has shown companies that consistently increase their dividend payments have beaten the market for decades. Now I might only screen for companies that have been able to increase their payments for three or five years to catch those rebound potentials but there are groups of stocks that have increased dividends every year for 20 years and more.
My dividend pick is another controversial one, $260 billion Exxon Mobil, ticker XOM.
Energy stocks didn’t have a great year in 2019 and has gotten absolutely crushed this year on lower demand because of that Coronavirus. But oil demand will rebound within a couple of quarters and I think this is a great opportunity to pick up shares here for that 5.8% dividend yield.
What I really like about Exxon here, besides the dividend yield, is that rather than pull back on investment spending like most other companies in the sector, Exxon is taking advantage of lower prices to invest in more projects. I think it’s getting a great deal and it’s going to show through in cash flow over the next several years.
While these strategies might differ, so obviously growth investing and value are looking at completely different factors, this doesn’t mean you have to stick with just one strategy. It’s good to have a little of all three in your portfolio, so picking a few stocks from each group to get that cash flow, growth and value potential.
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How to Invest $1000 Dollars in Stocks
Now I want to put all this together to show you an example portfolio how you might invest $1000 in stocks. And everyone here in the Nation knows I’m all about the dividends so that’s were I’m going to focus but we’ll look at a few of those themes like 5G and AI for some growth.
First, I would start with a core of three funds and this is something I do with every portfolio. We invest between 60% to 70% in a few broad exchange traded funds, or ETFs. These are going to give us instant diversification across asset classes like stocks, bonds and real estate. What this means is through just a few funds, we’ll have hundreds of stocks and bonds, so our risk is really spread out and we’re going to get market returns on the group.
So if we’re investing 65% then that’s $650 of our one-thousand and I’m going to go with three funds. First is the Vanguard High Dividend Yield ETF, ticker VYM, for a 3.1% dividend and some solid price appreciation.
The VYM holds shares of 400 stocks and is really well diversified across sectors, even the tech sector which isn’t usually well represented in a dividend fund. The fund holds some of the largest dividend companies and has produced a 13% annual return over the last decade.
Now the VYM doesn’t hold any real estate stocks and I want exposure to that asset class so I’m also going to buy the Vanguard Real Estate ETF, ticker VNQ.
The VNQ holds shares of 185 companies that invest in real estate property and the fund itself is diversified across every property type. It pays a 3.3% dividend yield and has produced a 12% annual return over the last ten years.
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Finally here to round out our three funds, I’ll add the Vanguard Long-Term Bond fund, ticker BLV for exposure to that fixed income class.
The fund holds over 2,300 bonds and their all in the US Treasury or investment-grade bonds so this is a super-safe fund that pays a 3.2% dividend and has produced a 7.5% annual return over the decade.
Beyond that $650 in our three ETFs, and I would probably break that up into $300 in the stock fund, $150 in the bond fund and $200 in the real estate fund. Beyond this, I would put the remaining $350 of our thousand to invest in no more than 10 or 15 individual stocks.
So if you put these together; I’ve got the $300 in the stock fund and $360 in individual stocks for a total of $650 or 65% of our thousand-dollar portfolio. I’ve got $150 or 15% in bonds and $200 or 20% in real estate.
For the individual stocks, I would go with ten stocks, the three above in our growth, value and dividend examples. Then I’d pick the rest from our sector series of videos. In that series, we covered each of the 11 sectors of the economy and picked my top five stocks from each. Even against the Coronavirus and plunging oil prices, we’ve got some huge returns in this portfolio with four stocks over 20% higher in three months.
With $350 spread across ten stocks, that’s 3.5% in each so this gives me room to add to each position if I want and not have to worry about bumping into my 5% limit for any single company.
Read the Entire Investing Series
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