Fluctuations in the stock market are enough to make any newbie investor nervous. After all, it seems that the stock market makes it easy for anyone to gain as well as lose money in a short period. If you’re not well-versed with how the stock market works, it is easy to be intimidated. Before investing for the first time, it’s essential for anyone to read as much as they can to learn how it works and which securities are right for you. Let’s focus on the best investing ideas.
Investing Ideas for Beginners
You can begin with personal finance blogs, taxation, economics, and investment theories. But you can also focus on a specific area of business, which can help find the right investments for you. The good thing about investing in this day and age is that there is a lot of information available online as well as in books and journals. It only takes a few hours of dedicated reading a week to increase your knowledge. After all, keeping up to date with the latest is vital to success.
For stock market beginners, you only need to familiarize yourself with the basics. We won’t be dealing with individual company stocks yet since most financial advisors argue that stocks can be a bit unstable for beginners. For now, we will focus on index funds and exchange-traded funds (ETFs).
Index funds are a type of mutual fund which provides broad market exposure, low operating expenses, and small portfolio turnover. In fact, investing legend, Warren Buffett recommends index funds particularly to those who are approaching retirement as it is low-risk. It also makes sense for beginners to get their feet wet with a considerably safer investment vehicle.
Meanwhile, an ETF is a security that tracks bonds, commodities, or index funds. However, unlike mutual funds, an ETF trades like a common stock on a stock exchange. Also, ETFs typically have higher daily liquidity and lower fees, making them an attractive option for individual investors.
A well-balanced investment portfolio
A well-designed and well-managed investment portfolio consists of a few elements and is the best outcome of all investing ideas. One is higher risk allocation especially when you are still young. Although we warned you above to stick to low-risk index funds and ETFs, you can switch to a higher risk allocation after you’ve familiarized yourself with the basics of investing.
High-Risk portfolio allocation is recommended for those who still have a bit more time to hold a security or portfolio. This allows compounding interest to work in your favor.
Aside from increasing your chances of getting high investment returns, a well-designed portfolio means that it is well-balanced—it won’t zoom high with equities nor crash down with corrections. Instead, a healthy collection allows you to sell as stocks rise and reinvest in them when prices fall.
A well-diversified portfolio
A well-diversified portfolio is also preferred to minimize risk in case something goes wrong with a particular investment. Diversification is best achieved through index funds, but you can also include other conservative stocks, such as regular dividends and a small percentage of shares with better returns or higher risk potential.
If you’re investing in stock, it’s best if you don’t put more than 4 percent of your total portfolio into one stock, a recommended approach to investing ideas. This strategy ensures that if a stock or two suffers a downturn, your portfolio won’t be affected too much. Asset Allocation is a popular strategy used by financial advisors. Asset Allocation is a strategy where investors hold a percentage of stocks equal to 100 minus their age. So if you are 25 years old, your portfolio will be invested in 75% stocks, and 25% less risky vehicles like bonds or treasury ETFs.
Remember that the goal of investing is to get the kind of steady, compounding return that investment pros seek, which you can achieve at minimal cost and risk at Stockpile. All it takes is a broader view of the opportunities in the markets.