Concepts for Simple Investing
The new ways to invest are not only very simple, you can automate your investing and you can do it from one of several mobile applications right on your smart phone to set up a few automatic deductions from your checking account and start on the path toward financial security.
With a Dividend Reinvestment plan, you can buy fractional shares in Amercia's best companies with a simple monthly deduction from your checking account.
invest in just two board index funds and you can capture most of the US stock and bond markets.
Other choices include passive investments, like real estate and real estate investment trusts (REIT). One way to get started is with AxosInvest.
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All of these approaches are simple to start and help you manage your investment risks.
Most people, including investment professionals get beaten by the stock market. Simple logic makes it clear why the majority of people can’t beat the stock market. The average return of all investors is equal to the stock market’s return minus taxes, trading costs, and management fees. To beat the market, you’ve got to overcome all three. Investing with the stock market just makes more sense.
There are scores of systems and methods that supposedly beat the market. Many of them are based on technical analysis or tips on high flying stocks ready to reach new highs. Most of the time you are buying these stocks at the wrong time, and then selling after they peak or even hold on, hoping the rebound.
Many people still place tremendous faith in mutual fund managers, investment advisors, and stock analysts. But the reality is most of them can’t beat the performance of the S&P 500, one of the typical indexes used to measure performance of investment professionals. As the chairman of th.e Vanguard group, John Bogle, puts it, over every ten year period since the sixties, 90% of mutual fund managers have underperformed the market averages.
All investments involve some degree of risk. You've probably heard the phrase "no pain, no gain", that really helps in summing up the relationship between risk and reward.
Even a savings account, earning just 1% annually has a risk, you may not be able to grow your savings at such low rates of return.
The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like a savings account.
Focus on diversification or what is known as asset allocation, not fund picking. It’s virtually impossible to predict which stocks or funds will outperform year to year.
The better strategy is to create a diversified mix of stock and bond funds that maps to your risk tolerance and that makes sense given the length of time you plan to keep your money invested.
By investing in a total U.S. Stock market and total U.S. bond market index fund, you’ll own a piece of all publicly traded U.S. companies and a share of the entire investment-grade bond market.
Add a total international stock index fund and you’ll have foreign exposure as well. In short, you’ll tie your portfolio’s success to that of the broad market, not just a slice of it.
Set a goal, saving some portion of what you earn every month. Consistent savers have the best chance of greater financial independence. Compound interest has been called the most powerful force in the universe (Albert Einstein is credited with saying that).
One way is to use dollar-cost averaging as you set up your investment plan. Say you receive $10,000 and rather than spend it, invest for the future.
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You may be reluctant to invest because of the fear of risky returns. What if the market collapses as soon as you buy stock? That would be a hit to your pocketbook, and to your ego. But if you split that $10,000 into ten increments of $1,000 each, and invest each one in the middle of the nest ten months whether the market has gone up or down, that creates a way of mitigating regret and forces some self-control. Creating a regular monthly contribution to an investment account with get you started on the path to financial security.
Investing shouldn’t be all about getting the best returns, it’s better to get steady returns consistently. This means saving a good chunk of your income, investing in a diversified portfolio—some stocks, some bonds, some cash, some domestic and some international—because you don’t know which will do well. Keep it simple also means minding expenses, which you can do by investing in low-cost index funds.