We're starting off 2022 with a fair amount of stock market volatility. That can be troubling for even the most seasoned of investors. And if you're new to buying stocks, it can be exceptionally daunting.
If you're worried about choosing the wrong companies as the stock market undergoes its share of shake-ups, you're no doubt in good company. And the great news is that you don't have to put yourself in a position where you're stuck lying awake at night worrying if you've made the wrong choice. Instead, there's an easy investment you can turn to that takes all of that guesswork and self-doubt out of the equation.
Invest in the broad market
During periods of stock market volatility, portfolio values on a whole have the potential to shrink. But if you happen to choose a single stock whose value really tanks, you might feel the pain all that more.
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If you're nervous about the idea of hand-picking stocks right now, a better bet may be to load up on S&P 500 index funds. Index funds are set up to match the performance of whatever benchmark they're tracking. And so S&P 500 index funds are designed to perform comparably to the S&P 500 itself.
Because the S&P 500 is comprised of the 500 largest publicly traded companies, it's effectively a solid representation of how the stock market on a whole is performing. And that's something you can take comfort in as a more skittish investor.
If the stock market continues to lose value and you buy S&P 500 index funds, your portfolio, too, will lose value. But that loss will be in line with what the broad market is experiencing. On the other hand, if you buy a particular stock, you run the risk that that stock specifically will get hit harder, thereby causing you a larger degree of personal loss.
Now to backtrack a minute, when we talk about losses in this context, we're only talking about losses on paper (or, more accurately, on screen, since most investors log onto their accounts rather than wait to receive paper statements). If you see your portfolio value drop $10,000 overnight due to market volatility but you don't dump any of your stocks, you won't actually lose money.
But still, if you want to minimize those on-screen losses, S&P 500 index funds may be a good bet right now. Not only are they a smart investment to buy and hold for many years, but they also offer instant diversification, which is an important thing to have during any turbulent period.
Sleep better at night
Of course, S&P 500 index funds won't help you beat the market. And if you're well-versed in picking stocks, then it pays to scoop up specific companies whose share price is down due to general volatility, as opposed to issues with the company itself.
But if the idea of choosing the wrong stocks scares you right now, then there's no need to put yourself through the stress of making those choices. Instead, take the opportunity to invest in the broad market and rest assured knowing that you haven't done your part to take on undue risk.
