Investing in the stock market can often seem like a strange, mysterious process that’s impossible to learn. What are the top stocks to invest in? Are there cheap stocks to buy now that I’m not aware of? What are the best stocks to invest in 2017? How much money does it take to get started? And when can I expect to see a return? Good news! It doesn’t take a genius to learn investment basics and that’s exactly what we’re going to teach you – welcome to investing 101.
Have you ever watched an old movie and seen someone calling their stock broker? While you can still do that, there really isn’t any reason to. With today’s growing popularity of online stock market investing, you get to be your own stock broker. It is surprisingly easy to learn about investing. Now everyone has the ability to start investing in various low-cost investment options like penny stocks and other, online micro investment options. Below, we’re sharing our 5 investing basics – including tips on the best investments for beginners and details on how to start investing with little money.
Table of Contents
How to Learn Investing
An important thing to note is that you aren’t going to learn investing overnight. Learning how to invest in the stock market is a skill you’ll acquire with patience and some guidance. Becoming a successful investor, and learning how to identify investments with high returns, is a process. It will take some time to understand all of the ins and outs of financial investing 101, but by reading this guide, you’ll be on your way.
1. Setting Up Your Account
Open An Online Investing Account
If you’re wondering how to invest in stocks online, we’ve got some good news for you – it’s easier than ever. You can open either an IRA, brokerage account, micro investing service, or other investment account type. You may want to consider the tax implications for the type of investing account you set up. For example, IRA accounts may be best for retirement while a taxable brokerage account is generally more flexible and may provide more investment options. You will also want to look into which investment products (stocks, mutual funds or ETFs) can be purchased with the type of account you open. Plus, as you build your wealth, a taxable brokerage with Ally Invest (formerly Trade King) can be used for investing more than your maximum yearly contribution. Alternatively, Betterment is a great option that can manage it for you. If you’d like to invest online, these stocks 101 tools help you to build knowledge and confidence.
Set Up Auto Deposit
When you open your investment account, consider setting up regular automatic deposits. Many employers offer automatic transfers from your paycheck to your investment account. Check with your employer to see if it is offered at your company. It is certainly worth checking it out. The reason it is effective is that it teaches you to automatically save. You don’t have to even think about it, and you’ll be consistently investing – that’s a stock investing 101 key to success. Alternatively, you can set up automatic withdrawals from your checking account after each paycheck. This performs the same function in case it is not offered by your employer.
Smart Investments for Beginners: Mutual Funds & ETFs
An important tip for investing for beginners with little money is to always keep an eye on costs! There can be costs associated when you buy or sell as well as annual costs from mutual funds or ETFs (Electronic Traded Funds). You will want to look at the expense ratio charged, which are the annual fees funds’ and ETFs charge. The lower the better! Also, only purchase mutual funds that do not have a purchase fee (load fee) when you buy a fund. Lastly, remember that some of the brokerage companies offer their own ETFs at very low or at transaction free costs. Check out Betterment or Future Advisor.
1) Check fees (Buying, Selling, and Annual fees)
2) Confirm the index of the mutual fund / ETF is the right for your investment (Start with simple indexes such as S&P500 or Total Stock Market)
2. Investing 101 Essential Tip: Diversify Your Investments
This next tip is a crucial one if you’re studying how to invest 101. What does it mean to be diversified? It means to not have all your eggs in one basket but also to make sure you are in the right baskets. Sure, you’ll want to pinpoint good stocks to invest in – but don’t focus solely on one industry, or even one person’s advice. The more information you can get from many trusted sources, the better off you’ll be.
You will want to build a solid foundation for your investments. This includes having a large base of stocks. One of the easiest places to start if you only have enough for one investment is to purchase a mutual fund or ETF in the S&P500. This provides access to the largest 500 companies in the United States. Then, you can branch out into other investments such as the Total US Stock Market Index and the Total International Stock Market Index. However, diversification is not only within stocks but also though different asset classes such as Bonds and international stocks/bonds. Always, consult a professional to create an investment portfolio tailored to your needs.
In addition to stock and bonds, you may want to consider alternative types of investments. The power of investing in alternative investments provides additional diversification to your portfolio. Stocks and bonds are becoming more correlated (linked) which increase the volatility of your investments – so relying on just one stock to invest in isn’t a good approach. Alternatives such as real estate investment trusts, currencies and gold and other investments provide.
Now that you have a grip on investment basics and have decided to invest, how do you build the right portfolio? Let’s consider an all equity investment portfolio where you put 100% of your portfolio in stocks. Is this a good idea? Not exactly. Why? Because diversification allows you to avoid large losses and build long-term wealth. Consider starting with a portfolio that is 80% stocks (equities) and 20% bonds. One of the easiest ways to start your portfolio is to buy 80% of your portfolio in the Total Stock Market Index ETF (VTI) and 20% Total Bond Market Index (BND). Both ETFs are from Vanguard and offer low expense fees and ease of purchasing through any brokerage account.
Don’t neglect your allocation within each asset type (i.e., stock, bonds, etc). For example, there are different ways to diversify stocks by asset class (ex. S&P 500) and also by International allocation. A good place to start with international allocation is the Total International Stock ETF (VXUS) by Vanguard.
Setup Automatic Yearly Increases To Your Investing Account
One of the keys to investing money to build wealth is by saving more money to invest. By increasing your amount invested on an automatic and yearly basis you will create discipline and consistency without having to remember on your own. It is a great strategy to use when starting out, when you have limited knowledge about how to add to your investments. In the long term, you will wake up one day and be surprised how much money you have in your account. A fundamental truth of Investing 101 is to start as early as possible and keep increasing how much you invest every year. Then you will be on your way to creating lasting wealth. Start today and open an account!
Monitor your progress using Personal Capital or Mint.
Making Smart Investments
Making investments is one of the smartest things you can do with your money. You can take your savings and invest them in something that will grow in value over time. So, when it’s time to retire, you can sell your investments and have a huge retirement fund available.
Speaking of which, the stock market is well-known for being one of the best places to invest your money. However, many beginners will have absolutely no idea where to start. Therefore, start by typing-in the best internet providers for my address so that you’re set-up to your research with ease; now you’ll have all the essential information at your fingertips. From the outside, the stock market can seem incredibly scary. Most people only come into contact with it through films or when something bad happens in the news. As a result, you can have a very warped view that the stock market is full of price crashes and billionaires throwing around loads of money.
It’s actually nothing like this for a regular person like yourself. You don’t have to spend a lot of money and start buying and selling like crazy. You can invest easily, and see a much better return than you would if you put your money in a little savings account.
If you’re wondering how do you invest in stocks, then you’ve come to the right place. Throughout the course of this guide, you will be shown everything you need to know about investing in stocks for beginners. By the time you’ve finished reading you’ll be able to go out and make your first investment in the stock market.
All the information you could possibly need to know is presented down below:
3. What Is The Stock Market?
Before we dive further into stocks 101, let’s start things off at the beginning and take a look at the stock market itself. What is it?
Simply put, the stock market refers to a stock exchange where stocks are bought and sold constantly. There are different stock exchanges all over the world, the one you invest in will largely depend on where you live, purely because it’s easier to buy and sell on a ‘local’ stock exchange.
What Is A Stock?
Now you know what the stock market is, we need to discuss stocks themselves. What is a stock? And why are they being bought and sold by people all over the globe?
In the simplest of definitions, a stock is simply a piece of a company. If you invest in stock, you have a share of the company you invested in. A lot of the time, people will use the term ‘shares’ when referring to stocks. Either term is fine, they both represent the same thing; a piece of a company.
The stock market exists because companies all over the world are selling shares. They need money, so they sell shares for people to purchase. Sometimes, they sell loads of shares all to one person who becomes a majority shareholder. But, most big corporations will sell shares that anyone can purchase for a price.
Stock prices are determined by how well a business is doing, and they can rise or fall depending on many factors. If a company is turning over huge profits every quarter, their stock will rise.
4. How To Get Into The Stock Market
One of the first things you’ll be thinking is how do you invest in stocks on the stock market? How do you get into the stock market and start spending money?
This is where the fun begins, but you need to think things through carefully before you take the plunge. Firstly, you have to take a look at your personal finances and see if this is the right decision for you. Do you have savings set aside that you want to start earning money from? Are you in a comfortable financial position that doesn’t rely on the success of your stock marketing investments? If you want to invest in stocks purely as a source of primary income, then you’re going about things in the wrong way. This isn’t the article for you, this is about investing in stocks for beginners that are already financially stable and don’t depend on their investments.
When you’ve assessed your situation and concluded that investing in stocks is right for you, it’s time to get into the stock market once and for all.
Strictly speaking, there are two different ways in which you can get into the stock market and start investing. You can either do this directly or indirectly.
Direct Stock Market Investments
Taking a direct approach means that you invest on your own. You use your money, make your own decisions, and everything goes through you. Granted, it’s still recommended that you use a broker service to make your investments. Ally Invest former known as Trade King is great for beginners and has best low cost fees.
What is a broker? A broker is someone that helps you make your stock market investments. You sign up for a service and get to listen to the advice of a seasoned stock market veteran. Brokers spend their life monitoring stocks and figuring out what makes a good investment and what makes a bad one. They can point you in the right direction and also inform you of any investment opportunities. They’re your middleman between you and the stock market, but everything ends with you. They can only invest when you give them the go ahead, so you still remain in control.
You may think that investing through a broker doesn’t seem like a direct approach, but it is. It’s mainly categorized in this way due to the fact that you are your own entity. Sure, you have someone helping you, but the final decisions come down to you.
If you’re wondering how to get into the stock market using direct investments, then you have a couple of options. Naturally, you can find a broker, and they will set everything up and help you get started. It makes sense to look around and try to find the best broker for you and your budget. Look at their track record and try to find previous client reviews. If they’re well-known for guiding clients to profitable investments, then they’re well worth your time.
The second option is literally to go at it alone. The easiest way of doing this is an online trading platform. Here, you can register an account, and start investing in stocks and shares that you can buy or sell as and when you please.
Now, there is a benefit to the second option in that you don’t have to pay a broker. However, this article is all about investing in stocks for beginners. And, as a beginner, it’s unwise to go at it alone right from the start. If you want to approach the stock market directly, it’s best to do so with a broker.
Indirect Stock Market Investments
The second way you can get into the stock market is through indirect investments. This differs from direct investments in that you aren’t acting alone. Instead of directly using your money to invest in stocks that you’ve chosen, you invest in something else, and someone else invests your money in stocks and shares.
That may sound confusing, but hang on. Many people choose to open an investment savings account and gain access to the stock market through there. This is where you open an account, invest your money in the account – as you would any other savings account. The difference is, your money won’t just sit still and gain interest. Instead, someone working for the investment division of the bank will invest your money in different stocks and shares from all over the world. You’ll get a breakdown of what they invest in when you open your account.
Another way you can indirectly invest in stocks is through your employer’s. As part of your employee benefits program, they may give you shares in the company. This way, you’ve got some shares under your belt without having to do anything.
So, to summarize, you can either invest in stocks directly or indirectly. The choice is yours, you get more freedom with the direct approach, but less risk with the indirect one.
5. How Do You Find The Best Stocks To Invest In?
By far and away the biggest question every beginner wants to know the answer to is what stocks are best for investing in? If you’re hoping this is where you find a list of stocks to invest in, then you’re about to be let down! There is no magic list of what stocks to invest in. (And be wary of advice from anyone who says otherwise!) Instead, there are a few things you can look for in stocks and shares that make them worth your money.
Businesses With A Strong Track Record
Investing in stocks for beginners is all about finding stable stocks that have a high chance of gaining value and low chance of dropping. To do this, you should look for businesses with a strong track record. Companies that show their stocks have increased in value over time, and are continuing to do so. This shows you there’s some stability there, and that you won’t be investing in stocks from a business that’s been up and down for years.
Instability leads to loss, while stability leads to future profits, remember that!
Businesses In A Commanding Market Position
Another thing to look for is businesses in a commanding position within their market. What this means is that they’re at the top of their pile, and their rivals can’t find a way to knock them off their perch. A good example of this is Google. They’re easily the number one search engine in the world and have the most-used web browser, advertising platforms, etc. It’s hard for competitors to unseat them at the top, which means their stock will more likely grow than drop.
It’s really quite simple, invest in successful businesses instead of ones that are trying to fight it out with all their rivals. If their position at the top of the market is always changing, then their stocks will fluctuate more, and that’s not what a beginner wants!
How Do You Make Money Investing In Stocks?
Now, we move onto another big question; how do you make money. Well, the idea for beginners is to invest in long-term goals. Invest small amounts of money in stable stocks, and watch your shares grow in value over a long period of time.
This is the safe way to make money, particularly if you’re a beginner wondering how do you invest in stocks. Don’t get caught up in what you’ve seen on TV where people invest lots of money in volatile stocks that increase quickly so they can sell them for a profit before they drop back down. Only the best stock market brokers in the business have success doing this. Stick to the long-term plan, it’s a much safer option.
Also, if you want to make money, you should try and diversify your stock market investments. If you’ve got a certain amount you want to invest, don’t put all your eggs in one basket. Spread it out and invest in multiple stocks instead of just one.
Finally, you need to pay attention to your stocks. You should always stay updated with the stock market and see how things are going. This is why you need a broker if you’re directly investing, as they can do all of this for you. The main reason you need to stay updated is because things could happen that cause your shares to drop and you need to be on the ball and ready to sell to minimize any losses. With steady shares, this isn’t that likely to happen, but it’s still something to be aware of just in case.
Why Invest In The Stock Market
We’ll end things by talking about why you should invest in the stock market. Mainly, it’s a brilliant alternative to just letting your money wallow away in a savings account with low-interest rates. When done correctly, and safely, you can earn a lot of money when compared to other investments over a similar period.
Hopefully, you’ve found this guide useful and now know how to get into the stock market and start investing. Be safe, stay informed, and never bite off more than you can chew. Now that you have the answer to ‘What is Investing?‘, it’s time to take your newfound knowledge, go forth, and invest.
Many first time investors believe you need piles of cash before you can invest. In reality, you don’t need an endless supply of money to get started in the stock market. What you do need is a solid strategy and a starting point. In this article, we discuss how a first-time investor can set goals, start investing and begin to build wealth for the future.
Setting Goals as a First Time Stock Market Investor
Set long and short-term goals before you begin to invest. These goals will help you determine how to invest. They may include things like saving to open a business within the next five years, saving to create a monthly income for your retirement, or even planning to pay for your children to attend college. Each of these goals will require a different investment strategy according to how much money you have to invest and how quickly you need to see a return. Lastly, continue your financial education and read, read, read.
Save to Invest
The average first time investor needs to either save, at least some money, or come upon some sort of windfall. This could be an inheritance but most of us are not that lucky. Don’t worry. There are other ways to get a little extra cash to invest. Next we will show you an idea you and first time investors to get started with just the money in your wallet.
Start Small. Start Now. Start Investing.
Back to that pile of money the average first time investor simply does not have, you don’t need one. Once upon a time it may have been necessary. Today you don’t have to buy shares of Apple, Starbucks, or Harley Davidson in order to invest. Micro-investing allows you to begin investing in small increments.
Micro-investing allows you to invest very small amounts of money, sometimes as little as $25, into the stock market or start-ups. The fact that many people invest small amounts of money spreads the risk. Making small investments like these allow you to begin investing sooner – getting you to your returns on your investments even faster. It’s part of a much larger overall strategy that allows you to build wealth through investments.
Reinvest and Diversify into Other Opportunities
Once you begin seeing a return on your micro-investments, it’s time to reinvest your money. This time in larger opportunities that promise an even greater return on investment. Always have a plan or goal for your savings. The goal is to create a cycle in which you invest to generate wealth. Then you reinvest the returns to generate more wealth.
It isn’t the initial investments that build your fortune, allowing you to enjoy a life of comfort and freedom. It is the circle of investments you create over time. They provide a steady source of new wealth for future investments. The more investments you have generating income for you, the more income streams you have coming in to fuel (and fund) your goals.
Increase Your Financial Literacy
The key is to get started. Read about investing. Increase your knowledge about opportunities available to you as a first time investor. Learn how to invest in a way that is natural and rewarding. The more you learn about investing for the first time now, the stronger your long-term investment strategy. Lastly, you should build a stock market investment portfolio.
But How to Build a Portfolio?
Building a stock market investment portfolio should not be based on chance or guessing. It should be built based on your specific needs and on what you want to achieve. As an investor, your goal is to make money! How you make that money depends on your circumstances and on where you are in life. A great stock market investment for your friend, who just left school and is starting a new job, may be completely wrong for a single mother who owes money.
Now, you get the point.
“So, what is the best way to start building a stock market investment portfolio? You have to think about your investment goals, your age, stage in life, lifestyle and your comfort with how much money you can afford to lose (Risk tolerance).”
How Much Money You Can Afford to Lose?
That depends. How much are you willing to lose? That much? Really? What if you lost it all?
The amount of money you make is linked to the amount you are willing to risk. Interesting, right? This known as a risk reward tradeoff. So before you build your stock investment portfolio, you must remember that investing in the stock market is a risky investment. This means that you stand the chance of losing all or some of your investment. If you are in debt or not comfortable losing money, you may be better off not investing in the stock market. However, after you paid off some or all of the debt, it may be time to invest. But how do you know when? But how do you know when?
When To Put More Money Into The Stock Market
A good rule of thumb is if you need the money in the next 2-5 years for say a house, you should not put it in the stock market. Also, the older you are, the less likely you can afford to lose. We call this a lowering of your risk tolerance. As you get older, you should adjust your stock market investment portfolio so that your chances of losing some or all of your investment is decreased. This is because the older you become, the less time you have to recover if you lose money from stock market investments. Often people put their money in bonds or safer investments.
Risk & Diversification
On the other hand, the good news is that the more chances there are that you can lose money on the stock market, the higher potential there is to make more profits in the stock market. So, the aim is to find a nice balance between how much you can lose and how much you can gain. A good way to minimize the chance of losses is to invest in several different types of stocks or other investments. You may do this with stocks by choosing stocks from several different industries. So you may choose to include stocks by diversifying into different sectors, small stocks or international stocks. By sector include healthcare, technology, banking and the manufacturing sector. So when, for example, health and technology stocks are losing, you can reduce your losses since the stocks from the banking sector and the manufacturing sector may be gaining.
Invest for the Long Term
The younger you are when you start to invest, the more time your investment has to make gains. You should also be prepared to own our investments for more than a year. That is because the taxes are lower than when you hold them for a short time. Also, stock market investments can make more profits in the long term rather than in the short term volatility. If you want to continue to make profits from the stock market, you should plan to own your stocks for a long time. This is also the advice of various investment gurus such as Warren Buffet and he is on of greatest stock market investors of all time. Remember to invest for the long term!
Principles of a Sound Investment Plan
The stock market is always moving up and down, as anyone with interests in the financial markets would know. However, it does not mean that investors are always losing money when the stock market goes down. Intelligent investors are those individuals who are able to foresee potential issues that could derail some of their investments. They know when to cash out. And even if they do not cash out, they have the foresight to hedge their investments to mitigate any potential losses. We can take a look at the main principles for any sound investment plan, and how these investing 101 principles will help you as you look to get started on your investment portfolio.
1. Hope for the Best, Expect the Worst:
It may sound like a cliché, but investors must often expect the worst when it comes to their investments. It does not mean making timid and tentative investments, but ensuring that your portfolio is protected even if the worst-case scenario were to occur. The portfolio of stocks, bonds, mutual funds and other assets you create must have contingency plans that ensure you are not going to suffer catastrophic losses if something goes wrong with the markets. Find the right balance between high, medium and low-risk investments, and ensure you are hedging appropriately. Hedging refers to having certain assets in the portfolio that would protect you from potential losses to your other assets during periods of economic downturn. Also, monitor your portfolio with Personal Capital or Mint.
2. Create Rules and Stick to Them
There is a reason seasoned investors are so obsessed with self-created rules: they work! For instance, when you start off with your portfolio, you may decide to create a rule that 10 percent of your assets must always include bonds or treasuries. In addition, you may decide that 5 percent of your portfolio will include cash or similar assets. The rules you create must have some logic behind them, and you have to stick to these rules throughout your life whether you’re investing in traditional organizations or using one of these top chime alternatives. It is tempting to cast aside your rules and make riskier investments, especially if the economy is experiencing a bubble in one or more sectors. But eliminating those rules is risky, and it can result in serious losses when things go wrong.
3. Correlate Risk with What You Can Handle
It is not often that you hear a correlation between a person’s emotional or mental state and the way they invest their money, but it is an important comparison to make. Everyone wants to be a risk taker. We all want to put $1000 into the market and emerge with $10,000. But the fact is that some people are better equipped to handle taking big risks in the market, while others prefer a slower and steadier approach. Take some time to understand your own temperament, and it will give you an indication regarding how much risk you are willing to take on. If you are someone who feels uncomfortable or stressed when you have too much on the line, you may want to take a cautious approach with your investments.
Writing an Investment Plan
Whenever we hear about investing, we assume that it is something that only a seasoned financial professional could accomplish. However, the beauty of the United States and its investment economy is the fact that anyone is capable of starting an investment portfolio. All it needs is some high quality personal financial planning, and taking the time to understand how various investments work. While it is not a good idea to rush ahead and invest all your savings in risky endeavors, slowly understanding the financial world and how investing works can really help a person grow their personal portfolio.
Learning About Personal Financial Planning
When writing an investment plan, it is very important to have a certain structure about everything. Each investment plan should contain sound investment principles, objective goals and strategies, personalization and the input of anyone who may be impacted by those investment decisions. For instance, if you are married it would be a good idea to include your spouse in any conversation about how you are going to invest the family’s money. Even if you have a partner who does not have a keen understanding of the financial world, it is a good idea to include them in the process – even if they are no more than a second set of eyes and ears!
What is the Objective?
With personal financial planning, it is important to have some goals in mind. Sure, everyone has the goal of retiring when they are 60 with a few million dollars in the bank, but more realistic goals are the best way to approach an investment plan. Say you are 30 years old right now, and you want to start investing properly over the next five years. Perhaps a goal to achieve a certain percentage of returns within five years would be a good place to start. It is a realistically achievable goal, and it is not overwhelming either. Or you may have some other goal, such as saving up enough money to put your child through college by the time they turn 18.
How Many Assets and Accounts Do You Have?
A full cataloging of assets is very important when making an investment plan. You must have a clear idea about how many assets you possess and what those assets are worth; keep track of everything, even your small investments. When you have made your list, you can begin to decide what assets you want to put into play. For instance, you may have a property that you want to leave untouched. That property would act as your safety net. If something goes wrong with your investments, and you lose some of your income, you would always have that property as an asset that could generate funds for you and your family.
Depending on your age and your goals, you may want to set up some investment accounts in the coming weeks and months. Some individuals choose to open individual retirement accounts, or IRAs, while others would have a 401(k) through their job. If you want to practice proper personal financial planning, you will have to read up on the tax benefits of each account, as it would help you structure your investments within the accounts in the right way. When you have all your accounts squared away, you can make a decision about where and how you want to invest your money. Some individuals choose to use the services of a mutual fund or another investment company, while others prefer to make their investments individually.
How to prepare for your future and invest your money wisely
While short-term financial gains are always a welcomed bonus, having a diversified long-term investment plan will help you enjoy a sustainable financial future. There are many different long-term investment strategies to consider and it could be prudent to seek the advice of a financial planner to help. Regardless of how you choose to manage your investments, the below tips and options expand on our stock market 101 advice and will give you a great head start.
Start a 401k or IRA as soon as possible
These retirement savings plans have been used as long-term investment options by thousands of people across the nation. The main benefit to a 401k is that your employer will make a contribution to the plan, so in effect, you are receiving free money. You can exercise a degree of control over your 401k and have a say how your money is invested. But it is also heavily determined by your employer. Don’t worry if your employer doesn’t provide access to a 401k. With an IRA you will have control over your investments and generally have lower expenses. You can open an IRA for your retirement at Ally or Betterment even if you have a 401k.
Keep your finances and investments separate
To maintain a coordinated and organized investment portfolio that you can easily manage requires keeping your investments and general finances separate. Simply pouring all of your available funds into one account can cause problems. It is advisable to create separate bank accounts to manage your funds correctly. Keep an account to store your salary and maintain a separate saving account that you use to transfer funds into your various investments. To further improve your management, we use Personal Capital to track all of our finances. It is great because it automatically updates so you don’t have to track things manually (pen/paper, spreadsheet, etc).
Use stocks and bonds to balance your investments
While shares of stock can sometimes be a risky venture, they can also be a fantastic form of long term investment. You can use shares of stocks to offset your low-risk savings such a saving account or government bonds. A diverse stock portfolio is desirable to minimize your losses. Keep a balance of higher risk and volatile stocks, together with low risk and slow moving options. If you are unsure about the stock market, it could pay dividends to enlist the services of a bank or a financial expert. We also use Learnvest as our financial experts.
Consider a diverse range of options
The key to a successful long-term investment strategy is diversification. There is not one single investment method that is guaranteed to bring you a large profit. It is preferable to spread your investments over a range of areas to minimize the associated risk. Open a brokerage account, put money into an IRA, buy some CDs, invest in stocks or bonds. Investing in a diversified portfolio instead of a couple large amounts in few will significantly spread your risk. If you have 10 investments, and one of them makes a loss, you still have 90% of your investments that are profitable. Alternatively, if you only have 2 investments and one makes a loss; that equates to only 50% of your investments being profitable (assuming an equal amount of $ in each).
Investment Strategy: Keep It Simple
It is important to diversify but also not to get too creative that your strategy is too complex. A simple investment strategy could be as simple portfolio with Vanguard’s most popular funds.
1) 50% – Vanguard Total Stock Market Index (VTSMX)
2) 30% – Vanguard Total International Index (VGTSX)
3) 20% – Vanguard Total Bond Index (VBMFX)
Consider a defensive position
You might also want to consider adding a defensive position to your portfolio by adding consumer staples or international bonds.
Don’t discount your future! Consider your long-term options and create a stable investment portfolio that will reap benefits for years to come. There are the means to secure your retirement and ensure you can provide for your family indefinitely.