Stock markets around the world recently reached an all-time high of $95 trillion, CNBC reports. Indeed, investing in stocks is an effective method of making a profit over the long-term. While it can seem stressful and complicated to beginners, investing is now accessible to more people than ever before. All you need is as little as a few dollars, and comprehensive, easy-to-understand research that helps you to make smart and informed decisions.
Your investment options
In most cases, investing in the stock market involves choosing between either individual stocks or mutual funds. Individual stocks are ideal if you have the time and energy needed to research, pick, buy and sell the stocks and keep up-to-date with the market. This typically requires an in-depth level of understanding, and you’ll need to continually check in on your investments to ensure that they still match the amount of risk you’re willing to take.
However, if this method isn’t for you, you’re probably best off with a more passive approach — like stock mutual funds or exchange-traded funds (EFTs). These investments allow you to buy different types of stock in a single transaction. Index funds and EFTs are a type of mutual fund that tracks an underlying market index (such as the S&P 500 index, for example). When you buy shares in an index, you own a small part of those individual companies. The S&P 500 has an average annualized total return of about 10%, which can effectively build significant wealth over time. Most investors prefer their portfolios to be mostly made up of mutual funds. Mutual funds are less risky and inherently diversified, although they’re less likely than individual stocks to suddenly boom in value.
Moreover, investment research platforms can provide you with the information needed to make smart investments. For example, reviews of Atom Finance describe how the platform offers tools to help you research and analyze the latest stock market happenings. With these tools, you can either read up on the latest stock news, or look up data on a specific company’s stock performance.
Set yourself a budget
You don’t need a lot of money to start investing in stocks. Share prices can cost from as little as a few dollars to as much as several thousand dollars. If you’re on a limited budget, you may be interested in an exchange-traded fund (EFT). EFTs are purchased for a share price (sometimes under $100). Ultimately, the older you are, the less money you want to invest in stock funds. While younger people have the time needed to weather the fluctuations of the market, this isn’t the case for those in retirement and relying on investment profits. A general rule is the “rule of 110”, which involves taking your current age and subtracting it from 110. The answer is the rough percentage of your money that should be invested in stocks (including stock-based mutual funds and EFTs). So a 30-year-old would need to have 80% of their money invested in stocks (110-30=80), with the remaining 20% in fixed-income investments like bonds. But you don’t necessarily have to stick to this ratio. If you prefer to play it safe and minimize risk, you can hold more bonds. Or, if you enjoy taking risks or are aiming to retire later than average, increase the ratio favor of stocks.
Focus on a long-term strategy
Investing in the stock market isn’t a get-rich-quick scheme. Accept volatility: the market’s generally unpredictable and can suddenly lose and gain value without warning. The best approach, therefore, is a long-term one which involves being patient. Usually, a good profit can be made by using funds as the majority of your portfolio, and buying and holding quality companies for at least several years. In fact, Warren Buffet endorses a cheap yet promising S&P 500 index fund as one of the best investments anyone can make. Then, after you make your investments, resist the urge to keep looking at them. Your long-term approach and patient mindset will pay off in the long-run — there’s no need to spend your valuable time excessively worrying about your portfolio.
Manage your portfolio
You’ll sometimes need to check in your stocks or investments — at least several times a year to assess whether your investment goals are still en-route to being met. Managing your portfolio may require making changes if you find it too heavily invested in one specific industry or sector; purchasing funds or stocks in a different industry sector will diversify your portfolio. And, if you’re nearing retirement age, consider transitioning to more conservative, less risky fixed-income investments.
Investing in the stock market is an effective way to grow your wealth. By researching your options and setting a budget, as well as maintaining a long-term approach (which involves effectively managing your portfolio), you’ll be well on the road to financial prosperity.