The stock market can be intimidating at times (especially during periods of volatility), but investing is one of the most effective ways to build wealth over time. There's never a bad time to begin investing, but it's important to be sure you're choosing the right investments. When the market is in a slump, strong investments will give your portfolio the best chance of bouncing back from a downturn.
If you're ready to get started, there are a few types of investments you can't go wrong with.
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1. S&P 500 ETFs
An S&P 500 ETF is a fund that tracks the S&P 500 index itself. This means it includes the same stocks as the index, which are from some of the largest and strongest companies in the U.S.
One advantage of this type of investment is that it can help limit your risk when the market is volatile. S&P 500 ETFs include stocks from 500 companies, which creates instant diversification. Also, because the companies within the fund are exceptionally strong, they're the most likely to survive market downturns.
Keep in mind, however, that S&P 500 ETFs are long-term investments. If the market takes a turn for the worse, your investment will be affected in the near term. But the S&P 500 itself has recovered from every single downturn it's ever faced, and it's extremely likely your investment will bounce back, as well.
2. Dividend ETFs
Some stocks pay a portion of their profits back to shareholders, which is called a dividend. A dividend ETF, then, is a fund that only includes dividend-paying stocks.
The biggest advantage of investing in a dividend ETF is that it can create a source of passive income. Every quarter or year, you'll receive a dividend payment for each share you own. Over time, those dividends can add up significantly.
Also, most funds allow you to reinvest your dividend payments to buy more shares of that particular ETF. Reinvesting your dividends can make it easier to grow a steady stream of passive income. The more you reinvest, the more shares you'll own, and the more dividends you'll receive.
3. Growth ETFs
A growth ETF is a type of fund that only includes stocks with the potential for faster-than-average growth. Some growth ETFs are focused on a particular niche (such as the tech industry), while others may include stocks from multiple industries.
Growth ETFs often see higher average returns than broad-market funds like an S&P 500 ETF. However, they can also be more volatile, because high-growth stocks are sometimes riskier than stocks from more established companies.
Investing in a growth ETF can be a smart way to supercharge your returns. But it's a good idea to consider investing in a more stable fund, as well, to limit your risk as much as possible.
The stock market may be shaky right now, but that doesn't mean it's a bad time to start investing. By choosing the right investments and keeping a long-term outlook, you can earn more than you might think.
