With so much news regarding Reddit, Robinhood and highly volatile stocks, many new traders have arrived in the market with a “Get Rich Quick” mentality. There is great risk when betting on stocks. Do your due diligence to determine the value of the stock and the value of bringing the stock to your portfolio.
For most, there is no “Get Rich Quick” process within the stock market. For most, investing is a marathon and not a sprint. This article will go over a few concepts to add to your arsenal when deciding to invest. These concepts will widely address investing into Exchange-Traded Funds (ETFs) and Index Funds, as it is highly recommended to diversify your portfolio.
1. Timing the Market or Time in the Market
Compound interest is the name of the game. All investors will hear that timing the market is the key. The problem is that we will never know when the market will drop. The market dropping in 2008 and this past year due to the pandemic could not have been foreseen. So for long-term investors, time in the market is more important than waiting long term for a large “pull-back” to get your ETF or index fund for a cheaper price.
However for the short term, scraping an additional quarter to half percent is always a plus, but you can do this while waiting days to a week or two. Generally, those who invest will add money to their account on a monthly basis as they get paid from their job. I wouldn’t recommend sitting on a large amount of cash waiting to invest for months.
For those who are curious if it is the right time to invest because the market is at an all-time high, with those very few exceptions, the market is nearly at an all-time high every year. For the years that they don’t break an all-time high, take into consideration the dividends you’re still receiving.
2. Diversify with Dividend Yielding ETFs/Stocks
When analyzing individual stocks, review their dividend yield and do your due diligence to see if there is potential growth. Choosing individual stocks generally comes with higher volatility. Utilizing high dividend equity ETFs may be a better option for those that don’t have the capital to greatly diversify by picking individual stocks. In 2020, the Schwab US Dividend Equity ETF (SCHD) ETF granted a 3.56% dividend yield.
Utilize simple technical analysis concepts to determine potential probability of the stocks trending up, down, or remaining stable in the long term. To get a quick idea, technical indicators and view the 1 day, 5 day, 6 month, 1 year, 2 year, and even 5 year range to provide some additional insight. Using technical indicators can also assist you in scalping a percent or so too. I recommend using moving averages and bollinger bands to start.
3. Stay Involved in the Market
Set aside 5-10% of your investing money to choose individual stocks. Use this section to try to beat the market by developing your skills as an investor. This is your time to do your due diligence, pull fundamentals and utilize technical analysis to decide on individual stocks you believe in. If you’re looking to “Get Rich Quick,” this is the amount to be used.
For many, we’re too busy to invest. Utilization of a robo-investor sets our minds at ease while we focus on other endeavors. There are many robo-investors easily accessible. I use Wealthfront. Wealthfront charges an annual advisory fee of only 0.25% of your portfolio value, paid monthly. The app is easy to use, provides information on your financial path to things like purchasing a house, having children, and retirement. You are able to personalize your investing strategy with options such as tax-harvesting and risk allocations. In addition, Wealthfront provides a high interest cash account that beats many checking/savings accounts.