How Do I Know What To Invest In?

People get so afraid to invest their money in the wrong places, that they end up not investing at all, or they just end up throwing something into a mutual fund or target date fund and think they’re doing something good.

I’ll admit, in most cases, something is better than nothing, but it doesn’t take much effort to make better choices and grow your next egg.

I’m no stock picker, and if I was, I would probably acting as if there is some science behind picking stocks.  There’s not.  And most stock pickers can’t out perform the S&P.  But stock pickers make money on the buy and the sell, so they don’t always have YOUR best interest at hand.  But shouldn’t they?

I’m not going to give specific stocks to pick.  I’m not here to sell snake oil.

What I’ll tell you is how I choose what to invest in.

First, I invest in low cost S&P Index Funds.  See, all mutual funds charge a fee to manage the fund.  Someone has to manage the fund, run calculations, invest, distribute, etc.  So they take a fee. I can live with that.  But there are high expense funds, and low expense funds, and most novice investors have no clue.  So in some cases, the money you actually earn is barely enough or just more than enough to cover the fees.  And then you have to pay a capital gains tax on the withdrawal.

So choose a low fee S&P Index Fund.  Here’s where I’ll actually make a suggestion.  I choose the Vanguard 500 Index Fund (VFINX).  It’s a low cost fund, and it’s made up of stocks on the S&P 500.  So yes, as of this writing, it includes stocks like Apple, Amazon, Nike, Microsoft, Alphabet (Google), Facebook, and others). This fund is based on the S&P, which most pickers (stock brokers) can’t beat.

Ideally, you could just invest your money there and keep it going.  It’s diversified since it’s made up of many blue chip stocks.  But I won’t lie, sometimes it’s not enough for me.  I like a little more risk.  So where else do I invest?

I invest in things I like.  I invest in products/brands I buy or visit.  I like them for a reason. I think they’re quality, and many others do, too.  So if you like Starbucks, by all means, that might be a good place to start.  It makes you an owner of a place you and your friends like to visit.  In a sense, it’s kind of like paying yourself.

I invest in things that are up and coming.  If you notice suddenly everyone has been talking about drones, maybe you should research drone companies.  Or the company that makes the component that allows them to fly.  Or the company that creates the controls for them. Get in early when people start talking about the new thing.  Artificial Intelligence is another one right now.  Figure out what it is and who are the players in the game, and buy some stock.

Think of businesses related to something and invest in them.  As an example, I order a ton of stuff from Amazon. A lot of people do.  And what I always notice is the box! Amazon needs tons of boxes to be able to ship things, right? So investigate things like who makes the boxes for Amazon. Or bubble wrap.  Do you think those companies are doing well? Do you think the shipping companies like FedEx and UPS have done okay?

As of 2016, International Paper was supplying about 50% of the cardboard boxes to Amazon.

So there are a few tips to know what to invest in. And keep in mind these 2 things:

First, historically, most money in stocks/funds are made from dividends.  So keep you money in play and collect the money they pay you on the return.  In most cases, I’d suggest reinvesting dividends.  In others, just cash out to recoup your investment. There is more on this in another article on this site.

Second, capitalize on the power of compound interest. It’s an amazing thing.  How do you do this? Invest early, often, and leave your money in play.  If you’re in your early 20’s, start now if you haven’t already.  I don’t think people invest enough of their earnings, and they also wait too long to invest.  Start early, and invest as much as possible!

Let me know what you think and let me know if you have other questions you want answered.  You can always join my mailing list on this site, and it will give you access to my personal email address.

 

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