Sometimes owning a single stock is a scary proposition, while the thought of purchasing the entire stock market seems much less risky. Because you’re participating in the entire market rather than a single stock, you’re protected from the threat of a problem involving one single security. Although your fortune may fall a little, a market such as the New York Stock Exchange has thousands of companies, which may experience growth on the same day that one single company declines, buoying the value of your investment.
Decide which stock market best meets your investment goals. Large, U.S. markets such as the New York Stock Exchange include stocks in the Dow Jones Industrial Average and S&P 500, that offer investors large companies that historically perform well for more conservative stock investors. The NASDAQ market focuses more on technology companies. International markets, such as the London exchange include stocks in the FTSE 100 that fluctuate more due to the additional movement of international currency conversion on top of regular market gyrations.
Find investments that offer shares tracking your favorite stock markets. There are two types of investments to choose from. Exchange traded funds, known as ETFs, have the downside that you’ll pay trading costs to buy and sell shares, but the upside of generally less expensive internal costs than mutual funds. Many mutual funds that track the stock market or a stock index can be purchased without up-front fees, but have higher internal costs.
Research investments to decide which to purchase. Compare exchange traded funds at financial sites such as NASDAQ.com or Yahoo! Finance. Examine fees and how closely returns mirror those of the stock market it’s parroting. You will research mutual funds at sites such as Morningstar and Wall Street Journal Online. Sort funds to find index funds and then look for your specific stock market fund. Also compare fees and returns to decide which is best for your dollars.
Review the types of orders to decide which to use for your trade. If you purchase mutual funds, you’ll purchase shares at the end of the trading day, with your money invested in the market in the morning. Exchange traded funds trade like stocks, so you may place an order to trade immediately at the market, or a limit order, which allows you to set a price target below the current price of shares.
Purchase your shares. With a mutual fund, you may either purchase shares through the specific fund family, such as Vanguard or Fidelity, or through a brokerage firm that offers shares in that particular fund. Exchange traded funds trade like stocks, so they may be purchased through any brokerage account.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.