Investing in the stock market is a smart financial decision that can pay off significantly down the road. Choosing the right investments, though, is critical to maximizing your earnings.
Buying individual stocks is one way to invest, but it’s not the right move for everyone. This strategy involves heavily researching dozens of different companies to determine which stocks are smart investments. While this isn’t necessarily a bad thing, not everyone has the time or interest to invest in individual stocks.
The good news is that there are other ways to invest that are much less research-intensive. If you’re just getting started in the stock market, you can’t go wrong with these three investments.
1. S&P 500 ETFs
An S&P 500 exchange-traded fund (ETF) is an investment that includes all the same stocks as the S&P 500 index, and it aims to mirror the index’s long-term performance. Each fund contains roughly 500 stocks from some of the largest U.S.-based companies, all bundled together into a single investment.
The S&P 500 ETF is perfect for beginner and experienced investors alike, and there are plenty of advantages to this type of investment. For one, it includes hundreds of stocks from a wide variety of industries, which provides instant diversification. The more diversified your portfolio, the less risk you face. Even if a few stocks within the fund don’t perform well, when you’re investing in 500 different stocks, those few won’t sink your entire portfolio.
There’s also a good chance your investments will recover from market downturns when you’re investing in S&P 500 ETFs. The S&P 500 itself has existed for decades, and it’s faced countless corrections and crashes during that time. However, it’s recovered from every one, and it’s highly likely it will also recover from any future downturns.
Where to get started: Because all S&P 500 ETFs track the same index, all of these funds are similar in many ways. Some of the most popular S&P 500 ETFs include:
2. Growth ETFs
A growth ETF is a fund that contains stocks with the potential for rapid growth. The biggest advantage of this type of investment is that fast-growing stocks typically earn above-average returns, so you have a better chance of beating the market.
These funds can be slightly riskier, however, because high-growth companies can also be more volatile. Fast-growing companies also tend to be younger organizations, and they can sometimes be riskier than more established businesses.
That said, growth ETFs can be a smart addition to any portfolio to help your investments grow faster. You may decide, for example, to invest most of your money in an S&P 500 ETF, then contribute a smaller portion toward a growth ETF to give your savings an extra boost.
Where to get started: Each growth ETF will be slightly different. Some contain just a few hundred stocks from a particular industry (such as the tech sector), while others may contain thousands of stocks from multiple industries. The ETF you choose will depend on your preferences and tolerance for risk, but a few of the most popular options include:
3. Dividend ETFs
A dividend stock is an investment that will actually pay you to own it. Some companies pay back a portion of their profits to shareholders, which is called a dividend. A dividend ETF, then, is an investment that includes many different dividend stocks.
The best part about investing in a dividend ETF is that you can gradually create a source of passive income. The more shares of an ETF you own, the more you’ll receive in dividends each quarter or year. If you invest consistently, you could eventually earn thousands of dollars per year in dividends.
Another advantage of dividend ETFs is that you typically have the option to reinvest your dividend payments to buy more shares of that ETF. This can help grow your portfolio without having to invest any additional money out-of-pocket.
Where to get started: The best dividend ETFs are the ones that contain quality stocks from healthy companies. These funds may not pay the highest dividends, but the stocks themselves are more likely to perform well over time. Some of the most popular dividend ETFs include:
Getting started in the stock market can be overwhelming, but it’s one of the best decisions you’ll ever make. By investing in any of these ETFs, you’ll be on your way to building wealth.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.