Where should beginners invest money in stocks to invest for long term growth? If you invest without a real understanding of investing basics you are most likely to make fatal financial errors that could cost you a fortune or your shot at wealth.
This article has been written to make stock investing for beginners real simple by explaining some basics.
Better that average Investment returns
Stock investing is all about ownership, which is why stocks are also called equities. When you invest money into a stock, you are taking an equity position – you own part of the company.
For the most part, equities are a good investment, and over the long term investing money in stocks has returned above average returns when compared to other investment tools.
Caution is the Name of the Game
As a new investor, your primary objective should be to participate in the stock market, NOT to try to beat it. If you pick just a handful of companies to invest in, the above average annual returns may not apply to you. Your picks could make you rich or they could break your piggybank.
What you do not want is to be in the first scenario, it’s not likely to happen. So, where can beginners invest money and participate in the action without the extra risk of investing money in all the wrong places?
Go with the flow, while cutting costs
In simplest terms, invest in the whole market with equity mutual funds. Stock investing does not get easier than this. You can invest money in just ONE place and beat about half of the investors who think they know how and where to invest.
In fact, if you keep your cost of investing low, you’ll beat the majority of stock investors. Simply invest in an EQUITY INDEX fund. You’re looking for an index fund that tracks the broad market by owning all of the components included a major index, like the Dow Jones Industrial Average or the S&P 500 Index.
You are better owning a small piece of something BIG than a big piece of something SMALL
Invest money in a no-load market index fund (e.g. S&P 500) and you own a small piece of America’s 500 largest best-known companies. Invest in a TOTAL MARKET index fund and you own shares in a portfolio that includes the largest companies, plus many smaller ones as well. With the latter, you truly own the market… a very small piece of it.
Enter “equity index funds” into a search engine and Vanguard and Fidelity will likely be at the top of the page. They are the two largest fund companies in America.
What does it cost to invest money in major equity index funds with these companies? They offer “no-load” funds, so there are NO sales charges (loads) when you initially invest. Like all mutual funds, they do charge for yearly expenses and management fees.
Remember the cost of Investing
Invest with the wrong companies and you can easily pay more than 5 times as much in yearly expenses and management fees.
Plus, you could pay 5% up front for sales charges in equity funds that try to beat the market but normally fall short of expectations.
If you are a investment beginner tread lightly before you invest money in equities. Don’t try to time the market and don’t try to beat it by picking your own stocks. Go with the flow and keep costs down. Invest in equity index funds that simply track the market.