Investing can be intimidating even without a global pandemic. But now is a great time to get started with investing if you never have before, especially if you feel comfortable financially and could invest your stimulus check. We caught up with financial advisor Leslie Shenkler to hear about the best ways to invest right now, how to invest responsibly, and the best tricks for investing small amounts of cash.
If You Want to Start Investing, Think Long Term
Now is a great time to start investing, since stocks are affordable. But the most important thing to remember is that if you invest now, you shouldn't plan to access the funds for 3-5 years, Shenkler explained. "That's usually a market normalization time. So the number one thing is to really be sure that the cash you are investing is available to be invested for that full 3-5 year period," she said.
If you think you'll need the cash soon, now isn't the time to invest it. "Even without the volatility we are seeing in the market right now, you don't want to risk money you need in six months, regardless of market conditions. We really need a long time horizon to be comfortable making a stock market investment," said Shenkler.
However, you don't need much to get started--even if the only cash you can spare for that long is $100, it's still worthwhile to invest. "Any dollar amount that you invest in the stock market, long term, is worthwhile," she said.
Spread Investments Out
The best way to see powerful growth is to invest small amounts over time, Shenkler explained. So if you're planning on investing $500, invest $100 a month for 5 months, not $500 at once. That's how retirement funds work, but even if you don't have one, you can use mutual funds like Charles Schwab or Fidelity to start investing. "It's a strategy called dollar cost averaging, and reason why it works so well is because as the market goes up and down, you are buying a piece of that at whatever price it is currently...it significantly enhances your recovery over time," said Leslie.
It might be tempting to buy a large amount of stocks right now since stocks have been down, but Shenkler still suggests investing carefully. "We are probably have the opportunity to invest at an even lower price over the next 2, 4, 6 months than we can right now, but we can never know the bottom of a market until we are well past it, so the best way to do it is through disciplined approach. It is a great time to be putting money in the stock market, but I would still be cautious," she said.
Invest Widely
People like owning individual stocks, Shenkler said, but diversity matters, even if you don't have much to invest. "People really like to know the company they are buying from--maybe they only wear Air Jordans, so Nike is an appealing stock to them. Or maybe they own Apple products, so they want Apple stocks. But it's really important that you get diversification for the amount of money you're investing. To invest in individual stocks, you really need a much more significant amount of money than a couple thousand dollars," she said.
Whatever amount you have to invest, spread it out, she suggests. That might mean buying bonds and other asset classes as well as stock, but even if you just want to invest in stock, you should't buy from individual companies--the most segmented you'd want to go is by industry, said Shenkler.
The S and P 500, one of the most common stock market indexes, can be split up by industry, like healthcare, technology, or "consumer staples" (companies that sell common household goods). "I would say the most narrow you want to go, is buying for example, a technology index. That means you own technology in general; it's still a narrow focus for an investment, but it's much broader than an individual stock."
Investing With Your Values in Mind
Many people have clear values about where they want to invest their money--maybe they want their money to go to women-owned companies, or maybe they want to avoid investing in fossil fuels.
Whatever it is that's important to you, Shenkler says even small investments can be managed so that they align with your values. You can look for investment companies that focus on environmental, social and corporate governance--ESG for short. Shares in those companies are available through financial services companies like Charles Schwab once you have an account. One of the most common ESG companies is BlackRock.
"If social governance is important to you, there are a lot of ways to feel good about the money you are investing," said Shenkler.