The Internet is crammed with hot stock tips. This article offers no such thing. But if you want to know how and where to invest money for long-term success, you’re in the right place.
The funny part is, all those tip-chasers are part of the reason this strategy works. Yet effectively investing this way is no more work than keeping track of a set of inexpensive index funds, buying and selling only when necessary. You probably will change the oil in your car more often than you will trade this account.
First, the how: Open a simple brokerage account. Any will do, but it will pay you down the road to pick a well-known, well-run platform with a broad choice of low-fee, no-commission exchange-traded funds (ETFs).
The reason why is cost. We’ll be buying and, on occasion, selling ETFs. Cheaper is better if you must trade at all.
The second step is where: You’ll want to identify a selection of ETFs that mirrors the world.
Typically, financial advisers will tell you to buy a mix of stocks and bonds in some ratio, but what you really want is a mix of each, too. That includes U.S.-based firms both large and small, foreign developed stocks (think Volkswagen) and emerging market stocks (big countries, such as Brazil and China).
On the bond side, it will be not just U.S. Treasuries but also high-yield (sometimes called “junk”), major foreign debt and emerging market bonds, too. You’ll top that off with a smattering of what’s called “alternatives,” including real estate and commodities such as gold.
Next big thing
Now, how do the hot-blooded day traders help us? By chasing investment returns.
If you own the most important corners of the market in the proper proportions, you can simply sit on that portfolio and wait. It won’t matter if you bought the high or the low for any given asset (even gold).
Eventually, the active traders will pursue the “next big thing.” It might be a tech stock, such as Apple (AAPL), or some metal-mining emerging nation. Or plain old U.S. blue chips. In the end, it won’t matter to you why other people are in a lather over a given investment.
What will matter is watching your overall portfolio. In time, you will be handed the chance, more than once, to sell off a big gainer and to reinvest into another asset class that’s out of favor, which is simply rebalancing.
Likewise, it won’t matter why people hate the laggard you are buying. What matters is that it’s on sale.
Repeat as needed. Discipline and compounding will grow your wealth, helping you to know how and where to invest money without the headaches and risk of active investment, and without the unnecessary costs.