Investing is one of the best ways to build up your wealth. However, it can be intimidating to get started.
The initial step in attaining your financial objectives is to identify them. After that, you can determine your risk tolerance and timeline for achieving those targets.
Buy-and-hold ETF investing
If you are new to investing, a buy-and-hold ETF strategy is an excellent choice. It helps avoid market timing mistakes which often lead to disappointing returns.
ETFs offer investors access to a wide range of assets, such as stocks and bonds, that they can track across different sectors or industries.
A buy-and-hold ETF offers the advantage of increasing portfolio diversification without needing to conduct extensive research into individual stocks.
Additionally, you can utilize a dollar-cost averaging strategy for regular purchases. Doing so will lower your costs per share and boost overall returns.
Index funds are an attractive choice for this strategy, as they offer a cost-effective way to replicate the performance of an index or sector. However, it’s essential that you select the appropriate indexes for your portfolio.
Stock charts and trends
Stock charts are useful tools that investors use to monitor the performance of a company. They may also help detect trends that could indicate an advantageous investment opportunity.
Bar charts – Stock chart displays bars that represent price ranges over time, such as daily, weekly or monthly figures; year-to-date (YTD); five year (10 year), lifetime historical dates can also be analyzed using bar charts.
Volume – Trading volume is an essential technical indicator that can help determine if a stock is trending upward or downward. High volume days tend to occur around earnings or news release dates.
Weekly charts offer a longer-term perspective of a stock’s trend, while daily charts give more specific price and volume information at any given time. Comparing both charts allows you to distinguish between normal day-to-day price fluctuations and true shifts in the trend direction.
Investing in quality stocks
One strategy to increase your investment returns is investing in quality stocks. These companies usually boast strong balance sheets, steady growth and loyal customers.
These companies also pay out dividend payouts to their shareholders, providing you with a steady source of income from the company. You can begin investing in these stocks by opening an account with your brokerage.
Investment in quality stocks can be done through exchange-traded funds (ETFs). For instance, the iShares MSCI USA Quality Factor ETF ($QUAL) targets large and midcap companies with stable growth, high return on equity and lower financial leverage. Recently, this ETF has outperformed the market, rising 1 percentage point since August.
Investing actively or passively
Investment strategies such as active and passive investing require personal considerations that depend on your risk tolerance, time horizon, asset mix and portfolio composition. Either option can be beneficial to your portfolio however; ultimately both strategies have their place.
Active investing involves taking a more hands-on approach to managing an investment portfolio. This strategy typically requires more time, and it may be costlier as investors pay fees for making trades.
Passive investing, on the other hand, is a diversified investment strategy that usually provides higher average returns in the long run. Furthermore, it may be an effective way to reduce fees.
Both passive and active investing strategies have their advantages, but it’s essential to understand where the market is at any given time before deciding which approach is best suited for you. Utilizing an analysis tool like Stash’s Smart Portfolio can help determine which investing approach makes sense for you.