The First Step of Investing – Focus on Mutual Funds or ETFs
If you’re interested in dipping your toe into the world of investing, perhaps you have no idea where to start. What’s the right choice? Where should you invest your money? The stock market can be an intimidating place, but we have a few suggestions that will help you learn the ropes and get you started along the path to building generational wealth. The easiest way to do so is to diversify your portfolio.
Diversify Your Portfolio
One of the first steps you’ll want to take is diversifying your portfolio. Your portfolio is the list of various stocks you have chosen to invest in. Diversifying your portfolio means, to put it plainly, you don’t put all your eggs in one basket. The idea is to spread out your investments over a wide range of industries. Why should you do this?
The short answer is there is less risk involved. Depending on how the stock market does on any given day, you won’t risk losing all your money at once if your portfolio is diverse. This means your investments will be stable and will not fluctuate up or down with the market, but keep a slow and steady rise, which is exactly what you want. This is the surest bet to grow your investments.
One of the best ways to ensure your portfolio is diversified is to focus on investing in mutual funds and ETFs. Let’s take a look.
Mutual Funds
Investing in a mutual fund is one of the fastest ways to diversify your portfolio if you’re just starting your investment journey. A mutual fund is an investment that is managed professionally by companies such as Vanguard or Fidelity and includes several different holdings from various industries across the board. When you invest in a mutual fund, your assets are pooled together with those of other investors and you become a shareholder in the companies that are within the fund.
We have a comprehensive list of mutual funds that we recommend for first-time and seasoned investors. If you’re not sure where to start or what mutual funds to take a look at, check out our list and see if one might be right for you.
ETFs
Exchange-traded funds, also known as ETFs, have all the perks of a mutual fund but will take your investments and make the most out of them. Often, ETFs have a lower initial cost than your everyday mutual fund, which makes them more attractive. Trading can be flexible and come tax season, you’ll have a more efficient way to pay taxes on your accounts. You’ll also enjoy greater transparency with ETFs, which means you’ll be able to track your assets a little better than with a mutual fund.
With flexible trading, ETFs are instantaneously traded throughout the day when the stock market is open. By contrast, making a change to a mutual fund might take a few days to go into effect. This makes ETFs extremely attractive to investors despite any pitfalls such as learning the product’s intricate complexities or any trading costs there might be.
At the end of the day, the best way to quickly build generational wealth with minimal risk is by diversifying your portfolio through mutual funds and ETFs.
To learn more about investing, closing the racial wealth gap, and growing generational wealth for Black and brown families, please visit Financial Joy School and become a part of our financial family.
