How to Start Investing: I'm Putting My Money in These 2 Stocks Right Now.

Investing is really the end point of a financial process. The first thing an investor has to do is save money, which basically requires spending less than you earn. Only after you have saved some money can you start putting it to work by investing. When you do invest, you should try to avoid the “get rich quick” mentality that pervades Wall Street and focus on buying and holding well-run companies. Here’s what you need to do to get set up, along with two stocks I’m fond of right now.

Investing is the waterfall at the end of the river

Think of money like water from a spring feeding a river. If you use all of the water right away, the riverbed will be dry. If you can live below your means, there will be water available to feed the river. That’s the first step toward investing, since you can’t invest money you’ve already spent on other things.

Before you start investing, however, you should make sure you have some emergency savings. Three to six months’ worth of living expenses is the normal guideline. This way, if something bad should happen, you have the financial leeway to deal with it. (If you have non-working dependents, you should also consider term life insurance.) At this point, your financial life revolves around a bank account and a checking account (and perhaps a life insurance policy).

The next big step, as the water moves through the river, is the waterfall of investing. This usually starts as a trickle, so don’t worry if you only have a small amount of money to invest. You can open a brokerage account with no money and start adding cash as it becomes available. If you keep at it, saving and investing, compounding can help you turn the trickle into a shockingly large waterfall.

Early on, you can buy things like mutual funds and exchange-traded funds (ETFs), which allow you to pool your money with other investors to hire professionals to manage your money. The big benefit here is that you get a diversified portfolio (essentially, a large collection of different stocks) with a single purchase. Eventually, however, you’ll likely want to buy individual stocks, selecting your investments on your own.

Well-run companies that are attractively priced

When you do decide to start buying individual stocks, you should probably consider reading The Intelligent Investor by Benjamin Graham. It is a Wall Street classic that inspired Warren Buffett, one of the world’s most famous investors today. Buffett has summarized his approach as buying well-run companies when they were attractively valued and then holding for the long term. That allowed him to benefit from the business’s growth over time.

That sounds a lot easier than it actually is. However, if you are ready to start investing, I suggest you consider PepsiCo (PEP +0.56%) and McCormick (MKC +0.62%). They are both consumer staples companies, selling relatively inexpensive products that people buy regularly out of necessity. Both operate in the food space. They are both over 100 years old, so they have proven themselves to be long-term survivors. And both have historically high dividend yields, suggesting the stocks are attractively priced right now.

To be fair, PepsiCo and McCormick are dealing with industry headwinds like rising costs and belt-tightening consumers. However, they have both navigated such conditions before over the past century. I own both, having recently doubled my position in McCormick, and am happily allowing my dividends to be reinvested, effectively buying more of each every time they pay a dividend. These are both good starting points for a new investor, at least partly because you can see their products each time you go to the grocery store.

Start slow and build up over time

You want to take your time as an investor, building up your knowledge and experience. I jumped in too quickly and made a lot of mistakes that I could have avoided if I had just started out by reading Graham’s iconic book, The Intelligent Investor. But even after reading that classic, and hopefully others, you still want to start with one stock that you get to know well as a business. Then, as you gain confidence, branch out. If you keep at it long enough, your financial river could eventually turn into a truly magnificent waterfall.