Investing in the stock market is a proven way to build wealth over time, but all too often investors become disillusioned after seeing disappointing returns or suffering losses on stocks and investments they thought were good buys.
Even when investors make seemingly safe investments, there is a chance they could fail. 3M It’s a stock that comes to mind: it’s boasted a solid brand and business for decades, but now legal issues have forced it to split up its operations and drastically cut a dividend that had seemed very safe for many years. Walgreens Boots Alliance It’s another once-safe stock that had to cut its dividend earlier this year.
Investors who recently bought these stocks are probably now disappointed after their short time in the market, especially if they made the mistake of accumulating only a few shares rather than diversifying their investments.
Stock picking is risky and time consuming
Investors who have had one or two failed stock investments may have learned that picking individual stocks is risky. The allure of chasing big profits and beating the market is what draws many investors.
It is this gamification of the stock market that prompted the late Warren Buffett’s right-hand man, Charlie Munger, to mock the stock market’s volatile behavior in 2021, likening it to something observed in a casino. Also, betting on risky stocks is a risky strategy. Risk is real in the stock market. (See this page to understand your risk tolerance.)
Even good stocks can provide investors with disappointing returns, and while many investors achieve market performance by diversifying and holding many stocks, it’s not an easy strategy to pull off on your own, especially if you don’t have the time or interest to track all your investments.
Many investors would be better off sticking to diversified exchange-traded funds.
For many investors, a more appropriate strategy may be to buy exchange-traded funds (ETFs) that track different segments of the market. Through ETFs, you can buy dozens of stocks, not just one. hundreds You can buy shares with just one investment.
for example, SPDR S&P 500 ETF Trust (NYSE: SPY) Chase S&P 500 You benefit from the performance of the overall market, and because each stock makes up a small portion of the fund, you don’t take on too much risk in any single investment.
With an expense ratio of just 0.09%, the costs aren’t high. Over time, the fund’s composition may change as new growth stocks emerge and others struggle. It’s easier to keep up with market changes by sticking to the fund’s stocks than by trying to stay on top of business news and trends.
While dips and bad years are inevitable, tracking the S&P 500 is a surefire way to grow your wealth over time. Since 2000, the SPDR S&P 500 ETF Trust has gained 264%. When you factor in dividend payments, the total return is about 466%.
The downside, of course, is that by investing in a fund that mirrors the S&P 500, Excellent If you’re confident in your stock-picking abilities, creating your own customized portfolio may still be preferable, but it’s certainly not the only way to make money in the stock market.
Stock investing doesn’t have to be complicated
After all, an investment strategy can be as simple or complex as you want it to be. Don’t want to invest in dozens or even hundreds of stocks and bother with tracking all those companies? Go the ETF route. Do you follow the stock market daily and stay up to date on the latest trends and movements in the market? Do you know what makes stocks undervalued or overvalued? Then picking individual stocks might be a better option.
There is no one-size-fits-all strategy, and if your goal is to earn high returns without beating the market, choosing an ETF that tracks the S&P 500 may be the best strategy for you.
Should I invest $1,000 in the SPDR S&P 500 ETF Trust right now?
Before you buy shares of SPDR S&P 500 ETF Trust, consider the following:
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
Making Money in the Stock Market is Easy, Even if You’re Not Good at Picking Stocks. Originally published by The Motley Fool
