Investing is an important part of building long-term wealth. However, consumers often mistakenly believe that investing has to be complicated. This just isn't true.
The fundamental thing to remember when investing is that it can be simple. You don't have to make it harder than it needs to be.
Start Small and Simple
There is no reason to feel as though you need a large chunk of capital to get started with investing.
You also don't need to figure out just the “right” stocks to include. Getting started with investing should be just that — getting started.
Rather than becoming intimidated by all of the terms you run into while investing, the important thing is to just take that first step.
Getting started as an investor is as simple as opening a brokerage account and starting an automatic investing plan for however much you can afford, whether it's $100 a month or $1,000 a month. Choose an index fund or index ETF to start (an all-market fund is great for beginners).
With investing, the best thing you can ever do is just get started — to pay yourself first. But you'll never begin if you are afraid investing is too complicated. Overcome this mental hurdle, and realize that investing can be simple, and you'll be well on your way to long-term wealth.
Simple Investment Strategy for Later
Even as you become a more experienced investor, you don't need to make things complicated. Most investors do just fine keeping things simple — even though they might have the know-how to engage in more complex trading strategies.
One of the simplest long-term strategies is the use of asset allocation with your portfolio. Asset allocation allows you to create a portfolio based on your risk tolerance, time frame and long-term goals. While individual stocks, bonds and other assets can be used as part of your asset allocation plan, the reality is you can keep it simple with the help of a few well-chosen funds.
Funds that focus on different stocks, bonds, currencies, real estate or other asset classes can be used to compose a portfolio that's instantly diverse and that is properly allocated.
Even better, it's simple to compose a long-term portfolio in this manner — a few low-cost funds, and you're set. It's also easy to maintain this type of portfolio, since all you have to do is rebalance periodically to make sure that your asset allocation still meets your needs.
If you want to add a little complexity to your portfolio, there's nothing wrong with that. You can look for riskier assets, or investigate individual stocks.
However, it makes more sense to keep the core of your investment plan simple. A simple approach to investing is more likely to help you over time since you won't be subject to the vagaries of market timing or the wealth-eroding effects of frequent transaction fees.
Investing is a great tool for your financial arsenal. As soon as you remember this simple approach can be used, you'll be much happier — and more successful.