Investing in the stock market is one of the best ways, if not the best, to build long-term wealth, and starting to invest is an excellent decision. The S&P 500 (SNPINDEX: ^GSPC), the closely watched index that tracks 500 of the biggest U.S. stocks, has historically returned an average of 9% per year, easily outpacing inflation and other asset classes like bonds and real estate.
For new investors, it’s important to understand that that 9% gain is an average, and investing in the stock market comes with a lot of volatility. That means that the index doesn’t just steadily gain 9% each year. You might have one year where you gain 30%, but then lose 25% the next year. That is normal, and investors must understand that the best way to make the stock market work for you is to invest over the long term, which means a time horizon of at least five years.
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Now, let’s review some of the basics to get started investing.
How to start investing
If you’re ready to start investing, the first thing you’ll need is a brokerage account. You can get one through a number of platforms, including Robinhood, E*TRADE from Morgan Stanley, Interactive Brokers, Charles Schwab, Fidelity, and others.
You can set up a taxable brokerage account, or an individual retirement account (IRA), which offers tax-saving benefits if you’re investing to save for retirement, or you can have both.
Once you have an account you’ve funded with money you’re planning to invest, you must decide what to invest in. An easy choice, especially for beginning investors, is to invest in an index fund. This is an exchange-traded fund, meaning you can buy and sell it like a stock, that holds all of the stocks in a certain index, like the S&P 500. In fact, some of the most popular index funds are S&P 500 funds like the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF. Investors who are more interested in tech stocks may want to buy shares of the Invesco QQQ Trust, an index fund that tracks the Nasdaq-100, which holds the 100 biggest companies in the Nasdaq, and is dominated by tech stocks.
One growth stock I’d buy now
You can also invest in individual stocks, which generally carry more upside potential than an ETF, but also greater risk.
One growth stock that I find particularly attractive right now is Viking Holdings (NYSE: VIK), the parent of Viking Cruises.
