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New to investing? This is how you quickly build a diversified portfolio

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Bullish and bearish stock bull market

Important points

  • It is important to have a good mix of different investments in your portfolio.

  • If you’re just starting out, this is an easy way to diversify your portfolio.

I still remember the first time I chose a specific stock for my portfolio. While the company was a good choice for me (as evidenced by the fact that it still has a place in my portfolio), I was pretty nervous at the time.

Until that moment I had only decided on a specific fund. While this required some research, I’ll admit it wasn’t a difficult decision to make.

But when you buy individual stocks, the stakes are higher and the work can be more intense. That’s why it’s not always worth picking individual stocks when you’re new to investing. Instead, it may be worth taking a different approach to building your portfolio.

Invest your money in the wide market

If you’re new to building a portfolio, it’s important that your investment mix is ​​good and diverse. If you focus too much on a particular sector of the market, you could incur huge losses if that segment takes a hit.

Take retail, for example. Many retail stocks have come under pressure in 2020 due to the pandemic-forced closures and associated permanent store closures.

Or look at the losses the tech sector has suffered in recent weeks. Anyone with 90% of their wealth in technology is probably stressed right now.

This is why it might be best to invest in the broad market if you are just starting out. An easy way to do this is to invest in S&P 500 exchange-traded funds (ETFs).

The S&P 500 is a market index made up of the 500 largest publicly traded companies. ETFs, on the other hand, are exchange-traded funds that invest in multiple companies at once.

When you buy an S&P 500 ETF, you’re effectively investing in the entire stock market, rather than relying on a few individual companies for good results. This is a wise decision if you’re new and don’t know exactly what criteria to use to evaluate stocks.

S&P 500 ETFs not only eliminate a lot of the guesswork, they also offer the benefit of instant diversification. This can lead to steady growth while providing protection in times of market turbulence.

go in slowly

There’s one key downside to putting all your money in the S&P 500 ETF: You won’t have a chance to outperform the broader market. But if that’s not what you plan to do as a newbie, it’s perfectly fine to turn to S&P 500 ETFs while you build your confidence and his skills.

Regardless, the most important thing you can do as a beginner is commit to this role. Don’t just invest once, but commit to investing regularly in the broad market or adjust your strategy as your knowledge of stocks improves.

There is a lot of money to be made by investing over a long period of time. But getting started with S&P 500 ETFs can be a very solid foundation.

The article New to Investing? How to Quickly Build a Diversified Portfolio first appeared in The Motley Fool Germany.

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This article was written by Maurie Backman and was published on Fool.com on 03/20/2022. It has been translated so that our German readers can join the discussion.

Motley Fool Germany 2022

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