I'm a beginner investor with $1,000. What should I buy?

by Joseph B. Lora, CFA

If you are a beginning investor and you have $1,000, $5000 or even $10,000 to invest, then the question you have to ask is: “what should I buy?”

This is an exciting moment for you:  it’s your very first investment! It’s probably not as exciting as, say, buying your first car but still, it’s an important decision.  Why?  Because this decision will set you on the path to building wealth through planning & investing.  It will help you buy a home, put the kids through college and, one day, retire comfortably.  So we would hope that your first investment is an unforgettably pleasant experience such as, say, your first taste of ice cream or your first kiss.

So, the question remains:   if you are a beginner investor:  what should you buy?

The answer comes from perhaps the greatest of all investors:  Warren Buffett (of course) who said, “buy what you understand.” I’ve shared this advice with hundreds of friends over the years and it’s never let me down.

In other words, buy shares of a company with which you are familiar:  their products, their popularity, their technology, perhaps even their financial statements – if you’re willing to do the research. So whether you love a certain pair of popular shoes or always buy the latest and greatest version of a smartphone, whether you and all your friends drink the same summer beverage or use the same e-commerce company, you’ve already accomplished some of the work of buying your first investment.

This is why I don’t recommend paying a financial advisor if you have under, say, $50,000.   Why?  Because the lessons you will learn from doing your own research to invest in a company – or a group of companies/ETF's – could last a lifetime.

(To be sure, as your wealth grows and your financial situation becomes more complex, that’s when I recommend hiring a financial advisor, but that’s in another article.)

So back to our main topic:   buy what you understand.  And let me add something here:  You can also buy what you’re passionate about.

Perhaps you’re passionate about saving the Planet – in this case, you may want to buy environmentally-friendly companies investing in innovative technologies.  Perhaps you’re passionate about Female Representation in Corporate Leadership: there are many great companies (with really great investment returns) to invest in.  Maybe you’re a person of faith with a set of core values. Me personally: I’m a Christian and I’ve never liked buying companies selling tobacco, weapons or guns and these days, I don’t like buying companies selling processed foods. 

So perhaps the best way to summarize my points here is as such:  buy what you understand in accordance with your values.

Finally, if you’re looking to do a little analysis into companies, I recommend to investigate at least these three metrics:

1. Check their debt levels: if a company has much more debt than their competitors, that may be a bad sign.
2. Check to see if the company pays a dividend:  it always nice to get paid to wait, especially if you are investing within an IRA.
3. And check their valuation, especially their PE (or price to earnings) ratio.  In a nutshell, the PE ratio can tell you if a company is expensive or well-priced relative to their competitors.

So there you have it, my succinct recommendation for how you should proceed with your first investment.

This is an exciting decision; I hope you enjoy it as much as I did many years ago when I first bought shares in Amazon in 1999 - but sold them way too soon.  Ahh, live and learn! 

Thank you for reading and have a happy, healthy investing experience!

(P.S. But what about 'meme' stocks and what about cryptocurrencies?  Yes, we'll get to those topics in other articles.  After all, investing is about patience. :-)