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 Market Mysteries of the week

  What if I don't know what to invest in?

Answer:

You don’t have to pick individual companies to start investing.

You can invest in the entire market

and grow your wealth as the market grows.

Where do I start?

Start with an opinion.

An investment is an opinion about the future.

Professional investors don’t make investments because we think something “is going up” like it’s a game. We believe that a company, an industry, or an economy will grow and succeed, so we put our money behind that opinion and take a share of the growth. 

What if I don’t have an opinion?

Build one.

That’s why we’re here. Read your scoops every day, stay informed, and practice having an opinion about what’s happening. 

It doesn’t have to be revolutionary.

It can be as simple as believing that the US economy will continue to grow.

Do you see a future where the US stops trying to innovate, create new products, hire more employees, and build more wealth? No? Then you might as well take your share of the wealth being created from your hard work every day.

How do I invest in a whole economy?

We can’t invest in every company in the whole economy because most are private, small businesses. But

we can invest in the entire stock market

by buying a share of a fund that spreads our money across every major company.

How do I invest in “The Market”?

There are two main ways people invest in “The Market.” They can

buy a Total Market Fund

, which spreads their money across every available company, or they invest in

an S&P 500 Fund,

which does the same across just the biggest 500 corporations.

Vanguard

runs the biggest Total Market Fund. Vanguard has pooled together $1.7 trillion from investors to buy shares of every available company, owning over 4,000 stocks. Owning that fund is essentially owning “The Market.” That way, if major US companies are growing, your wealth is growing too.

The other most popular way to invest in “The Market” is with an

S&P 500 Fund

.  The

S&P 500

and the

CRSP Total Market

indices have provided similar returns over time because the biggest companies dominate the growth. The S&P 500 have $40 trillion of market value, while the Total Market is only $44 trillion. So, either option gives good participation in the growth, and the S&P 500 is a more commonly-discussed index for tracking the market.

Is that the safest place to start?

Investing is risky

- full stop. Don’t invest money in the stock market unless you are comfortable watching it decline in value. Every time we invest, we should expect to leave it there for at least five years. 

We can reduce our risk by diversifying our investments.

Any single company can go out of business or lose significant value at any point. The more companies we spread our money to, the lower the risk any one company places on our overall portfolio.

If you’re investing in the US economy, a

Total Market fund is the most diversified place to start.

Even still, we’ve seen that its value can suffer significant declines,

dropping over 30% in a single month

last year. The market has never failed to recover. 

A Total Market Fund also doesn’t have the same risk of 100% loss as an individual company. For an investment in a Total Market Fund to go to zero, that would imply that every major company in the US went out of business at the same time. Water and shelter would probably be more valuable than money in that scenario. 

What do I do after that?

Maybe nothing. For most people,

regularly investing in a Total Market Fund might be all the investing they ever need to do.

The reason to invest beyond that would be because you think you can find investments that grow faster than “The Market” or faster than average. That’s a difficult thing to do. Over the last 15 years,

only about 10% of professional portfolio managers have outperformed

the S&P 500 index. 

Consistently picking winners is difficult, but it doesn’t mean you can’t pick a few. If you believe in a company and want to be an owner of it, start small.

Over the last 40 years, about 34% of companies have grown faster than the average

. That’s still pretty good odds to pick one or two good ones in your portfolio. Over those 40 years, about 10% of stocks have been those “mega winners,” outperforming over 5x the average. So 1 in 10 can be those lottery ticket stocks. Those are better odds than the lottery, for sure.

Should I start today?

Investing is for everyone, but it might not be the right time for everyone.

Make sure you have your financial health in order before you start investing.

Build emergency savings, pay down high-interest debt, and be prepared to put money away for at least 5-10 years. This isn’t financial advice. We’re talking to a lot of people here, and everyone’s situation is different. Take the time to understand your personal goals and needs. Seek specific advice if you need it.

Please share this with anyone who might find it helpful!

💙 The Share Scoops Team

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