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But figuring out what to invest in when youre first getting started can be overwhelming.
We asked a financial advisor about what to avoid when youre investing your first $5,000.
He gave us five types of stocksto avoid when you first start investing.
One smart way to do this is by checking the price-to-sales ratio.
High P/S ratios often reflect overvaluation, making these stocks riskier.
For beginners, its better to avoid these stocks and focus on companies with more reasonable valuations.
Fraudulent companies manipulate financial statements to mislead investors, Jacobs said.
Such stocks might show promising figures, but the underlying business could be weak or non-existent.
Investing in these companies can lead to significant losses once the fraud is exposed.
Beginners should focus on companies withtransparent and trustworthy managementto avoid the pitfalls of fraud.
Speculative stocks promise high returns based onpotential future growthrather than current performance, Jacobs said.
The Most Popular Stocks
When stocks start hitting the financial news, they may already be a bit overvalued.
These stocks can be volatile and may not provide the steady growth a beginner investor needs.
Instead of chasing the trend, beginners should look for undervalued stocks or those with consistent performance over time.
Butnot all value stocksare actually all that valuable they might be a trap.
Investing in value traps can tie up your capital with little to no returns.
Its crucial to research thoroughly and avoid companies with unresolved fundamental problems.
Thats where index funds come in.
Index funds are aperfect starting pointfor beginner investors, Jacobs said.
They reduce the risk of picking individual stocks and help build a solid foundation for your investment portfolio.
Berkshire Hathaway
Did you know that it’s possible for you to invest like Warren Buffett?
Berkshire Hathaway holds a diversified portfolio of high-quality businesses, managed by experienced allocators.
For beginners, this stock offers exposure to a range of industries and the chance to understandsound investment principles.
Its a practical way to benefit from professional management while minimizing risk.
High-yield accounts are paying over 4.00% currently, which is a great guaranteed rate of return.
Plus funds are FDIC-insured up to $250,000, so you dont have to worry about your money.
Overall, parking some cash in a high-yield savings account is a great starting point for many investors.
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