Have you ever lamented that you never got started investing, or have not had the financial means to do so and now think that it is too late? Think again.
Although it is better to start investing early due to what Albert Einstein called “…the 8th wonder of the world” — compound interest — it is never too late to start. Perhaps you are lucky enough to have additional money that could be set aside for the next few years (not months) and could be invested to make a return. Investing is a personal journey, and you unwittingly have many of the tools to be a successful investor and beat the professionals at their own game.
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All investing involves some volatility, and provided you are willing to take a risk, investing is for you. A buy and hold strategy has been proven to reduce this risk significantly. The probability of being down after investing in the S&P 500 index after 15 years stands at 4.73%, decreasing to 0% after 25 years. However, by investing wisely, we can both reduce the risk significantly and prosper.
Your age profile and risk tolerance will undoubtedly affect your investing strategy and goals, but fundamentally it is never too late to start. Other factors in your life, such as your level of income or whether you have a mortgage, will affect the amount you can contribute to investing, but there has never been a better time to start with low fees and partial shares. The same rules apply to investing regardless of age — the 6 Golden Rules here at MyWallSt®.
Who should you invest in?
If you are later in life, or have a low-risk tolerance and want to invest with less volatility, ETFs may be a good option. ETFs consist of several companies, which means you are instantly diversified upon owning it, reducing volatility. You are unlikely to see the high flying returns of individual growth stocks, but it will preserve capital and should produce modest gains over the long term.
There are many different ETFs from ones that track the S&P 500 (which historically has returned on average 10% a year), such as the Vanguard S&P 500 index (NYSEARCA: VOO) to ETFs focused on robotics like Global Robotics and Automation ETF (NYSEARCA: ROBO). Investors can pick an ETF suited to them. The S&P 500 Dividend Aristocrats ETF (BATS: NOBL) is another alternative that is suited to an older investor consisting of 50 companies who have raised its dividends for the last 25 consecutive years. An investment in an index fund is a bet on America, a particular sector, or a trend and requires less research than individual stocks. Arguably the greatest investor ever, Warren Buffett has said, “By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals.”
Alternatively, you could invest in individual stocks. This approach is generally riskier but is likely to yield higher returns than ETFs. Stocks such as Virgin Galactic (NYSE: SPCE) may be suited to younger investors as it is a high-risk high reward venture and they have time on their side for the company to realize its potential. As investors age, you may lean towards steady companies that will preserve capital and at least match the market. A great example is Warren Buffet’s Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), which has thrived particularly during downturns but has lagged the market in recent years. Mega-cap tech giants such as Amazon (NASDAQ: AMZN) and Apple (NASDAQ: APPL) are less volatile and have rewarded shareholders handsomely. The companies you add to your portfolio are entirely personal, and by researching the company before investing will mean that if it does drop, you will be comfortable holding for the long term.
Perhaps you live in the U.S, and if you start investing at 50 there is still roughly a decade to contribute to your Roth IRA before withdrawing tax-free. There is also a traditional IRA, and it is worth exploring these options to maximize profits with tax breaks.
Unlike many other things in life, investing is better if you do less rather than more. It is a personal journey that will hopefully enrich your life and open your eyes to innovative ideas and all corners of the world. Whether your goal is to be financially free or just to learn about something interesting and new, it is never too late.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.