The
stock market is a great place to invest given that it's long
term history averages 10-11% annual growth (but with lots of short
term ups and downs). However, any stock can go to zero. Avoid them.
They need constant daily monitoring of price and volume with strong
financial skill sets to intepret when to buy and sell. Never put new
money into the stock market that you are going to need in a few
months or a few years. When the stock market has a major pullback, 3
out of 4 stocks go down with it. The recovery can take years to get
back to where the stock market high had been and where your
individual assets values had been. Stock market investing is for
money that you do not need to live on for a long time and
consequently can leave invested for decades without selling it.
Instead
of individual stocks, buy ETF (Exchange Traded Funds) index funds
that mirror the stock market and consist of many companies plus are
cheap to buy and sell ($7 or less), and unlike mutual funds (people
“managed” groups of stocks with an investment “type” of
stocks) which are priced after the stock market closes that day or
the next day if you buy them after hours, ETFs can be bought and sold
when the stock market is open so that you immediately know the price
that you are getting. SPY is an ETF that mirrors the S&P 500 (top
500 companies) which essentially mirrors the overall stock market
performance. For small investors, that may be all you need. For a
little more diversity, consider these three other ETFs - The S&P
600 small caps (SLY), the S&P 400 mid-caps (MDY), and the Nasdaq
Top 100 (QQQ) - consists of a lot of technology companies (about 40%
technology). Hold for decades after buying before selling.
Still want more
diversity but want to keep it simple? There are “growth” and
“value” options for the three S&P indices. Just add a “G”
for growth or a “V” for value at the end of those symbols (SPYG,
SPYV, SLYG, SLYV, MDYG, and MDYV).
If you decide to
follow the path of most diversity, how should you proceed investing
without making it too complicated? That would depend on how much you
are able to save for investment purposes each year. If not very much
and you still want diversity, that I would suggest that every time
you investment reaches $1,000 in an asset, start investing in another
asset. For most others with larger annual investment amounts, pick an
asset investment goal – say $5,000 or $10,000. When the value of
the investment asset that you are currently investing in reaches that
“dollar” goal, switch new investments into a different asset.
Whatever the investment goal you select, I would suggest asset
investment sequence in the following order:
SPY,
QQQ, SLY, MDY, SPYG, SPYV, SLYG, SLYV, MDYG, MDYV.
When
you've reached your dollar investment goal in each of the 10 assets
above, then repeat that sequence of investing over and over again. As
your earning and savings power grows, you could decide to raise your
investment “dollar” goals (for example from $1,000 to $5,000)
before switching to the next investment asset.
