Getting the Most out of Life

Picking Investment Funds: A Guide for Rookie Investors

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Investing in the stock market may feel intimidating to newbies, but picking your first investment funds has actually never been easier. Here’s a quick guide to help you get started.

The Lazy Man’s Guide to Investing

Technological advancements and the rise of robo advisors have made it possible for anyone to begin acting as their own investment guru. Gone are the days of needing a professional broker to do your bidding. Instead, you can pick your first investment funds from the comfort of your couch. And you probably should, too. Routinely investing in low-cost index funds lets you slowly get acclimated to world of investing with minimal long-term risk.

What Are Easy Investment Vehicles?

Determining which investment funds to put your money in warrants deliberation, but not angst. There are three basic vehicles a rookie could use to begin playing in the stock market:

  • Index Funds: These are passively managed funds (meaning not handled by a fund manager) that tend to have low management and transaction costs. There is a lower risk level because of broad diversification.
  • Mutual Funds: Unlike index funds, a professional actively manages mutual funds; this makes them a bit more expensive. Like index funds, mutual funds are also diversified and invested in hundreds to thousands of stocks. You should always look for a no-load mutual fund, which doesn’t charge sales fees on the purchase or sale of stocks.
  • Exchange Trade Funds (ETF): ETFs are set up like mutual funds, so you’re invested in hundreds to thousands of companies, but they buy and sell like stocks. Prices fluctuate throughout the day, and you’re required to have a brokerage account.

Rookie investors would be wise to start with a diversified fund like the S&P 500, which is a market index consisting of 500 large companies listed on the New York Stock Exchange or NASDAQ.

Where Do You Invest?

To actually put your money in investment funds, you must first go through an investing service (which may be called a brokerage or robo advisor, depending on how you’re investing). Many options exist, but your goal is to pick one with low fees and excellent customer service. Try Vanguard, Fidelity, Betterment, or Wealthfront.

What Goes Up Must Come Down

The only guarantee in your stock market experience is that the stock market will fluctuate. An important part of investing for beginners and seasoned professionals alike is combating the emotional reaction to losing your money. During these occasions, it’s important not to panic and sell, sell, sell. In fact, it’s sometimes better to buy, buy, buy. If you run for the hills you’re guaranteed a net loss, but if you double down you still have the chance to recoup your money or even turn a profit.

Have Some Stock Fun—Within Reason

There’s no need to 100 percent dismiss the idea of individual stock picking, but it should be a small and speculative part of your overall investment strategy. Just be wary of the herd mentality. If people are talking about a hot stock, then it’s not the best time to invest in it—everyone else is, too. Rookie investors interested in some stock picking should find a sector of interest (e.g., technology, energy, or telecommunications), do some research, find an up-and-coming company, and make an educated investment decision.

Investing is inherently a gamble, but you wouldn’t play poker without knowing the rules. Similarly, you shouldn’t invest without first doing your research. By following the strategies outlined above, you’ll be able to start your investment career wisely and turn a profit before you know it.