The question I get asked often is “is now a good time to invest in the stock market?”. The answer is always a YES. Learning how to get started investing in the Stock Market is the first step to securing your financial freedom. Investing in the stock market is easy, although, investing smart takes more planning and research. Use these methods to ensure your money is going to work for you.
1. Open a Fidelity Account
Opening a Fidelity account is the first step to investing in the Stock Market. To start off, I am not getting paid by Fidelity to give them this high praise. Even though I should be because this may convince TENS of people to use their services. Instead, I am writing from experience and research. I have tried many different accounts and Fidelity trumps them all. I chose Fidelity because they have a very strong reputation for its mutual funds. Mutual funds / Index funds are my bread and butter and are comprised of some of the best stocks in the stock market, will discuss later in article. Fidelity offers $0 trading commissions as well as many strong mutual funds with no investment minimums. It is an easy platform to navigate and they offer strong market analysis done by professionals. This makes it a strong platform for people new to investing.
2. Compounding Interest = Start Now !
Compounding Interest is the main reason I give when people ask me is now a good time to invest in the stock market. It is the main reason many older folks tell the younger generations to start investing early. Getting started early is key to allowing your money to work for you. If you are putting your money into a retirement account like an IRA or 401k, then this gives your money plenty of time to grow off of itself through compounding interest.
So what is compounding interest as it relates to you as a prospective investor? Lets say you had $1000 invested to start and contribute $200 monthly. Over 10 years at a 9.8% annual return (S&P 500 avg return over past 90 years), this would leave you with $43,491. Of that amount, $18,491 is accrued just from interest ! That is the definition of your money working for itself (independent money that don’t need no man).
3. S&P 500 and Nasdaq
Start investing in the stock market with these two mutual funds. The S&P 500 is a market capitalization weighted index of the 500 largest publicly traded companies in the United States. It is made up of some of the best stocks in the United States. The Nasdaq contains roughly 3,200 publicly traded companies and is the largest electronic stock market, also some of the best stocks. Although the Nasdaq contains stocks from many different industries, it is especially know for its tech stocks. Index funds that mirror these two are extremely rewarding in the long term.
Over the past 90 years, the S&P 500 averages a 9.8% annual return. The Nasdaq averages a 7.18% annual return. If you are trading with Fidelity, the index fund for the S&P 500 is the Fidelity 500 Index Fund (FXAIX). The index fund for Nasdaq is Fidelity Nasdaq Composite Index (FNCMX).
4. Tesla Stock vs Index Funds
I am using Tesla as an example. Tesla is one of those companies whose stock has noticeably shot up leaving their shareholders with big smiles. But this type of occurrence is extremely rare and don’t always pan out well (ex. GE). You as a prospective investor will need to decide whether you want to be a singular company investor or invest in index funds based on your risk tolerance. There’s no reason you can’t do both either, but where will the majority of your hard earned cash go?
Index funds are substantially safer to invest in, although you may not see insanely high increases in a short amount of time. What makes them safer / less risky ? I’m glad you asked. What makes them safer is the fact that they are made up of many different stocks pooled into one mutual fund. If one of those companies does terribly, then you are not affected much. If you had only invested in that failed company, then you are out of luck.
5. Don’t Panic – Stock Futures
Many new investors panic at the first sign of a dip in the market. This panic results in them selling their shares typically under the price they bought them for. What new investors need to realize is, is that the market fluctuates week over week. If the market takes a dip, you don’t actually lose any money until you decide to sell. It is important to hold your stocks during these fluctuations and trust that the market will rebound. This is especially the case in index funds. The market WILL rebound with Index stocks (at least with the ones mentioned above). It may take weeks or months, but it will happen just as it has in past years. Individual stocks are a bit trickier as sometimes you may have to sell if the company took a turn for the worse, a turn that can’t be recovered from.
For a more comprehensive look into the stock market, check out this article on How Do Stocks Work and How to Invest
Is now a good time to invest in the stock market? Yes absolutely! The earlier you start investing, the more compounding interest you will accumulate. Thank you for reading, please subscribe if you would like to be notified when an article is posted.
- Kenton, Will. “S&P 500 Index.” Investopedia, Investopedia, 31 Oct. 2020, www.investopedia.com/terms/s/sp500.asp.