Five Best Starter Stocks For Beginners

Trading the stock market has never been easier. Online broker platforms have revolutionised the investment industry and now offer safe and cost-effective ways of making your money work harder for you, allowing beginners to get started with relatively small minimum deposits and then trade the way they want to, from desktop or handheld devices. Easy access to the markets may be sorted, but one question remains — which are the best starter stocks to invest in?

Tried and tested ways that experienced traders use to pick the best stocks include both fundamental and technical analysis to identify the target and the best time to buy it. This process considers growth prospects, financial reports, and market sentiment as measured by historical price activity. The below list of the best starter stocks includes names that consider the needs of entry-level investors and provide an ideal way to start trading.

How We Chose These Stocks

The stocks were primarily chosen due to their solid financial health and dominant market positions. Each one has a market cap of well into the hundreds of billions, if not trillions, in Apple and Amazon’s case. The companies are able to generate consistent profits, with some paying out dividends to shareholders and others experiencing robust share price gains over the years, providing investors with a potential return.

Furthermore, each company is a leader in its chosen field (s). For example, iPhone maker Apple is an absolute giant in the tech industry, while Amazon leads the way in e-commerce. Bank of America is one of the biggest banks in the USA, Visa takes up a dominant position in the payments processing industry, while Johnson & Johnson is one of the top pharmaceutical companies globally.

Apple (NASDAQ: AAPL)

Two of the top tips for successful stock investing are to buy what you know and have a clear strategy. US tech giant Apple ticks both of those boxes.

Apple products are so widely held that it’s easy to take a view on whether the new product line is hitting the spot with consumers or not. 

The roll-out of new iPhones and other devices can be easily diarised as it falls in the months before the peak Christmas buying season. If you find that you and your contacts approve of the new range and can’t resist upgrading, then you’ve carried out high-value market research and might feel comfortable staying in your AAPL stock position for another 12 months.

Apple’s market capitalisation makes it one of the largest firms in the world, and with a significant cash pile on its balance sheet, it offers investors some protection from any economic downturn.

Bank of America (NYSE: BAC)

Before the interest rate rise cycle, the banking sector had experienced a challenging few years with rates being so low. The spread between the rates they charge on loans and savings determines their profit levels, and those spreads had been squashed due to base rates being close to zero.

However, with inflation surging over the last year or two and interest rates hitting levels not seen for years, bank revenues have been rising. 

Banking has traditionally been a lower risk-return proposition, but getting into a long position in big firms when they are undervalued can result in considerable gains. Bank of America’s current dividend yield is an additional nice-to-have for beginner investors.

Visa (NYSE: V)

V​​isa has a long history of consistent growth. Despite being around for a considerable amount of time, the company's revenue growth has remained steady, driven by the increasing adoption of new technology, the expansion of the company's network into new markets, and the introduction of new products and services.

The world's largest payment processor, of course, has a dominant market position, with its network used by billions of people around the world, which translates into a strong balance sheet.

Overall, given the company’s dominant market position, rock-solid financial position, diversified revenue stream, and dividend payments, Visa is a good stock to consider for beginner investors.

Amazon (NASDAQ: AMZN)

Another tech giant that makes it to the list is Amazon.com Inc. The company’s online shopping platform has an almost unassailable position and continues to generate billions of dollars of revenue each year. 

In addition, the AWS (Amazon Web Services) division is booming, with the segment also having higher profit margins than the online shopping division. 

Amazon doesn’t pay dividends to investors, instead, the management team is confident that their reinvestment of profits in new profits will result in future share price gains. So far, for every idea, such as the Fire phone, which didn’t take off, there is a winner, such as AWS, which more than makes up for it. That means Amazon is classed as a growth stock, and whilst might have higher price volatility than other stocks on this list, the firm’s critical mass points to medium to long-term share price momentum continuing upwards. Its significant position in the e-commerce market and on-demand cloud computing segment makes it one to consider for new investors.

Johnson & Johnson (NYSE: JNJ)

One of the best starter stocks is hand cream to Covid-vaccine producer Johnson & Johnson. The large multinational has a proven track record of getting the most out of its product range, with the share price making solid gains over the last few years, despite the constant macroeconomic uncertainty.

That performance is impressive for a stock that is seen to be in a more defensive sector and healthcare and pharma stocks often hold their value quite well during market sell-offs. The products they sell benefit from ‘sticky’ levels of demand.

JNJ’s market cap and impressive current dividend yield mark it out as a stock that can be expected to generate some kind of a return and, at the same time, offer new investors stability in a portfolio that may also include some higher risk positions.

Why Invest in These Stocks?

For any new investor, the market and choosing the right investments can be a daunting place. Many experienced investors will recommend investing in an index fund. However, some new investors would rather choose individual stocks that they believe can generate more significant returns. Each of the stocks listed has a track record of growth and stability, which should hopefully reduce the potential risks that new investors can fall into.

 While all investments are inherently risky, taking positions in companies that are better able to navigate economic headwinds can scale back those potential risks. The stocks highlighted are all giants in their fields and have the critical mass to see them through economic downturns and consistent revenue streams.

What to Know Before Investing

Understand your risk tolerance: All investments carry some degree of risk, so it's essential to understand how much risk you're comfortable with before you start investing. In addition, investing involves the potential for loss of principal, so it's essential to invest money you can afford to lose. Each person’s risk tolerance varies, so make sure to assess your own level of comfort with risk before making any investment decisions. Once you understand your risk tolerance, you can choose investments that align with your level of risk comfort.

Set long-term goals: If you are investing, be aware that it is a long-term game and should be entered into with the idea that your strategy for building wealth and achieving financial goals will take place over years.

Have specific, measurable, achievable, relevant, and time-bound goals before you start investing, as having clear goals will help you stay focused and make investment decisions that are aligned with your long-term objectives.

Do your research: Before you invest in any asset, it's vital to conduct thorough research and understand the risks involved. When it comes to investing in stocks, it will include reading the company's financial statements, researching the industry, and understanding the company's competitive landscape. Furthermore, you should assess the fees associated with different investments. By carrying out a significant amount of research, you can make better-informed decisions that are aligned with your risk tolerance and financial goals.