Investing in shares of individual stocks can be a great way to earn impressive investment returns and build wealth. But that's the case only if you have the knowledge and are willing to put in the time necessary to make sound investments.
Not everyone enjoys the process of researching businesses or keeping tabs on how companies are performing. But if that's not your cup of tea, you don't want that to discourage you from getting your money into the stock market -- especially not when there is a simple solution.
If you hate picking stocks, this could be the investment for you
Index funds track the performance of financial indexes. When you invest in one, your money is distributed into all the assets that make up the fund. If you buy an S&P 500 index fund, for example, your investment will give you exposure to around 500 of the largest U.S. companies. Your single purchase of that one fund will actually allow you to invest in businesses ranging from Apple and Amazon to Caterpillar and Charles Schwab to DISH Network and Dollar Tree. You will essentially be making a bet on all the big businesses in America that are spread across all different industries.
Betting on American businesses has always paid off in the past, with the S&P 500 producing average annual returns of around 10% over time and never producing losses for anyone who has consistently remained invested for at least 20 years.
Because of the proven track record of this index fund and the fact that investing in it provides instant diversification, buying an S&P 500 fund significantly reduces the risk you're taking on while giving you the best chance of earning a generous return.
Why is an S&P 500 fund ideal for people who don't like stock picking?
The most obvious reason an S&P 500 fund is a great choice for someone who isn't a skilled investor is the fact that you can earn predictably good returns while minimizing risks. But there are other benefits too.
There are several S&P 500 exchange-traded funds (ETFs) out there that you can invest in. All of them will perform very similarly since they are all aiming to mimic the index's performance. That means you don't need to do a lot of research to get your money invested. All you need to do is take a look at the fees each charges and pick one. There's little knowledge required and almost no effort involved.
S&P 500 ETFs also charge very low fees, since the investments are selected automatically and the fund is not actively managed. So you don't need to worry about investing costs eating into returns. And you can typically invest in these funds without a lot of money -- especially if you buy through a brokerage firm that allows you to purchase fractional shares of ETFs.
All of this means almost anyone -- even people with zero investment knowledge -- can start investing and stand a great chance of success.