There is such a thing as easy investing. However, investing money can be stressful, especially with market volatility like during the COVID-19 economic impact or the 2008 financial crash. The future seems uncertain, and you could see your five years of investing drop by 25% in one month. Questions arise like when should I invest and which stocks should I pick? With hindsight being 2020 and thousands of stocks being available, it can be paralyzing to start or continue investing.
Luckily, there is a way with easy investing that allows you to invest money and save for the future. Easy investing is about shifting your mindset and following some practical tools to set yourself up for success.
I am not a certified financial professional, but below are the tips that have helped me, just an everyday investor.
For other tips, and a book recommendation on how to get a full picture of how to invest, see Seven Key Takeaways from I Will Teach You to Be Rich.
Easy Investing Mindset Tips
Mindset #1: You can’t time the market
Hindsight is 20/20 when it comes to stock picking and trying to time the market. During the 2008 recession financial experts kept saying the market was going to keep dropping and dropping. Then in March 2009, the market randomly rebounded 34%. Some people timed that, but if people held their money for the market to keep dropping, they missed out on that significant bump. If people could time the market consistently, then generating millions in the stock market would be easy.
If the talking heads on TV, hedge fund managers, and seasoned financial professionals cannot time the market, neither can we. That is okay. There is no need to try to time the market to grow your wealth.
Instead, focus on dollar-cost averaging by investing the same amount weekly or monthly. That way you are buying when the market is low, and when it is high. You will average out and still gain the historic average 7% yearly returns the market provides.
Mindset #2: Do not panic when the market is down. View it as a sale
When there is a 50% off sale at your favorite store, do you panic? Of course not, you are tempted to purchase that new winter coat that you have had your eyes on. The same applies to the market. When the market is down, those losses are not real until you sell finally sell the stock. Those losses are just paper losses. They aren’t real.
Selling when the market is down is a surefire way to lose money. It is better to forget about your money and not touch it. It is even better to buy more in a downtime. If you put in $200 a month on a $20 stock, that buys 10 shares. If that $20 is cut in half to $10, then you buy 20 shares with the same $200.
The single best thing you can do in a market downturn is to keep investing to buy more shares “on-sale.” Instead of seeing the market as a down-turn, see it as a buying opportunity.
Easy Investing Practical Tips
Practical tip #1: Buy low-cost index funds
With thousands of shares in the stock market, it can be almost impossible to pick a winner. Instead, get a diversified basket of stocks immediately. A diversified basket of stocks means that you will be exposed to much less risk than if you put all your money in a single corporation. You can get a basket of stocks by buying your stockbroker’s equivalent of the S&P 500 index fund. The S&P 500 index tracks the Fortune 500, the 500 top companies in America. When you buy one share of this index fund, you are purchasing a piece of every single one of the top 500 companies in American.
Besides getting immediate diversification and safety in your investments, the index also updates automatically. As the top companies change, the fund updates, so you always own the top 500 companies.
Lastly, when picking index funds, make sure the fund charges a low percentage point on the cost. For example, Fidelity uses the FXAIX to track the S&P 500, and it only charges 0.015% a year to manage this index for you.
If you feel this is too simple, rest assured that the most successful investors use overly simplistic methods too. Find out the 5 traits of successful investors with this post!
Practical tip #2: Dollar-cost Average
Hinted at before, dollar-cost average your investments.
Set your brokerage to automatically pull money for investing each paycheck. Have your account invest in the low-cost index funds. This ensures that no matter where the market is, you are investing your money. You will buy when the stock market is high, and you will also buy when the market is low – this causes your investment to dollar cost average to a lower price. The market tends to trend upward. Investing your money along the way will let you grow your wealth consistently without having to try to time the market “buy at a good price.”
Practical tip #3: Use Retirement Date Funds for Your Retirement Accounts
Retirement accounts like a Roth IRA and a 401-K should be invested in a Retirement date account. Look for one with a low-cost basis (.15% or less). As we grow older, our risk tolerance should change.
The formula is to take 110 – (your age). If you are 25 then, 85% of your portfolio should be in stocks (index funds), and 15% of your portfolio should be in bonds. If you are 60 and close to retirement age, then the split is 50% in stocks and 50% in bonds because bonds are less volatile.
Since we are going for a stress-free investing method, a Retirement Date Fund will automatically balance this ratio for you. Picking index funds that offer high growth early in your life, and it gradually moves more conservative as we age.
Main Take-Aways
- Investing in the future does not have to be complicated and stressful.
- Use the mindset of consistently investing and not panicking when the market is down to alleviate the mental burden of trying to be perfect when investing.
- Invest in index funds consistently, aiming for dollar-cost averaging continually to grow your wealth.
Action Items
Have you invested money yet? If not, use some of these tips to set up an account and start investing. If you have invested, how complicated is your strategy? If your game-plan causes you a lot of anxiety, consider switching to a less stressful, but still successful wealth management strategy like the one mentioned above.
