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1 Smart Thing New Investors Should Do

By Matthew Frankel, CFP® - Mar 8, 2021 at 8:16AM

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If you're just getting started, here's a wise portfolio strategy to consider.

Investing in individual stocks can be a great way to build wealth over time, and at The Motley Fool, we're big fans of buying and holding excellent companies. However, that's not necessarily the only way investors should put money to work. In this Fool Live video clip, recorded on Feb. 22Industry Focus host Jason Moser discusses one portfolio strategy that newer investors may want to use when getting started in the stock market. 

Jason Moser: I like your idea of starting out with that firm base. As you were talking, I started envisioning this tree, and this tree was growing, and you started with this base of maybe it's something just as simple as saying the first $5,000 or the first $10,000 that I save, I'm going to be just investing that methodically into this S&P 500 index fund, because that's something, you're right, no, it's not going to beat the market, it's going to match the market because you're investing in the market. You're getting immediate diversification because you're investing in that ETF that covers those 500 different companies. And so then, as you get that base and as that tree starts to grow, you can branch out and start investing into other types of opportunities, like individual companies, for example, other ETFs, if you like.

One of the things that she noted in her question in different ideas, as far as investing, choices from investing in long-term good businesses and just sitting and waiting, or investing in ETFs and mutual funds, or investing in speculating SPACs -- lots of different opportunities you can invest in out there, but I think that really she keyed in on something with the very first choice, investing in long-term good businesses and sitting and waiting. And that, ultimately, is what it really all comes back to.

You made a good point in referencing this current climate. It feels gamified. It feels like a lot of people view this as a game right now, and there are a lot of people out there in the media that I think are contributing to that narrative, and we certainly don't want to be ones who do that. But the fact of the matter, it does feel like it's taken on that feeling of a gamification, and that's not how it works. That's this desire to try to get rich quick, and trying to get rich quick is essentially, well, just go buy a lottery ticket or gamble, and then you can take the good with the bad there.

But if you're going to invest, the nature of investing is investing in long-term good businesses and just sitting and waiting, and that really ultimately is why we do what we do. When you're young, I can certainly understand that feeling of wanting to get to the finish line more quickly. Investing is a bit of a paradox in that regard, though. So we would encourage you just to continue to build up that base, allow yourself to branch out as you get older. First and foremost, as you mentioned it in your question, investing in good businesses and then just sitting and waiting, continue to diversify that portfolio and be patient. And then I suspect in 10 years, even you'll look back and be glad that you did.

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