Investing for the First Time During a Volatile Market? Here Are 3 Tips to Get Started
KEY POINTS
- The past 12 months have been fairly rocky for investors, so it's a tough time to be getting started.
- It's a good idea to build a diverse investment mix, not go all-in on a single stock, and limit the extent to which you check up on your portfolio.
It's a challenging thing. Here's how to navigate it.
The S&P 500 index, which is generally considered a measure of the broad stock market, is up about 3.5% year to date. But it's also down about 13.5% over the past year.
That's because we're still in the midst of a volatile stock market. And while things may be starting to settle down, factors like banking industry woes, inflation, and interest rate hikes could create a turbulent backdrop for investors throughout 2023.
As such, it's fair to say that now's a pretty tough time to first start investing. But it's also a good thing to start investing, because the sooner you do, the more time your money gets to grow.
If you're opening your first brokerage account this year, here are some key tips to keep in mind.
1. Focus on diversification
A well-diversified portfolio could help you limit your losses during periods of stock market volatility, all the while setting you up for nice gains during periods when the market rallies. So as you go about the process of buying stocks for the first time, aim for a broad mix of companies across different segments of the market.
You may also want to put some broad market ETFs, or exchange-traded funds, in your portfolio. If you buy shares of an S&P 500 ETF, for example, you're effectively investing in the 500 largest publicly traded companies in the market.
2. Take advantage of fractional shares
When the stock market is shaky, leaning too heavily on any individual stock could be a recipe for disaster (though to be fair, the same holds true during periods with less volatility, too). That's why you don't want to tie up too much of your money in a single stock, but rather, branch out.
Now, some stocks have a much higher share price than others. But a good way to add higher-priced stocks to your portfolio without creating too much of an imbalance is to take advantage of fractional shares.
Many brokerage accounts these days let you buy shares of stock on a fractional basis. So, let's say you have $2,000 to build an initial portfolio with, and you want to invest in a company whose share price is sitting at $500. Buying a whole share means putting 25% of your portfolio into a single company, and that could be risky. But if you were to buy one-fourth or one-third of a share, you'd be limiting your risk.
3. Don't check your portfolio balance every day
The stock market has a tendency to swing wildly -- even in the best of times, and certainly when things are generally turbulent. That's why it's important to pledge to not check your portfolio on a daily basis. Doing so might not only cause you undue stress, but push you to make rash decisions that hurt you financially, like dumping stocks when their value declines and locking in losses as a result.
It's fair to say that if you're first starting to invest right now, you're doing so at a tricky time. But if you follow these tips, you can get into a good groove and set yourself up for long-term success.
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