You grew up with the Internet, right? Right. Today, it’s easy to open a brokerage account online, deposit some money, and start trading. Great. But how do you know:
- Which stocks to buy
- What’s a reasonable price
- When to sell them
- How to create effective diversification
The answer is you probably don’t. Without significant investing experience, picking and choosing your own individual stocks isn’t such a great idea. The good news is you can skip all of the above by investing in groups of securities. It’s incredibly easy:
These funds pool money from individual investors (a.k.a, people like you) to buy a mix of stocks and/or bonds that match the fund’s investment strategy. You buy into the fund to get exposure to potentially hundreds of securities at once. Really!
Some funds are actively managed by a pro, others are passively managed according to a stock market index. Either way, you get a diversified portfolio with less money and effort than trying to build it on your own.
Mutual funds come in different forms and flavors. You get to review investment objectives, compare past performance, and assess costs to pick funds you like. Pick several to create even more diversity in your personal portfolio.
Exchange traded funds
ETFs are similar to mutual funds, but they are traded like stocks during the course of the trading day. Most are passively managed, which means the expenses to run them can be much lower than actively managed mutual funds. Cool, huh?
Like mutual funds, ETFs come in many shapes and sizes, and different levels of risk. Again, compare investment objectives, performance, risk levels, and costs to choose ETFs that work well in your portfolio.
So, there you go. Rather than pick individual investments, get into groups of investments with mutual funds and ETFs. These investment products make it easy to build a diversified portfolio, match your objectives, and tweak your mix over time. Go for it!