If you’re reading this, you’ve decided the time has come for you to start investing. You’re overwhelmed with options regarding investing tools. In the first steps to investing for beginners, there’s a whole new language to learn, decisions to be made on what kind of investor you want to be, your risk tolerance, and where to get advice.
The stock market can be a great way to make money and secure your financial future, but many are discouraged by the obstacles to investing. There is a certain level of knowledge and understanding to make money in the long run, and it’s essential to get a basic understanding of how stocks work and how to choose an investment strategy that fits your goals before diving in head first!
The Hands-Off Approach: Index Funds, Mutual Funds & ETFs
Let’s talk about some of the more hands-off options for investors. Not everyone has time for daily market analysis and some feel more comfortable picking one investment option and checking in every few weeks. Index Funds, Mutual Funds, and Exchange-Traded Funds are common ways new investors begin their financial journey.
An index fund is a type of mutual fund or exchange-traded fund (ETF) that tracks a specific market index, such as the S&P 500. Instead of trying to beat the market, index funds aim to mirror the index’s performance by holding all or sampling the underlying assets. They require very little knowledge or experience in the stock market and are simple for new investors. All an investor needs to do is choose an index fund that aligns with their investment goals and make regular contributions to the fund.
One significant advantage of index funds is their low cost. Because they are passively managed (no one is constantly buying and selling assets), they typically have much lower expense ratios than actively managed funds. This means that investors can keep more of their returns and earn higher long-term gains. Because index funds are so highly diversified, holding a wide range of assets in the index they track, they can also help lower the portfolio’s overall risk and provide excellent stability during market fluctuations.
However, it’s important to note that not all index funds are created equal. Some have higher fees or may track less diverse or less stable indexes. Investors still need to do their own research and choose index funds that align with their personal investment goals and risk tolerance.
Mutual funds are another popular investment option for beginners, as they offer a diversified portfolio that professionals manage. A mutual fund is a pool of money collected from multiple investors, which is then invested in various securities, like stocks, bonds, or other assets.
One of the main advantages of mutual funds is their diversification. Investing in a mutual fund allows you to own a small portion of an extensive portfolio of stocks or bonds. This diversification spreads out the risks, so if one stock or bond performs poorly, your portfolio as a whole is less likely to suffer.
Mutual funds are managed by professional fund managers experienced in researching and selecting investments. The fund manager’s job is to maximize returns for investors while minimizing risk. This can be particularly helpful for beginners who are just starting.
Mutual funds also offer great flexibility in terms of both investment amounts and liquidity. In theory, you can invest as little or as much money as you want, making them accessible for investors of all income levels. You can also buy and sell mutual funds anytime, which are highly liquid.
That sounds great, but mutual funds also come with management fees, sales charges, and expenses. These fees vary widely depending on the fund and the investment company managing it. It’s essential to research and compare different mutual funds to find the one that best fits your needs. Yes, the potential returns of a mutual fund can often outweigh the fees, but they’re an expensive way to invest.
Exchange Traded Funds (ETFs)
Like Mutual Funds, Exchange Traded Funds (ETFs) bundle together a group of assets, such as stocks, bonds, or commodities. However, one significant difference is that ETFs trade on stock exchanges like individual stocks, making them more accessible to investors. This means that you can buy and sell ETF shares throughout the trading day, unlike mutual funds, which trade only once a day at the end of the trading day.
ETFs provide transparency on the fund’s underlying holdings, so you know precisely what you’re investing in. And they’re relatively inexpensive. ETFs have lower expense ratios than most mutual funds, which means investors can keep more of their returns. Many ETFs also have no minimum investment requirement, which makes them accessible to investors of all income levels. These features provide investors with the flexibility and transparency that other investment options lack.
ETFs are highly diversified, spreading the risk across multiple investments and providing stability. However, it’s important to note that not all ETFs are created equal. Some ETFs may have less diversification or be more volatile. Researching and choosing ETFs that align with your investment goals and risk tolerance is crucial.
Index Funds, Mutual Funds, and ETFs are terrific entry point for new investors. But suppose you’re new to the stock market. In that case, you’ll probably need financial expertise to help you on your investing journey, especially if you want to build a diverse and rewarding portfolio. If you ask a bank for advice, they will ask for an initial investment in the six figures. At the same time, most investing apps don’t offer any guidance.
That’s where Wizest comes in. We created an investing solution to democratize the stock market and remove some barriers to entry that discourage novice investors. We understand the stock market can be intimidating and overwhelming and that most people’s lives are too busy to spend hours analyzing the market and making thoughtful investments.
Wizest lets you pick people instead of stocks. You can build your team of financial experts by browsing their Expert Profiles and Portfolios like you would on a social media platform. Building your team takes just minutes, replicating the portfolios of Experts with one click after you check out their profiles. It’s like fantasy football for investing, and you can shuffle your team of Experts anytime!
Our platform is designed to make investing simple for new investors, diversification easier for veteran investors, and the financial journey engaging and fun for everyone, regardless of your experience level. Our simple subscription model makes it affordable for everyone (the cost of 1 coffee a week), no matter the size of your account, with no hidden fees.