With the S&P 500 roaring higher in the new bull market, now is a great time to invest in stocks -- whether you're a seasoned investor or just getting started. But if you're new to investing, the whole thing may seem a bit intimidating. You'd love to get in on the biggest gainers, those stocks with tons of momentum like Nvidia or Super Micro Computer. But you also wish you could pick up a few stocks that have been left behind -- to get them at a dirt cheap valuation and benefit as they advance over time.
It's important to consider each company's competitive strengths, financial situation, and long-term prospects before jumping in. With a little time and experience, you can do this and win over time. But if you want to hit the ground running and invest right now without any experience, it's possible. And the best way to start is by putting money into one particular index fund.
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Why invest in an index fund?
First, let's talk about why it's a great idea to invest in an index fund. When you buy shares of such a fund, you don't have to study up on one stock, follow every bit of news about that particular company, and make investment decisions based on this and other factors. You don't have to identify tomorrow's winners and losers. And you don't have to worry about key details like diversifying across industries or choosing stocks that suit your investment style.
Instead, by just pushing the "buy" button, you immediately gain exposure to a number of industry leading stocks. Various index funds exist, tracking different indexes or large cap stocks. But one of the best options for a new investor is a top fund that tracks the S&P 500, offering you an investment in hundreds of companies driving today's economy. This benchmark includes a wide variety of industries, meaning you're guaranteed diversification.
If this sounds good to you, then consider starting with the SPDR S&P 500 ETF Trust (SPY 0.95%). The fund mirrors the composition of the S&P 500, so today it's heavily weighted with technology shares -- they make up about 29%. But financials, healthcare, and consumer discretionary stocks also make up double-digit percentages of the fund.
Why is this diversification so important? Because if one company or sector struggles, others may compensate, limiting your losses and even resulting in an overall gain.
Big positions in today's top performers
At the same time, the SPDR S&P 500 ETF's big positions in today's top-performing stocks offer you the opportunity to benefit from all of them -- so you don't have to choose just one. For example, the fund's largest positions include the stocks known as the "Magnificent Seven," players that have led the index higher since it began its recovery from its bear market low in late 2022.
The S&P 500, and the index funds that track it, aren't set in stone, though. The index invites new members in and drops old ones when appropriate to reflect the companies currently powering the economy. Just this week, the index added Super Micro Computer, for example, so funds that track the index will buy shares to mirror this. And this means, by investing in the SPDR S&P 500 ETF over the long term, you'll continually have a stake in the leading companies of the moment.
And speaking of long term, the S&P 500 also represents an ideal index to track because it's always scored a win for investors over time. If you look at the index's performance even following bear markets and consecutive years of losses, it's consistently gone on to recover and thrive.
This means if you invest for the long term -- which is the best way to invest -- you're likely to score a win. Of course, stock picking is a fantastic way to supercharge your portfolio, and you'll want to make it part of your strategy. But, if you're just getting started, buying shares of the SPDR S&P 500 ETF is a great initial move as it builds a solid foundation for your path to financial freedom.
