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 like most folks. Here we make stock investing for beginners real simple by explaining some basics.
Stock investing is all about ownership, which is why stocks are also called equities. When you invest money here you are taking an equity position – you own part of the company. Most of the time equities are a good investment, and over the long term investing money in stocks has returned about 10% a year on average. WARNING: don’t assume that in 2011, 2012 or beyond that you can EXPECT to earn these nice returns. Stock investing between the years 2000 and 2011 was a roller coaster ride, and many investors lost money investing in equities.
As a beginner 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 10% average annual return does not apply to you. Your picks could make you rich or they could break your piggybank. Don’t bet on 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?
In simplest terms, invest in the whole market with equity mutual funds. Stock investing does not get easier then 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 a no-load 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.
Invest money in an S&P 500 index fund 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. Miki Agrawal
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. In 2011 and going forward stock investing can cost you less than ½% a year. Invest with the wrong companies and you can easily pay more than 5 times as much. 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.
The years 2009 and 2010 were good years for stock investing, and 2011 had a very good start. If you are a beginner think twice 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.