Most people start investing in equities through traditional retirement investment accounts, such as employer-sponsored 401(k)s and Roth IRAs. However, not everyone has a hand in choosing which assets are selected since the asset allocation is preset by the account’s wealth manager.
Familiarizing yourself with high-performing financial assets, such as securities and mutual funds, can help you take control of your financial future.
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However, many don’t know where to begin when investing in equities outside their retirement funds. Market volatility can scare new investors away, but many experts believe the stock market will continue to be on an upward swing through 2024 and beyond.
With the exception of April 2024, the S&P 500 saw substantial gains every month of 2024. Rob Haworth, Senior Investment Strategy Director at U.S. Bank Wealth Management, notes that now may be the time to act for those considering investing in equities.
“The market has rallied since October 2023 without a sizable correction," Haworth wrote. "A key is whether companies continue to have a constructive view of revenue and earnings growth going forward. So far, the signs look favorable.”
It’s worth noting that a market correction is recognized as an index value decrease of at least 10%. While there may be occasional market dips, Haworth doesn’t anticipate significant corrections in the immediate future, citing strong fundamental market factors as an indicator of positive performance.
Investment tips for beginners
Figuring out where to begin is often the most challenging part of financial planning. Fidelity and Bankrate recommend a few essential tips to simplify your investment strategy.
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- Think about your long-term plan and build a strategy around it. Identify how much you’ll be able to put toward your investments, set a target goal for how much you hope to earn long-term, and gauge your risk appetite.
- Pick a management approach. Determine if you’d like to manage your investments yourself through a brokerage account or have a professional financial advisor do the heavy lifting. For less experienced investors, it may be worth the money to use a professional financial advisor or planner, at least initially. Robo advisors, such as Wealthfront and Betterment, also provide cheaper, specialized guidance alternatives.
- Research products and choose straightforward assets. If you’re new to the game, start slow with index funds such as Mutual Funds or Exchange-Traded Funds (ETF). These funds include tens to hundreds of stocks, minimizing the risk incurred from the volatility of singular stocks. These funds are highly diversified, which helps protect against unexpected plunges.
- Monitor performance periodically but resist the urge to trade during market volatility. Data shows that passive funds with assets held long-term far outperform actively traded funds. It’s better to hold an investment long-term to build back value than try to cut your losses during a short-term market dip.
- For those who are extra risk-averse, consider using a stock simulator. Stock simulators provide an online trading account with digital dollars, so prospective investors can get a feel for the market before raising the stakes by using real money.
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- The average American faces one major 401(k) retirement dilemma
Investment strategies for 2024
A considerable portion of the top performing stocks in 2024 have been in the medical, pharmaceutical, and technology industries, and Morningstar estimates that trend will likely continue.
When considering investing in an index fund, new investors should consider a few factors. While it’s tempting to rely on average annual returns as an indicator of a fund’s long term performance, it’s important to keep other aspects in mind.
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- Performance vs. benchmark: Looking at short-term performance, long-term performance, and benchmarking against overall market growth is a great way to determine fund value.
- Assets under management (AUM): new investors should prioritize larger firms with at least $1 billion in AUM, to ensure their money is being managed by seasoned professionals.
- Expense ratios: Examine the costs, like expense ratios, of different funds. Expense ratios are essentially the fee investors are charged annually to hold money in the fund. Lower expense ratios can reduce costs over time.
Related: Veteran fund manager picks favorite stocks for 2024
