How to Start Investing? (2)
From what we mentioned about the ways of investing in stocks and mutual funds last week, it’s time to introduce the rest of the methods!
3. Selecting index funds
- Lower level of time and resources required
For those investors who picked index funds, they can track the performance of the investment market as a whole. Say if we would like to be exposed to the S&P 500, companies may include Apple, American Express and Citigroup etc. Those stocks in this type of fund fluctuate according to the market index, so the returns would be relatively similar. Nowadays, there are also low-cost-ETFs for consideration, which are also feasible alternatives.
Although this passive investment results in lower risks, it is still prone to downside swings when the market declines. As it moves according to the index performance, there is still a possibility that it drops. Especially when we don’t have professionals to manage it for us, we would have to bear the risk on our own. Moreover, purchasing funds equals selecting all institutions that the specific fund covers, thus it is inevitable that some firms that we don’t prefer are included.
If you are investing in index funds, make sure that you have fully understood your risk tolerance and investment period. Investment newbies can also try to calculate your ideal investment proportion by this rule - subtract your age from 110. The resulting figure would then be the percentage of stocks that you are recommended to hold, while the rest of it could be used for bond purchases.
4. Selecting financial planners
- Least time and resources required
Financial planners or robo advisers make and implement all investment decisions for us, so that they free our time and stay us away from unwanted confusions or troubles. These professionals deeply understand your financial goals, risk preferences and investment timeline, in order to tailor make a portfolio that is 100% catered to you. Of course, as this option is considerably perfect and convenient, the costs that involved would be incredibly indigestible. Apart from this, the difficulty in picking the suitable planner is high as well. We can take reference from their past experience, credibility and customer satisfaction as selection criteria.
On the other hand, it is also doable to utilize robo advisors. We just have to register online or in an app, the programme would then do its magic and mix&match different investment combinations. The benefit of this is that automation deprives the process from man-made mistakes.
Bear in mind that there is never a best market entry method. We have to stay cautious and diligent, while always reminding ourselves that the earlier we start investing, the more compound interests that we are able to earn.