Investing should be one of everyone’s top priorities when it comes to their personal finances. If you do not have an investment or savings plan than I’m sorry to tell you that you are behind the curve financially. But that good news is that it’s never too late to start. Sure the earlier you start the better you’ll be off. But better late than never. Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. When it comes to investing, a long term approach is always the best and most effective.
First off, it’s important to note that investing is not gambling. A lot of people on Wall Street or following Wall Street will be convinced that what they are doing is investing. And they are usually wrong. If you are buying stock with the intention of selling under a year after buying, then you are gambling my friend. Not investing. You may even see or hear about people buying and selling “options”. Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. In other words, stay away from options. This is also known as day trading and is the quickest way to lose your money. Especially if you don’t know what you’re doing. Although you may see options traders boast about large gains, they rarely ever break even. They are just not showing you the large losses they have also accumulated. It is very easy to see the appeal of options trading and think you may want to give it a try. Some people can only learn the hard way. In my opinion and in most famous investors’ opinions, having a long term investment strategy is best. Now, what does a good strategy look like?
Very few fund managers ever beat the market. Fund managers actively manage accounts by buying and selling certain stocks in an attempt to make their clients and themselves profit. However, after doing a little research, you’ll find out that these account managers aren’t as good as they preach. In fact, they rarely beat the market. Beating the market means they have to beat the S&P 500 or Nasdaq. These are the two main market indicators that show the health of the market as a whole. So, fund managers may make a profit, but they rarely beat the market. The market has an average return of about 10% a year. Performance fluctuates year by year, but this is an average over the past several decades. That means that fund managers rarely make a yearly average of 10% gain over several years.
If some of the best fund managers in the world are struggling to beat the market, you may be thinking about skipping them and just investing in the market itself. And that’s exactly the bulletproof strategy that myself and some of the most successful investors of all time preach. Just search for Warren Buffet advice and he’ll gladly share that investing in the market is the best long term investment strategy. There are a few ways to invest into the market. First you’ll need a broker and an account, but after you’re all set up all you need to know is what to buy. Since you can’t directly buy the S&P 500 or Nasdaq, you can however buy ETFs which are basically like buying a whole portfolio of stocks. So instead of buying one stock, you are buying several stocks which that ETF holds. This is a less risky approach because instead of putting all your eggs in one basket (one stock), with an ETF you are really owning a variety of stocks. Diversification is the key here and that’s crucial to understand to become a good investor.
So here is the strategy. Every week, two weeks, or month, put a certain amount of money into an index ETF. That means an ETF that moves with the index it is tracking. So an S&P 500 ETF will move with the S&P 500 index. If I were to pick one ETF to start with, it would be SPYG. This ETF is a homerun. It not only moves with the S&P 500 so you’ll never miss out on gains, the portfolio is also weighted in a way to maximize gains. In other words, the high performing stocks in SPYG ETF have a greater makeup in the portfolio. That’s where the ‘G’ comes from. The ‘G’ stands for growth and that’s what you can expect form this ETF. Consistent growth. This is my most reliable stock I invest in and has been for millions others.
ETFs often come with a cost called expense ratio. Since ETFs are technically managed in a way, they require a cost. However, there is very little actual “management” going on since it follows the S&P 500. That means the expense ratio is extremely low which is another huge benefit. Other ETFs that boast about their gains often times have high expense ratios, stealing money out of your gains. This is not so important now when you are starting, but becomes a huge deal 30 years later after that money has formed into a large amount. Try and aim for an expense ratio less than .5%.
Everybody should be investing. In fact, if you aren’t investing you risk the chance of losing money. Since inflation hovers around 2% yearly, that money you have in a bank account is actually losing money every year. That’s why it’s so important to have a long term investing strategy. Allocate a certain amount of your pay checks to investing. The amount is really up to you and what fits your budget. A good starting place is $300 a month for most people starting out in the work force. Find a good ETF or a couple good low cost ETFs and keep adding money to it with every paycheck. It’s important not to get distracted and tempted by the seemingly high gains of fund managers and day traders. They are only showing you the highlights and fail to show you the massive losses they are accumulating. Remember, the vast majority of fund managers and day traders fail to break even. And the few that do break even, often fail to beat the market. Taking this into account, we want to invest in the market. This is the best way to secure long term gains. Stick to your strategy and keep at it.