Begin Your Investment Journey: ETFs to Consider for New Investors
Investing in stocks may seem daunting, but anyone can get started without years of experience. This opportunity is both a blessing, as it opens doors for all, and a curse, due to the increased risk if you’re uncertain about the market.
For those looking to invest safely while gaining knowledge, exchange-traded funds (ETFs) linked to major indexes can be a smart choice. However, it’s important to choose the right ETF. Here’s why that matters.
The Vanguard Total Stock Market ETF: A Comprehensive Choice
When you begin investing, expect to make mistakes. Even experienced investors like Warren Buffett have faced challenges. The key is to minimize the effects of these mistakes, and diversification is the best strategy to achieve this.
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Diversification means spreading your investments across various assets rather than concentrating your efforts on one stock. New investors might be tempted to invest heavily in a single stock, hoping for a quick fortune, but that approach can often lead to disappointment. ETFs provide an effective way to diversify, and a popular option is the Vanguard Total Stock Market ETF (NYSEMKT: VTI).
This ETF gives you exposure to over 3,650 U.S. stocks, making it a broad representation of the market. Its performance is weighted by market capitalization, meaning larger companies have a bigger impact. For instance, the largest holding is Apple, which accounts for about 6% of assets, complemented by other notable tech giants.
With an expense ratio of just 0.03%, this ETF is one of the most cost-effective choices available.
Highlighting the S&P 500 Index
If you prefer a more focused approach, consider the S&P 500 index, which includes the 500 largest U.S. companies. ETFs tracking the S&P 500, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF (NYSEMKT: SPY), are excellent choices.
This route allows you to focus on key companies while still benefitting from diversification. The Vanguard S&P 500 ETF has an expense ratio of 0.03%, while the SPDR S&P 500 ETF is slightly higher at 0.09%. Though this difference appears small, it can add up over time.
Dive In When You’re Ready
By investing in either of these ETFs, you’re essentially purchasing the S&P 500 index, which often serves as a benchmark for the overall stock market. This solid foundation allows you to think about your next steps in investing.
You might explore individual stocks you find interesting by researching company websites, news releases, and earnings calls. You’ll eventually decide whether to invest in a specific stock or stick with ETFs focused on different sectors or themes.
The important thing is to start investing early, as time is a crucial factor in achieving success in the market.
Is Now the Time to Invest $1,000 in Vanguard S&P 500 ETF?
Before buying shares of the Vanguard S&P 500 ETF, take a moment to consider this:
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Reuben Gregg Brewer has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author, and do not necessarily reflect the views of Nasdaq, Inc.
