In theory, investing isn’t very complicated.
When you buy stock you are buying shares of a company and become part owner. It makes sense, then, to buy shares of healthy businesses that aren’t going anywhere anytime soon and to buy these shares at a reasonable price.
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Still, many new investors get caught up in the noise produced by financial media outlets or only want to focus on hot stocks like Tesla (NASDAQ: TSLA), Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG).
Instead, new investors should turn their attention to stocks that can serve as the foundation of their portfolio, stocks with a proven track record for quietly beating the market averages year after year.
Two Good Stocks to Invest in for Beginners
Here are the top two stocks for new investors.
Exxon Mobil (NYSE: XOM)
Exxon Mobil is the type of stock that you can buy now and hold forever.
It has paid regular dividends since 1911 and is known for raising its dividend every year. In fact over the past 31 years Exxon Mobil has raised its dividend each year by an average of 6.3%. That doesn’t even include share price increases.
The key with stocks like Exxon Mobil’s is to reinvest the dividends. When you reinvest dividends by using them to purchase additional shares, your next dividend check will include dividends on the new shares you purchased. This might be small at first but soon the powers of compound growth take over and your investment can become tremendously valuable.
Let’s say you bought a single share of Exxon Mobil 10 years ago for $43.27.
Today that share is worth $100.65, a gain of 132%. The S&P 500 has only risen slightly more than 70% during that same period.
Source: Google Finance
But the rising share price only tells one side of the story. If you had reinvested your quarterly dividends, you would now own 1.25 shares of Exxon Mobil, worth $125.81. That makes your total return over the past ten years 190%.
Compound growth a la reinvested dividends is how you can reliably turn a small fortune into a big fortune in the stock market. All you need is time.
3M Corporation (NYSE: MMM)
3M is a top stock for new investors for many of the same reasons as Exxon Mobil with the added benefit of strong research and development and diversification across industries.
The company is best known for products like Post-it and Scotch tape. However 3M is one of the world’s top innovators for products used for safety, electronics, graphics, energy, healthcare and industry.
The company recently increased its dividend by 35%. And with this big dividend boost the company is still only paying out 45% of its earnings to shareholders. There is plenty of room for further dividend increases.
3M is also diversified, with products in many industries and revenue sources spread throughout the world. 3M only generates 36% of its revenue in the United States and is well positioned to continue growing with developing and emerging markets.
3M has actually underperformed the market over the past ten years (not including dividend performance), as shown in the chart below.
But this is quickly changing. Over the past two years 3M has almost doubled the market’s performance.
This is exactly the kind of stock that new investors can look to for stability, dividend growth, diversification and international exposure.
The Bottom Line on Finding Good Stocks to Invest In
New investors should start by building a foundation for their portfolio. There may come a time for speculation in companies developing hot technologies that are spreading like wildfire. But that time is not when an investor is just starting out.
Start with a solid base of dividend stocks that are stable, known for growing their dividends, are diversified across industries and offer international exposure.
Exxon Mobil and 3M fit these criteria. But they aren’t the only ones. Many of the dividend aristocrats would also make great stocks for new investors. The key is to start investing now, make low-risk investment choices and let time take over.
The One Company You’ve Never Heard of – But Smartphones Couldn’t Exist Without
Four months from now Apple will be releasing the most technologically advanced phone on the planet. And cautious estimates have them selling 200 million of them. While we love Apple (it’s in our 100k portfolio) we’re recommending a much less known company today… a company no one is talking about. A company that provides the technology, without which, smartphones couldn’t exist. It’s the company reaping massive profits each time a new Apple (or Samsung) smartphone is activated. In fact, as mobile data usage explodes in the year ahead, its stock is set to soar! Shares are already on the move. So, before this stock moves any higher, read our latest report for all the details: Click here for the full story.