This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Figuring out how to invest your money can feel daunting when there are so many different types of assets to buy. And if you aren't sure how to research individual companies, you may feel like getting your money into the stock market is simply too risky.
But there's also a huge cost to not buying equities, as it can be difficult to earn the returns you need to build wealth if you don't put your money into the market. The good news is that you can become a wealthy investor even without a lot of specialized knowledge. That's because there's a simple option out there that almost everyone can figure out how to invest in.
How to become a successful investor without picking stocks
If you don't want to research individual stocks or spend time studying companies, the simplest, easiest way to still grow your wealth through investing is to put your money into exchange-traded funds (ETFs).
ETFs trade like stocks. But when you buy an ETF, you aren't gaining an ownership interest in a single company. Instead, the fund you pick will have a specific objective and will spread your money around many different assets designed to achieve that goal.
For example, there are ETFs that track the S&P 500 Index (SP: .INX). That's a financial index created by Standard & Poor's to measure the performance of around 500 of the largest US companies. When you buy an S&P ETF, the money you've invested buys a very small ownership stake of all 500 of those companies.
There are also hundreds of other ETFs, including those tracking other financial indexes or that are designed to provide exposure to specific industries. This includes ETFs that invest your money in small companies, midsized companies, emerging markets, real estate, bonds, cryptocurrency-related businesses, the cannabis industry, healthcare, and just about anything else you can imagine.
The great thing about ETFs is that it's really easy to find ones that match your investing goals and interests. If you want to be pretty conservative in your investing, for example, you could build a very low-risk portfolio by dividing your money between an S&P 500 fund and a bond fund.
But if you have an interest in specific industries you think will outperform the market as a whole, you can invest in them without having to do a ton of research. If you think the cannabis market is poised to explode, you can buy a marijuana ETF and instantly be invested in producers, distributors, and researchers working within the field without having to wade through tons of details about individual cannabis businesses.
Because ETFs spread your money around, it's virtually always less risky to buy them than it is to invest in stocks. You can achieve diversification with a lot less effort. And most brokerage firms have ETF screeners that enable even novice investors to pick the appropriate funds in a matter of minutes by searching based on fund goals, fees, and past performance.
Now, because you are buying an interest in so many companies with most ETFs, it's unlikely you'll substantially outperform the market, since not every company in the fund is going to see big increases in value. But you don't need to beat the market to become rich through investing if you buy ETFs consistently over time and take a responsible approach to balancing risk and potential rewards.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
