Many people are afraid of investing their money because they are petrified of the possibility of losing their money, and to be honest, people do lose money when investing.
Sometimes, lots of money… but I do believe that most people lose huge amounts of money because of two reasons:
- Greed and Ignorance and
- Ignorance and Greed
So…, here’s the deal, if you take a little time to study how investing works, you won’t be so ignorant, and, if you can eliminate any hints of greed from your persona, then you won’t end up standing in a soup line somewhere in America.
Investing your money is not all that difficult.
All you have to do is build a solid and diverse portfolio of low-cost mutual funds and/or ETFs (Exchange-Traded Fund), and then, make regular contributions, either weekly, bi-weekly, or monthly, and then, just leave it alone.
This strategy is called passive investing and if you make this one part of your investment strategy then you could very well be on your way to a solid and secure retirement.
Passive investing means that you invest your money into two types of low-cost index funds.
One index fund that tracks the S&P 500 and in another index fund that tracks a bond index.
How much money you decide to invest in one and then the other depends on your risk tolerance and on your time horizon.
The higher your risk tolerance and the longer your time horizon the more money you should invest in a low-cost index fund that tracks the S&P 500.
- The S&P 500 is a group of stocks and are more volatile, but historically, have produced higher returns.
On the other hand, the lower your risk tolerance and the shorter your time horizon the more money you should invest in a low-cost index fund that tracks bonds.
- Bonds have traditionally been less volatile but have produced lower returns.
Once you have selected your two low-cost index funds, all that is left for you to do is to regularly contribute to your portfolio and then reevaluate your portfolio every year.
This passive investment strategy is not only easy for anyone to implement but it also has an above average track record of good performance and by diversifying between these two types of low-cost index funds you can help keep your portfolio from losing too much money in a market downturn.
In addition, a passive investment strategy significantly reduces the cost of fees that over burden many investor’s bottom line.