Investing in stock market assets is something many people see as a gamble. Most people who invest in the market follow the hype and buzz and put all their eggs in one basket trying to get rich overnight. People try this every day and more often than not lose everything they put in. This type of use of the stock market is not “investing”, it is indeed gambling. Speculative use of the stock market is a dangerous thing, and most people who engage in this sort of activity end up losing their shirts. There is however, ways to see returns in the stock market that will provide financial cushion for years to come. This is the power of long-term index fund investing. Before we begin, I will disclose that I am not an expert and these are mere suggestions from personal experience and research. Consult a professional or do your own due diligence before making any financial decisions.
As stated previously, speculative investing, or investing in the hottest stock is one of the least advantageous ways to invest your money. The key to avoiding this is to turn off the news and stop listening to projections of the market by “experts”. No one knows what the market will do day to day, and claiming that you do is deceptive and a lie. When your turn down the TV and do your own research, you will see that on average, the stock market appreciates as a whole around 7% a year. This does not mean that every year there will be a 7% growth, it simply means that over the years, growth has averaged out to just over 7% a year. This is key to understand because with proper use of the stock market, you can see your money work for you over the course of 20 or 30 years or more. The stock market provides an amazing return on investment over the course of many years. In the following paragraphs, I will explain to you just how I invest in the market.
I began my stock market investing journey with three great books that I think everyone should read at some point if they are interested in the topic. These books are the following, A Random Walk Down Wall Street, The Intelligent Investor, and Common Stocks and Uncommon Profits. From these three excellent books, I was able to gain a solid foundation on how to invest in the stock market for the long haul, and how to choose stocks correctly based on their fundamentals and not the hype around them. I have linked them in the above text so you can read more about what each book entails and purchase them if you feel inclined to do so. ETFs, or exchange traded funds are the most primary investment vehicle I use. I am young, so my approach to investing is rather aggressive with 80% stocks and 20% bonds making up my portfolio. The majority of the stock portion of my portfolio consists of the S&P 500 ETF or the SPY being that it encompasses the top companies in the United States altogether. I also have a large portion of my funds invested in value funds which are funds that allocate their money to companies with good fundamentals but are undervalued in price. These two ways of investing make up the majority of my portfolio, and I’ve seen good returns from this approach over a rather short period of time. The best part about investing in the stock market is that your money grows exponentially meaning that if you have $100,000 invested and by the end of the year you have $107,000, your money will then appreciate from that $107,000 7% assuming the market appreciates it’s average in that given year.
The rest of my portfolio is made up by corporate bonds, treasury bonds, and REITs. A corporate bond is essentially lending money to companies in which the money will be paid back to you with interest. Treasury bonds are essentially the same thing but instead of lending to companies, you are lending to the government. The return for these kinds of investments is generally lower than that of stocks, but offer a “safer” way to invest for those who view risk as a big factor in their investment choices. These types of bonds can be bought as ETFs just as stocks can and which I currently own. I use them as a hedge, or a vehicle to lower my risk of losing money from stock investing because the two counteract each other. REITs, or real estate investment trusts are funds that finance real estate properties that produce income. This is another hedge I use in my investment portfolio.
As for the best online investment brokerages, I would recommend E*TRADE. They offer lots of easy-to-use tools that make investing beginner friendly. Once you practice navigating the site for some time, you will surely get the hang of how it works. There are tons of other options such as TD Ameritrade, and Charles Schwab, but I have had the most positive experience with E*TRADE thus far.
Stock market investing is a tricky animal, and one that will cost you a lot of money if you gamble in the speculation game. Do your own research and reading, and see what approach to stock investing is the best choice for you. There is much success to be had in this form of investing and the more you learn, the better financial decisions you will be able to make for your future.