In our view, the best stock market investments are low-cost mutual funds, like index funds and ETFs. By purchasing these instead of individual stocks, you can buy a big lump of the stock market in one transaction.
Index funds and ETFs track a benchmark. For example, the S&P 500 or the Dow Jones Industrial Average — which means your fund’s performance will mirror that benchmark’s performance. If you’re invested in an S&P 500 index fund and the S&P 500 is up, your investment will be, too.
That means you’re not going to beat the market, but it also means market not going to beat you. The long-term market is often disappointed by investors who trade individual stocks rather than mutual funds.
Using stock mutual funds, we highly recommend a buy-and-hold approach. The main goal of any investor is to buy low and sell high.
Everyone including beginners should be invested in stocks, as long as you’re comfortable leaving your money invested for at least five years. Why five years? That’s because a recession that lasts longer than 5 years is relatively rare for the stock market.