If you are new to investing, it can be a daunting task to take that first step and invest your money. With thousands of stocks and investment options out there, the big question is -- where do you start? As with any endeavor, it takes time to understand the markets, the industries, and the companies that you invest in. Even long-time investors learn something new almost every day because markets are constantly evolving and changing.
While the markets are complex, that shouldn't preclude anyone from investing and being successful at it from the jump -- if you know where to start. Here are three starter investments you can't go wrong with.
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1. Microsoft: The tech giant, more accessible through fractional shares
If you are new to investing, chances are you probably don't want to start off investing thousands upon thousands of dollars in a stock. You may not have that much to invest, or you may be reluctant to sink too much into something you are just starting to learn about. A better strategy might be to start with a manageable initial investment and then add to it monthly or regularly over time.
However, an issue for many people is not being able to invest in a lot of blue-chip stocks because their per-share price may seem too high. A survey by GoBankingRates said that 55% of people don't invest because they don't think they earn enough money to do so.
However, you can invest in these large blue-chip names through fractional shares investing, which is available through online brokers. It simply allows you to invest in a stock by dollar amount as opposed to shares. If you only had $250 to invest initially, you could invest in one of the greatest companies on earth, Microsoft (MSFT 0.34%). Microsoft is currently trading at around $340 per share as of Dec. 28, and over the last 10 years, it has posted an average annual return of 29.3%.
Microsoft is the second-largest company in the world by market capitalization, and its annual earnings have climbed about 10% annually over the last 10 years to $176 billion as of Sept. 30, 2021. Over the last few years, it has continued to diversify its revenue stream, led by its cloud computing business, which is its fastest-growing.
This year, Microsoft announced plans to acquire Nuance Communications, an artificial intelligence company, to bolster its cloud computing business, and Xandr, a digital ad technology firm that it may use with various properties, including the search engine Bing.
This tech giant has been a dominant player for 40 years and will likely continue to be one for many more years to come.
2. Invesco QQQ: A diversified investment in technology
While fractional shares are a great way to invest in a top technology company like Microsoft, the Invesco QQQ (QQQ -0.02%) exchange-traded fund (ETF) is another way to invest in the top technology firms. The Invesco QQQ invests in the stocks that make up the Nasdaq 100 Index -- the 100 largest nonfinancial U.S. stocks. As such, about 70% of the ETF is in technology and communication services stocks, with about 16% in consumer discretionary stocks.
The top five holdings in the QQQ are Apple, Microsoft, Amazon, Meta Platforms, and Tesla.
It has been one of the top-performing ETFs, with a 10-year annualized return of 22.6% through Nov. 30 and a 10.3% return since inception in 1999. Currently, it is up 28.5% year to date as of Dec. 28.
If you are new to investing, an important tenet is time in the market. The longer you invest, the more time your investment has to grow and compound. With a long time horizon, you have time to navigate short-term ups and downs and realize the better longer-term returns that a growth-oriented ETF like the QQQ will likely deliver. The beauty of this ETF is that it's a diversified group of the 100 biggest, fastest-growing companies in the land, so it is diversified and ever-evolving with the changes to the markets.
3. Standard & Poorʻs Global: Earnings protected by a moat
The great investor Warren Buffett, chairman and CEO of Berkshire Hathaway, often talks about the importance of investing in companies with a moat. A moat, of course, is the gully filled with water around a castle that protects it from intruders. In investing, it refers to the competitive advantages for a company that are so strong, they essentially ward off competition.
Standard and Poorʻs Global (SPGI 0.55%) actually has two competitive moats in two of its three major businesses, which makes it a pretty solid bet to continue to dominate its markets and deliver long-term earnings for investors. Its track record shows its remarkable consistency as it has raised its annual dividend for 48 straight years. That makes it a Dividend Aristocrat, and only about 25 other companies have longer streaks. Its stock price has averaged a 26.5% gain over the past 10 years on an annualized basis.
As mentioned, S&P Global has two moats -- one for its credit rating business and one for its indexing business. It is one of only three major credit ratings agencies in the U.S. and is the leader, along with Moodyʻs, with a 40% market share. This is a market that likely won't be penetrated by competitors any time soon as there is a high regulatory bar to entry and only a few credit rating agencies are needed.
Also, it is one of only a handful of major index providers, and with the rise of ETFs, which pay fees to use the indexes, it will probably remain a leader for years to come. Like Microsoft, its share price is on the high side at $480 per share, but you can use fractional investing for this stock as well.
So, if you are just getting started, these are three investments that you should feel comfortable with as long-term plays.
