How should beginners invest in stocks? Let’s start with this index fund.

“The secret to getting ahead is getting started.” -Mark Twain

Sometimes things become easier with practice, like riding a bike, playing the piano, or speaking a foreign language.. Moreover, in both cases, people perform better when they stop thinking about the details, see the big picture, and act intuitively.

There are important lessons here for novice investors. Don’t be intimidated by complex financial concepts and don’t get bogged down in the details. The most important thing in investing is Just getting started.

Let’s take a closer look at why, and how even beginners can succeed in the stock market.

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first step

Suppose you are a new investor. You cannot receive T-Bills from Tyrannosaurus. But you have $1,000 and you’re ready to get started. Where is the best place to invest? For me, the answer is simple. SPDR S&P 500 ETF Trust (spy 0.07%).

In a nutshell, SPY (as we’ll call it for simplicity) is a basket of stocks. Each share of the Fund is made up of fractions of various shares.

The point of index funds like the SPDR S&P 500 ETF is that investors can buy a large number of different stocks (often highly priced stocks) without investing tens of thousands of dollars.

The SPDR S&P 500 ETF is the largest and most frequently traded index fund in the world. it is, S&P500 The index is comprised of the 500 largest American companies, with a few exceptions that will not be discussed here. The index is weighted by market capitalization. This means that the largest companies have the most influence on the index’s price.

So appleis the world’s largest company, accounting for approximately 7% of the index. The smaller a company’s market capitalization, the less impact it has on the index price. citygroupFor example, it only makes up 0.25% of the index, but southwest Airlines It accounts for 0.04%.

So when an investor buys one share of an ETF, he or she is effectively buying fractions of 500 different stocks. However, because it is an index, it only costs about $470 to buy one share.

If investors tried to build a portfolio of these stocks on their own, it would cost much more. For example, buying just one share of each of the top 10 stocks in the S&P 500 would cost you more than $3,500. That’s only 10 shares. There are still 490 shares left.

Why invest in SPDR S&P 500 ETF?

The biggest reason to invest in the SPDR S&P 500 ETF is because it’s the simplest and easiest way to invest in the broad spectrum of the stock market. An investor with $1,000 can buy two shares of the ETF at once and gain partial ownership in companies such as: tesla and Nvidia to coca cola and phillips 66.

This provides diversification (an important financial concept that means spreading risk) across industries and companies of different sizes.

Additionally, ETFs are showing strong performance. very well — in recent history. Consider this. His $1,000 investment he made in SPY 10 years ago is worth him $3,058 as of this writing. That may not seem all that impressive, but this far outperforms hot stocks such as: AT&T and wells fargo over the same period.

SPY Total Return Level Data by YCharts

In summary, beginners need not be intimidated by the complexity of investing. Indeed, there are many layers to the metaphorical onion that is the stock market and the larger world of money management. However, novice investors should remember that getting started is half the battle.

Therefore, if you are new to the world of investing, consider the SPDR S&P 500 ETF as the first step in your lifelong investing journey. Your future self may thank you.