What If I Don't Want to Buy Stocks
Let's be honest, not everybody understands or can take the time to understand the stock market. What do you do if you can’t seem to figure out what stocks to buy out of the thousands in the market?
Let's be honest, not everybody understands or can take the time to understand the stock market. I admit that stock investing can be daunting if you are just starting out and you can’t seem to figure out what stocks to buy out of the thousands in the market.
Maybe you’ve started investing in stocks already, but it seems that you are always picking the wrong stocks. You know that feeling when you buy a rising stock, only for its price to start falling immediately after your purchase.
You then panic to sell the stock, and then suddenly, the stock is back to trending up again. You should read my post on A Guaranteed Way to Lose Money in the Stock Market if you haven’t.
That said, if you can’t seem to figure out how to pick the right stocks or how to jump in at the right price point, market-tracking index funds might be a simpler starting point.
What is an index fund?
An index fund refers to a type of asset used to represent a segment of the market that it tracks. A NASDAQ stock index fund, for example, owns shares of the component technology stocks that make up the NASDAQ index that it tracks.
Am index fund requires you to make one only purchase, but that single purchase helps you benefit from the performance of between 100 to 2500 different stocks. If the general stock market moves up, the index moves up, and the value of your portfolio increases. If the stock market moves down, the value of the index also falls, and the value of your portfolio drops.
However, in the last 49 years since the NASDAQ was founded in 1971, the last 63 years since the S&P 500 was founded in 1957, and in the last 124 years since the Dow Jones Industrial Average was founded in 1896 - the general direction of these indexes has remained northbound.
As a long term investor, time is your ally - start with what you have today, and continue adding more money to your portfolio.
If you want to start investing in broad-market index funds, the
are good starting points.
If you had invested in any of these index funds 10 years ago, you would at the very least, have doubled your money (in addition, to the dividends and the FX gains you would have gotten from a USD-denominated asset).
The best part is that this kind of investment doesn’t require you to stress over what stocks to buy, monitor a portfolio, or worry about short-term volatility - it is the ultimate passive form of investing.
What kind of returns can you expect from index funds?
I ran a conservative simulation with the least-performing index, the S&P 500, which had delivered an annualized return of 13.12% over the last 10 years.
If you start investing in the S&P 500 index with $1,000 today and you continue adding $100 to your portfolio every month for the next 10 years, your portfolio will be worth almost $30,000 by June 2030 (if, A BIG IF the S&P 500 repeats the same performance over the next 10 years).
Please note that I am not a professional financial advisor, this is merely illustrative and does not constitute financial advice. You should do your own research or speak to professional financial advisors before making investment decisions.
In contrast, if you save $1000 this month, and you add $100 monthly to the savings account over the next 10 years, you’ll end up with only about $13,000 in your account in the same period.
So, there you have it.
If you don’t want to stress yourself too much over what stocks to buy, start purchasing a small amount of SPY, SCHB, or QQQ every month.
You’ll most likely be better off than undisciplined investors and untrained traders who are jumping in and out of trades in an attempt to time or beat the market.
I hope you go beyond reading my posts and start investing today.
For experienced stock investors, hopefully, this post will serve as a reminder on how you can introduce a measure of stability to your portfolio by allocating a fraction of your funds towards broad-based index funds.
Here’s to your investing success.
P.S: My next post will include updates on the new stocks I added to my portfolio during this week. If you are yet to subscribe, kindly consider joining my mailing list so that you can get future posts directly in your email.