Investing For Beginners: Long Term Strategy

So when I first dabbled into the stock market, it was honestly quite daunting. Seeing first hand the effects of the global financial crisis of 2008 impact my parents didn’t help. That experience made me very hesitant on placing any funds in the “risky” stock market that may end up losing all of my hard-earned money that I had saved up.

Little did I know, this was not the case at all.

Investing in the stock market can be the best decision you can make if you’re looking to achieve financial independence with minimal effort. You’ll be effectively having your money work hard for you with only a few simple clicks now that we have online trading available to us.

Now, don’t get me wrong – the stock market can be very risky if you want it to be but it can also be a low-risk concept if approached correctly. Simply put, you can tailor your investment strategy to your risk appetite.

I’m going to share 3 key pieces of knowledge that I wish I had known when first investing in the stock market, especially when you’re someone like me with a lot less risk appetite.

Key Tip #1 – ETF & Hold

If you’re interested in a low-risk approach you have to diversify your portfolio and my recommended way to approach this is through Exchange-Traded Funds or ETFs. ETFs are essentially a collection of different stocks that trade against a certain market and can be purchased like any other stock that you would hear about such as Apple, Google or Facebook.

Here are 3 examples of an ETF from Vanguard (one of the world’s largest investment companies), that would be appropriate for those looking to grow their money over a longer period of time:

  • Vanguard Total Stock Market
    Ticker Symbol: VTI
    Tracks the entire U.S. stock market comprising of 3,600 small to large companies.
  • Vanguard S&P 500
    Ticker Symbol: VOO
    Comprised of stocks that are from 500 of the largest U.S. companies
  • Vanguard Total Bond Market
    Ticker Symbol: BND
    An ETF that tracks the broad bond market

Again, as noted in the title this is a long term strategy that I am sharing with you and not a get-rich quick scheme so be prepared to be patient. Historically figures have shown that through all the ups and downs with the economy (including crashes like we saw early this year with Covid-19), holding ETFs have proven to outperform mutual funds, which you’ll hear many banks trying to sell you on.

Key Tip #2 – Start Early & Be Consistent

I can’t express the importance of starting early. The power of compound interest (also referred to as the 8th wonder of the world) will work in your favour the longer that you’re in the game. My recommendation is to start small now if you haven’t already started. Even if it is a small amount each month you’re putting away consistently to invest, compounding interest will help you amass great wealth.

Using this online Compound Interest Calculator, you can estimate how much you can potentially grow your monthly investments into.

For example, a 25 year old starting out with even an amount like $250 each month, investing in an ETF, like VOO, which follows the S&P 500 (average rate of return of 8% per year), can amass a great $580,000 of portfolio value when reaching the age 60. This is under the assumption that he or she does not increase the monthly investment amount – so just imagine if one does!

Key Tip #3 – Don’t Let Emotions In

Emotions are important and I talk about having high EQ is crucial in my other post but the reality is when it comes to the stock market, having your emotions influence your actions can be one of the most detrimental things to your stock portfolio.

Let’s say the stock market is falling (like earlier this due to Covid-19) and you fear that your stocks will fall and decide to sell off a good portion of your portfolio to “cut your losses”. In most cases, this is in fact the wrong move endorsed by your emotions.

Historically speaking, studies have shown that if people try to time the market (i.e. buy low and sell high) the risk of minimising your gains actually rises. J.P. Morgan’s Asset Management’s Guide to Retirement 2019 shows that if an investor had $10,000 invested in the S&P500 between January 4, 1999, and December 31, 2018, he or she would end up with about $30,000. An investor who missed 10 of the best days in the market would end up with $15,000 and even worse, an investor who missed 30 of the best days in the market during that period would actually end up with less then what they begun with – around $6,000.

Bottom line, follow Key Tip #1 and you’ll not miss any of the best days of the market and most importantly, it’ll be a stress free process.

In Summary

These are the 3 tips that I would have told my younger self when starting out with investing and hope this is of some value to you too. I urge you though to continue doing your own research and study what investment approach would suit you best for the goals you’re trying to achieve. There is definitely no one size fits all given that we all have different levels or risk appetite so ensure that what you’re doing sits well with you and your values.

Until next time.

J.

Disclaimer
The information on this website is for general information only. It should not be taken as constituting professional advice. investgrowbuild is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. investgrowbuild is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.

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