Q. I’m a new investor. Should I factor in market caps or returns more heavily when deciding which companies to invest in?
A. As a new investor, I’d recommend focusing on building a diversified, low-cost mutual fund (or ETF) portfolio. Picking stocks is incredibly difficult to do consistently. Index funds outperform the vast majority of professional, active managers. Any hope that you or I could do better is probably unrealistic.
Instead of picking individual stocks, follow a few simple investing fundamentals like:
- Get yourself ready to invest by first paying off consumer debt and building an emergency fund
- Stay tax efficient
- Understand your personal risk tolerance
- Keep costs low. The lower the fees, the more of your portfolio you get to keep!
- Re-balance periodically
- Stay the course! Don’t bail out of the market when prices drop!
History shows us that regular investments, diversified across the equity markets and re-balanced periodically outperform other more “professional” investing strategies.
Get started today! And good luck!
John is a CPA and personal finance coach. Email your questions to email@example.com.
If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.