Volatile Markets Beckon Beginning Investors
Will beginners rush in where veterans refuse to tread?
The exodus from financial markets by many weary investors who have lost both courage and money is understandable. They need a timeout.
However, continued market volatility also has a chilling effect on those who would otherwise be considering investment for the first time. It just doesn't seem worth the effort right now.
Experts say a worrisome period such as the current one is actually the best time to invest because the downside is more limited. "Buy low and sell high" becomes more likely when starting from a lower point, they believe.
"A beginning investor can have some degree of confidence that we won't see this dramatic a drop in stocks again anytime soon," believes
She noted that
It's not a bad idea to put a small portion of your beginning investment in individual stocks so you can better understand that market, she said, but the bulk of your money should go into funds.
Despite the economic and market difficulties of the past couple of years, the average U.S. diversified stock mutual fund and the average world stock fund have managed to gain 9 percent this year, according to
"Unless you believe the world is ending and there is no progress ahead, this is a fabulous time to be a beginning investor," said
The stock market ultimately will be higher, she believes, which is what beginning investors should keep in mind. Build a diversified base that can be expanded upon. She'd start with exchange-traded funds such as SPDR S&P 500 (SPY) in domestic stocks and iShares MSCI EAFE Index (EFA) in international stocks. Exchange-traded funds are traded on exchanges like stocks.
"If beginning investors wait for the turmoil to end, they will never invest," asserted
A newbie should celebrate market declines because they can initiate their investing when the great asset classes are low in price, Merriman reasoned. Best road to success is to begin a diversified portfolio as soon as possible with an ETF investment such as Vanguard Total World Stock ETF (
Construction of a personal portfolio shouldn't dwell on just a few stocks, but spread risks through several asset classes, according to Merriman. His model portfolios include funds that are good building blocks toward a larger portfolio as your investment capacity grows.
Beginning investors should not jump into the market all at once, watch their investments fluctuate a bit and pull everything out in a panic at the absolute wrong time. That too often is the case.
For a moderate investor, Merriman recommends the following model ETF portfolio to be built up gradually:
-- In stocks, Schwab U.S. Large Cap (SCHX); Vanguard Value (VTV), Schwab U.S. Small Cap ETF (SCHA) and Vanguard Small Cap Value (VBR).
-- In real estate investment trusts, Vanguard REIT Index ETF (VNQ).
-- In international stocks, Schwab International Equity (SCHF), Vanguard FTSE All-World ex-US Small Cap Index (VSS),
-- In bonds, iShares
"People starting out in investing typically go wrong by thinking of stocks as only the total market and the
A portion of your holdings should be outside the U.S., as well as in U.S. companies doing extensive business in the world's emerging markets, he added.
His strategy for stock mutual funds is similar, employing the low-cost
-- In domestic stocks, Vanguard 500
-- In international stocks, Vanguard Developed Markets Index (VDMIX), Vanguard International Value (VTRIX),
"For someone starting out in investing, especially a younger person, the impact of beginning now and investing as much as you can be powerful," concluded Dimitroff. "If you can avoid getting spooked by dips, you'll find compounding can make a dramatic difference."
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