With the markets being what they are – always in flux – you may be tempted to hoard all of your cash in a savings account. Millennials, more than any other generation, are uncomfortable with investing in the stock market. When investing conservatively or not all however, you’re not taking advantage of compound growth and are allowing fear or uncertainty to stand in the way of financial gain.
Investing in the market may be intimidating and can be worrisome if you approach it the wrong way. Once you remove your emotions out of the equation and bide a long term outlook, you can allow the money invested to grow and recover from market fluctuations.
If you are a risk-averse investor or want a road-map to investing, here’s how to invest in stocks and feel good about it.
If you’re fairly new to investing, before you make a purchase, you’ll need to invest some time. The Oracle of Omaha, Warren Buffett, has a rule of not investing in companies or industries he doesn’t understand and it’s served him quite well. You should learn the difference between a stock, a bond, an ETF, index fund, what is asset allocation and a management expense ratio (MER). Read a few books on the topic, join a local investing club or research online investment forums like Bogleheads or Reddit to gain more in-depth information on investing practices and strategies.
CUT THE RISKS AND THE COSTS
It’s often touted that the best way to higher returns is to keep investment costs low. For those who have 401ks, it’s been reported that high MER’s and administration fees can erode up to one-third of investment returns. Buying index funds and exchange traded funds (ETF) gives you more bang for your buck. They are not only cheaper in fees but you don’t run the risk of overexposure to one company stock. Within a single index fund, mutual fund and ETF, these investment types allow you to spread the risk across hundreds to thousands of individual companies.
LIKE THE NIKE SLOGAN SAYS: JUST DO IT
Being bombarded by market analysts in the news about what stocks to buy, which to sell and those to hold can fuel emotional investment decisions that result in often poor results. Forget about trying to time the market and instead get into the market and stay the course. Many financial experts suggest diversifying your portfolio by holding a variety of asset classes along with considering your risk tolerance and how far from retirement you are. Make investing a habit by contributing a set amount per paycheck or from monthly net business profits.
BE READY TO BUY STOCKS
Once you have a financial plan in place and have built a respectable nest egg based on your investment allocation, you can decide on a small percentage that you are willing to invest directly into stocks. Not unlike gambling, have fun but be ready to lose all of your money in the process. If you do, at least it wouldn’t hurt your overall investment goals. Find a financial planner or adviser that can help you to determine how much you can afford to risk on stock purchases.
SELECT THE RIGHT TRADING PARTNER
Since cost is an important factor in growing your investment portfolio, select a company that will give you access to the funds you want with the lowest fees. Companies like Vanguard and Fidelity offer a wide range of ETFs, index and mutual funds with low MERs. With your “play money” you want to choose a brokerage company such as E*Trade or Scottrade that provide access to the individual stocks you want but at an affordable trading cost.
For those who want to buy individual stocks in niche sectors and still be able to spread the risk, consider Motif Investing. With the latter, you can own up to 30 individual stocks in whatever Motif is compelling to you, whether you believe tablets are taking over or want to follow the shift to renting from home ownership.