Pandora Media Inc (P), Diamond Foods, Inc. (DMND): Who To Pick For The Beginner

But that’s not the only way banks can make money. There are derivatives, credit default swaps, and collateralized debt obligations, to name a few. If you’d like to spend a few years really grasping these instruments, go for it. But even some of the former CEOs of these banks admit they don’t know how it all works.

Investing for beginners can be made much more simple by focusing on companies that make money in ways that even a kindergartner could understand. Big banks simply don’t fall under that category.

What it all means for beginning investors
There are literally thousands of companies that you can invest in. One way of narrowing down that list is by noting which companies you are already familiar with. This should give you a much more manageable universe of stocks to pick from.

From there, you’ve got to put in a little legwork yourself, to ensure you understand what you are investing in. Remember, at the beginning, the simpler the investment, the better. Don’t get in over your head — learning about investing can be a lifelong pursuit.

The article Investing for Beginners: When “Buy What You Know” Is a Bad Idea originally appeared on Fool.com and is written by Brian Stoffel.

Fool contributor Brian Stoffel has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Co (NYSE:WFC).

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