How to Invest: A Guide for Beginners
What is the best way to grow your investment account long term?
The world is going crazy right now in terms of the economy.
The German expectations for the economy dropped to the worst level ever.
The Russian ruble collapsed due to economic sanctions.
Housing affordability is the worst it has ever been, analysts say.
The S&P had one of the worst starts of the year in the history of the stock market.
Oil has pumped and dumped.
Some fear that Russia may use nukes.
So how can one invest in a crazy environment like this?
We’ve survived worse, and we will survive the present moment. We handled more than one Depression, two World Wars, 9/11, two Gulf Wars, Enron collapsed, a housing bubble burst, a global pandemic, and high inflation. In every circumstance, the stock market has been able to wither the turbulence and make progress.
CONTROL: One of the most important things when it comes to the stock market is to focus on things that you can control. It is not possible for most of us to change the nature of where things are going in the world. Can you change what is happening in Russia and Ukraine? Maybe yes, maybe no. If you go over there and try to change the nature of events, that’s possible. But most of us are not going to actually do much, if anything, in terms of a global conflict. So that leaves us with just the option of what we should do with regard to investments.
UNPREDICTABLE SITUATIONS: One should carefully consider investment decisions by thinking a lot about “what ifs” because they tend to happen. For instance, if your stocks drop by 15–20%, are you going to panic and sell? Maybe that suggests that you might need more guidance to handle such inevitable drops in the investment market, or perhaps investing might not be the right thing for you.
Goal: When it comes to investing, you should come up with goals that you hope to accomplish. If you are afraid of investing and just want stability, you should look at investments that have the least amount of volatility, like bonds or stable coins like Gemini Dollar or cash. Of course, long-term, many of these investments might not outpace inflation, but that is something to keep in mind. If your goal is long-term capital appreciation, you need to focus on growth stocks.
Balance: If you feel that you have trouble sleeping at night because your portfolio goes up and down too much, you might need to tailor your investments in such a way that they will have less volatility.
Keep your costs low: If you are a long-term investor, then what matters most is the cost of your index fund. Fidelity and Vanguard both have index funds with extremely low expense ratios. Fidelity even has some free ones. You do not have control over what happens in the world, but you can choose to get a fund with lower expenses.
Long-term perspective: If you focus on the long-term chart of the S&P, the returns look quite amazing. It has a very strong upward trajectory. In the last twenty years, the S&P has only been down six out of the last twenty years. That shows that the odds strongly favor your investments going up in any given year. Yes, the stock market has indeed gone down at times, but it has always made new highs.
