Getting Started in the Stock Market – What to Invest In?
April 22nd, 2009
I often get asked for stock recommendations but rarely mention a specific stock due to risks of investing in individual stocks; instead I tell people to buy the market. If you are just getting started in the stock market, buying a broad-based ETF such as the SPDR S&P 500 may be a good choice.
What is an ETF
An ETF is an Exchange Traded Fund which is a fund that follows that mimics the performance of a basket of stocks but trades like a single stock
What is the SPDR S&P 500
It’s an ETF that mimics the performance of the S&P 500. The S&P 500 is an index that tracks the performance of stocks of 500 of the largest publicly traded American companies. It’s ticker symbol is SPY.
Diversification
By purchasing a broad-based ETF, there’s no need to buy 20 other stocks to have a well diversified portfolio.
Lower Fees
ETFs have lower fees than actively managed funds and have no minimum investment requirements. There is also little or no capital gains distribution taxes until you actually sell the ETF, as is common among actively managed funds.
Perform at Par to the Market
You”ll perform just as well as the market (less the brokerage fees and ETF fees, which for the SPDR S&P 500 is just 0.09%). While ideally everyone would like to beat the market, performing at par with the market is pretty decent, considering that most mutual funds under perform the market.
Written by: tim
Categories: Investing
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