Investing can seem intimidating should you be new to finance or have minimal exposure.
Certainly as with anything, it takes time to learn and understand the inner workings.
However, the difference with investing is you need it to retire, unless you plan on starting a business, then traditional investing is just a piece of your overall portfolio.
Most individuals that are new to the market ask similar questions that include what to invest in and how to invest.
With this article, we’ll go over three of the most common assets you can utilize to begin growing your portfolio.
Easiest Investments for the New Investor
One of the most popular methods of investing your money is to utilize a mutual fund.
A mutual fund is a basket of stocks or other investments that are pooled together to make a fund. From there, investors invest their money into the fund to gain exposure to a certain part of the market.
Most common mutual funds attempt to track a broader market such as the S&P 500 or Dow Jones.
A benefit to investing in a mutual fund is you are eliminating a large portion of company specific risk.
With a fund, you are invested across many underlying assets that construct the fund.
Another benefit includes the fund being run by a fund manager that ensures the product is performing as described. This allows you to eliminate the need to re-balance your portfolio as if you were invested in a large basket of individual stocks.
However, you need to complete due diligence on the funds and fund managers you look at to ensure they are credible and performing as expected.
Exchange Traded Funds
A newer investment option and similar to a close cousin, an Exchange Traded Fund or ETF is similar to a mutual fund in that it is comprised of a basket of underlying equities or assets that are attempting to achieve an objective.
For example, the most popular ETF is ticker SPY, which tracks the S&P 500.
One of the main differences with an ETF from a mutual fund is an ETF is traded.
This means the price is changing every minute and unlike a mutual fund, you can enter and exit whenever you wish.
With a mutual fund, there may be restrictions in place relating to how often you can enter and exit a position. ETF products are a wonderful way to gain exposure to other areas of the market while limiting company specific risk.
As with a mutual fund, ensure you complete due diligence on the product to ensure it meets your liquidity and investment needs.
Lastly and arguably the most popular asset to invest in are stocks.
Stocks stated simply allow you part ownership of a company in exchange for your money.
Investing in stocks can bring a greater return to your portfolio as companies appreciate in value. However, it can just as quickly lose value should the company begin to perform poorly.
When considering an investment in a stock you need to fully understand the company from a fundamental and technical level.
Fundamentally, it is up to you to complete due diligence on the company. This includes reviewing the financials both on a quarterly and annual basis, along with understanding the goals of the Board of Directors.
Also, it would benefit you to listen in on the conference calls to understand the current direction of the business.
Investing in companies generates company specific risk, which is limited when investing in a fund.
Stocks are a great way to boost returns in a portfolio, but the time and energy it takes to review a company is great and not for everyone.
Ensure you have the time dedicated to review your investments, regardless of the type of asset.
When building your first portfolio, keep in mind things such as diversification.
You do not want to become over exposed in one area of the market. Mutual funds are a great way to begin entering the financial markets and can be done through your 401(k), IRA, and traditional brokerage account.
If you have questions, ensure you consult your financial advisor and they can best direct you to achieve your financial goals and objectives.
Have some good stocks, mutual funds or ETFs that we should all know about? Share it with us!
My name is Nathan Young. With many years of experience in the financial sector and financial copywriting, I bring a unique view of the market. My specialties include personal finance, investing, and business writing. When I’m not writing I enjoy studying other market opinions, outdoor activities, and a proper Old Fashioned.