Too many new investors go from zero to 100 miles an hour. I know — that’s exactly what I did when I started out. There are all sorts of reasons why this happens, many of which go back to how human emotions work. Take it from someone who made a lot of early investment mistakes: A much better path is to start investing slowly with the goal of learning as you go.
With the advent of exchange-traded funds (ETFs), which didn’t exist when I started out, you can learn and invest with relative ease. There are many options you could start with, but a really good one is the Vanguard S&P 500 ETF(NYSEMKT: VOO).
Why start slow?
It’s important to understand that everyone (everyone!) makes investing mistakes. Nobody’s perfect, and nobody has all the answers. The problem is that very few investors, particularly successful ones, spend much time talking about their mistakes. It’s far more enjoyable to discuss the winners.
The issue here is that, when you start out, a single investment mistake can wipe you out. Emotionally, that might result in you never investing again, which would probably be bad for your long-term finances.
NVDA Chart
The solution is to stop yourself from jumping in with both feet and risking everything on a single investment. For example, Nvidia(NASDAQ: NVDA) is a hot stock today, with all sorts of positive things being said about it. But the stock is up over 250% in a year, which is an incredible gain in a very short period of time. A new investor might look at that and think that the stock can’t lose, expecting it to keep going up and up. It’s an artificial intelligence play, after all, and that’s the big thing right now.
Nvidia might keep rising, but anyone who’s been around Wall Street long enough knows that trees don’t grow to the sky. Eventually, mercurial investors will find another hot theme and drop Nvidia. It’s a pattern that repeats with great consistency for reasons ranging from a slowdown in a company’s growth trajectory to, frankly, just plain boredom among investors. As an example, shares of Cisco Systems(NASDAQ: CSCO), another tech name, still haven’t recovered to the peak levels they reached before the dot.com crash at the turn of the century.
CSCO Chart
The best way to avoid getting caught up in Wall Street’s hype machine is to start broadly and then slowly start to dip your toes into buying individual stocks. The Vanguard S&P 500 ETF will let you do just that.
What is the Vanguard S&P 500 ETF?
Exchange-traded funds are pooled investment vehicles in which many investors provide capital to a professional manager that invests for the group. One of the biggest benefits of this is that the pooled investment vehicle can usually buy a more diversified portfolio than any single member of the pool could on their own. The Vanguard S&P 500 ETF invests in the stocks that make up the S&P 500 Index, as its name implies.
The S&P 500 Index is one of the most commonly used market barometers. You will find the “story” behind the performance of your investment in the Vanguard S&P 500 ETF very easy to track. That will help you learn as you invest. And, because it is a broad market proxy, you will have a diversified portfolio that will help to limit the damage that comes from owning poorly performing stocks (remember, even the best investors make mistakes).
The S&P 500 Index is a curated list meant specifically to represent the U.S. economy. So there’s a bit of human intervention in the mix, and the overall portfolio won’t likely get too heavily focused in any one area. That said, the index is market cap weighted, so the largest companies get the largest allocation of cash. Usually the biggest companies are also among the best performing, so this subtle way of focusing a little more on a few stocks is generally a net benefit.
The best part, however, is that the Vanguard S&P 500 ETF is shockingly cheap to own, with an expense ratio of just 0.03%. So one single investment gets you exposure to around 500 stocks (and all of the benefits, like diversification, that go with that) and all you pay is 0.03%, which is a really, really low number on Wall Street. The only potential negative is that the dividend yield is a tiny 1.4% or so, but that’s to be expected given the size of the portfolio.
Start with the ETF and prepare for the next step
So start yourself out by opening a brokerage account and buying the Vanguard S&P 500 ETF. Keep saving money and putting it into this diversified market proxy. And read all you can about investing and the market. When you have a little bit of money built up, take a few thousand dollars — no more than 5% or 10% of your nest egg — and buy a single stock. If you like the experience, keep learning and doing more investing. If you don’t, you can just stick with the Vanguard S&P 500 ETF for the rest of your life.
Should you invest $1,000 in Vanguard S&P 500 ETF right now?
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Reuben Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
