Family and friends who are currently investing in the stock market can unknowingly cause you to lose money. 

Here’s why...

In an effort to shortcut the learning process many people reach out to their friends and family because they are trustworthy and accessible people. The problem is, most of them are busy just like you and as a result of this, they give you quick, offhand responses that don't take into account your current situation or future investing outlook. 

They mean well...

However, meaning well and performing well are NOT the same. You need advice that will perform well for you, not advice that was simply "meant" to help you.

Investing in stocks can be quite intimidating when you're first starting out. Especially when you already have a busy lifestyle which limits the amount of time you have to research and learn about the stock market and how it works. 

Bad Tip #1 

Invest in companies whose products you already use.

At first glance this sounds like a great idea. It makes sense to invest money where you're already spending money. But this "sensible" advice can be costly to your pocket when poorly researched and executed. 

Consistently spending money with a company doesn't mean that the stock will pay you some or ANY of your money back. 

Here's why: 

A company's stock performance is not always reflective of its business performance. This works in both positive and negative ways. A company might be doing well financially but the stock is performing poorly. 

Conversely, a company might be struggling financially and the stock is currently going through the roof! AMC and GameStop were examples of companies with poor financial situations and skyrocketing stocks. (These stocks eventually came crashing back down, I might add).

You want to invest in companies that have great financials AND great stock performance.

Bad Tip #2 

Invest in stocks that you can afford.

This advice comes from people who are still investing like they did in the 90s and don't understand the different ways you can buy stocks in the 21st century. 

You can purchase what are called "Fractional shares" which allows you to buy a fraction of a stock but still get the same performance as if you owned an entire share.

Let's say a stock that you're considering adding to your portfolio is selling for $1000 a share but you only have $100 to invest right now. You can purchase $100 worth of that stock or 10% of a share and still get the same increase or decrease in that stock's performance as if you'd purchased an entire share.

Meaning, if the stock goes up 10%, your money goes up 10% as well. 

The cool part is, you can continue to purchase fractions of a share until you own a whole share or several shares. The more money you have invested, the greater your opportunity for growth.

You want to invest in stocks that have a proven track record and future growth potential. Fractional shares allows you to do this within your budget and align it with your current financial situation. 

Never let the price of a stock be a determining factor as to whether or not you should invest in it. It’s better to have a piece of a winning stock than own ALL of a losing stock!

Bad Tip #3

Invest in companies that pay dividends 

Dividends are basically profit sharing for current stock holders. A company pays its shareholders (stock owners) a portion of their earnings to entice investors to continue investing more money in them. 

Companies with good financial track records typically are the ones paying dividends.

These companies are often considered less "exciting" than a new startup company that has potential to be the next big thing. Coca Cola and Church & Dwight are companies that have good track records and are paying dividends.

However, it’s not uncommon for a company whose stock has not been performing well to offer high dividends to entice investors to invest in them.

For example, AT&T stock has been on a downward trend for over 5 years but they pay 7.54% dividend yield. That dividend payout is about $0.27 per share!!! But the stock is down 39.56% over the past 5 years at the time of this writing. 

It doesn’t make sense to get paid $0.27 per share when you’re losing several dollars per share in actual stock value.

The math just ain’t math-ing!

Avoid investing in a company simply because they pay dividends. You should only invest in winning stocks.

In Summary:

Be cautious when seeking investing advice from family and friends.  Do your own research, consider fractional shares, and prioritize a stock's performance history and future growth potential over its price or dividend payouts.

action steps:

If you’re the DIY type, and you’re serious about investing in the stock market, check out our easy to follow video training Stocks Simplified.

This course was designed for people like you that want to take control of your investing and not rely on anyone else to “manage” your financial future.

Stocks Simplified walks you through the process of picking winning stocks and shows you how to confidently build your portfolio for retirement or to pass on to your kids. It’s a lot easier than you think!

So, go ahead and take your first step towards stock investing! It may seem scary at first, but with a sound strategy and your willingness to learn, you can build a portfolio that brings you financial success and freedom. 

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