This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Your goal as an investor is to assemble a portfolio that allows you to steadily build wealth over time. But on the road to building wealth, you might hit some snags. Specifically, you may end up having to sell a stock when it's down, thereby taking a hit on that investment.

To be clear, a lot of people's portfolios are down right now year to date due to general stock market turbulence. And that's not a very good reason to sell a stock.

But let's say there's a stock in your brokerage account that's been consistently losing value since you bought it. Let's also say that you've been following the company's financials and have reason to believe those shares will be worth even less money down the line. That's a good reason to take a loss rather than sit tight and ride things out.

If that's the scenario you've landed in, try not to stress. Although investment losses can be frustrating and upsetting, they can also, in some ways, work to your benefit.

How to capitalize on an investment loss

Investment losses aren't ideal. But you can use them to offset capital gains in your portfolio in a non-tax-advantaged account.

Let's say you're sitting on a stock that's done remarkably well this year, even though the market, on a whole, has been iffy. You may be inclined to sell that stock while it's way up and walk away with a nice profit.

Normally, the tax man would be entitled to a share of that profit in the form of capital gains taxes. But if you're sitting on a capital loss, you might manage to reduce or wipe out that obligation entirely.

Let's say that by selling that winning stock today, you'd gain $5,000. If you have a $5,000 loss on another stock that you sell, you won't owe the IRS anything.

Now let's say you're only looking at a $2,000 gain in the scenario above. You can still use your full $5,000 loss to your advantage. That's because the IRS allows you to offset up to $3,000 of ordinary income with capital gains losses.

Capital gains losses can be carried forward to future tax years. Let's say you're looking at a $1,000 gain in this situation, not $2,000. If you use your $5,000 to offset that $1,000 plus $3,000 of ordinary income, you can carry the remaining $1,000 forward.

Dig deeper -- but don't beat yourself up

If you lost money on a stock this year, it's a good idea to see if you can figure out why. Maybe you didn't spend enough time digging into that company's financials. Or maybe that loss wasn't preventable -- things just declined at the company and it wasn't something you could've predicted.

It's a good idea to get to the bottom of why you're sitting on a loss to potentially avoid making the same mistake again. But don't give yourself too difficult a time. It's pretty rare for investors to get every single decision they make right. And harping on a loss might make you lose confidence in your ability to handpick stocks, so there's no sense in putting yourself through that.    

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Lost money on an investment? Here's what to do appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

I know a lot of people around my age who are still decades away from retirement but can't wait for that milestone to arrive. But I've always worried that retirement is not something I'll enjoy.

I'm the sort of person who likes being busy. Can I manage the occasional couch potato day? Sure. But does the idea of spending days on end in front of the TV excite me? Not at all.

Now to be clear, I'm not trying to imply that that's what retirement is all about. But the reality is that I enjoy working not just for the financial benefit, but also, the mental benefit. And I also like having some structure to my days.

As such, I'm taking these concerns into account in the course of my retirement planning. Here's what I'm doing about them.

1. Saving aggressively

I dread the idea of retiring and winding up bored. And while there are plenty of things I like to do (think hiking, reading, and so forth) that don't cost money, I also know I'll probably need a decent-sized nest egg to help ensure that I'm able to keep busy.

That's why I'm aggressively funding my retirement savings now. As a freelance writer, I'm pushing myself to earn as much as I can now so that I'm able to save as much as possible. When you work on a freelance basis, you can sometimes choose to give up downtime and take on extra projects. That's something I've taken to in recent years, and a big reason is that I have very aggressive savings goals that I want to meet.

2. Planning to continue working in some capacity

These days, I work on a full-time basis, and I wouldn't have it any other way. As a retiree, I don't intend to plug away at my desk for 40 hours a week. But I do hope to continue working in some capacity.

Part-time work could give me the structure I need to anchor my days. And, since I get satisfaction from my work, I feel that the mental benefit could be just as important as the financial one, if not more so.

Retirement isn't for everyone

I know some people who are enjoying their retirement to the fullest. And I know other people who retired, hated it, and went back to work because they couldn't handle all of that downtime.

You may not know which camp you'll end up falling into until you get there. But I know myself pretty well, and I can already see myself growing dissatisfied in the absence of some work and a pretty busy schedule. So rather than pretend that retirement will magically work out and be wonderful, I'm taking steps to tackle those concerns. And if you feel similarly about retirement, you should do the same.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post I'm worried I won't like retirement. Here's what I'm doing about that appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Passive income is an investor's dream. You get to sit back and get paid on a regular basis without having to go out and hustle.

Meanwhile, investing in real estate is a great way to set yourself up with passive income. But that doesn't necessarily mean going out and purchasing a property you rent out. You may want to go a different route -- one that requires a lot less work and involves a lot less risk.

Get paid without the legwork

You'll often hear income properties touted as a solid means of generating passive income. But while collecting rent is a great way to keep the cash flowing, it may also require a fair amount of work on your part. After all, you'll need to keep track of tenant payments, lease renewals, maintenance, and repairs. You'll also need to deal with property-related or tenant issues as they arise.

If you like the idea of collecting steady income but want it to truly be passive in nature, then REITs, or real estate investment trusts, are a better bet. REITs are companies that own and operate portfolios of properties. Within the realm of REITs, there are different sectors you can invest in. Industrial REITs, for example, are companies that own fulfilment centres and warehousing space. Residential REITs, on the other hand, own apartment complexes.

The upside of owning REITs is that these companies are required to pay out at least 90% of their taxable income as dividends. So as a shareholder, that's income you can benefit from.

Now you may be asking "Why REITs?" Can't I just go out and buy up regular old dividend stocks? And you certainly can. But because of the aforementioned rule of paying at least 90% of their income as dividends, REITs tend to pay higher dividends than your average company. Plus, if you're not currently invested in real estate but are interested in branching out, REITs are a good way to do that.

Lots of upside, less risk

There's no such thing as a risk-free investment, and so you could end up buying REIT shares that lose value over time, leaving you with losses in your portfolio. But the same thing could happen any time you buy shares of a stock. And if you're used to investing in stocks, there's no reason not to apply the same mindset to REITs.

Meanwhile, with an income property, you actually end up taking on a lot more financial risk. Any time something in that property breaks, it's on you to repair it. And if you end up with a tenant who refuses to pay, you could be out a lot of money between lost rent and having to deal with the eviction process.

REITs don't cause you to take on those same risks because you're not buying actual property -- you're simply investing in companies that bear the risk of owning property. And so if you like the idea of passive income and want to collect it without having to work too hard or take on undue risk, then REITs really are a solid bet.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Want true passive income? Do this instead of buying a rental property appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

Motley Fool contributor Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

To say that this is a difficult time to be an investor would be an understatement. With major market indexes being down significantly, a lot of people are seeing losses in their portfolios. And if you're one of them, you may be inclined to ditch your stocks before more damage ensues. But pulling your money out of the stock market right now is a move you might sorely regret.

Why you need to stay the course

At this point, your portfolio may be down 25% or 30% year to date. If that's the case, your logic might be that liquidating your stocks now means avoiding a scenario where you're looking at a 40% or 50% loss.

It's easy to understand that line of thinking. But one thing you must remember is that any loss you're seeing in your portfolio right now is a hypothetical one, not an actual one. However, if you go out and sell stocks while they're down, you'll convert a potential loss to an actual loss -- and that's a move that could hurt you financially for many years to come.

That's why now's really not the time to pull any money out of the stock market. The only exception is if you have a stock in your portfolio that was performing poorly before this recent downturn. If you don't have a lot of faith in its ability to recover, you may be better off taking a loss on that individual stock and using it to your advantage. But broadly speaking, you should not be dumping stocks right now.

Keep the faith

This certainly isn't the first time the stock market has tanked, and it likely won't be the last. But do keep in mind that the stock market has a long history of recovering from downturns. If you keep your portfolio intact, you may find that in a year from now, your balance will be back to where it was before this recent decline. Or you may find that you're up from where you were at the start of 2022.

Furthermore, if the money in your portfolio is earmarked for a goal like retirement, and you have another 15 to 25 years in the workforce ahead of you, then there's no reason to assume this current downturn will hurt your long-term plans. It may make for some temporary uneasiness, but if you leave your portfolio alone, you'll set yourself up to get through this downturn unscathed. If you sell investments out of panic, you might lock in losses you never quite manage to fully recover from.

While this may seem counterintuitive, now is actually a pretty good time to add to your portfolio if you happen to have the cash lying around (or the ability to use part of your paycheck for investing purposes). The fact that the broad market is down means you might scoop up quality stocks at a discount. And if you hold those for a long time, you could profit quite nicely.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Should You Pull Your Money Out of the Stock Market Right Now? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investing in stocks can be a risky prospect. Stock values can fluctuate a lot, and that means on a day-to-day or week-to-week basis, you could end up seeing your fair share of on-screen losses in your portfolio.

But investing in stocks also has a lot of upside -- namely, that stocks tend to generate high returns that could make you very wealthy. That assumes, of course, that you're willing to take a buy-and-hold approach to investing -- that is, buy stocks and hang on to them for many years so they can gain value. But, all told, loading up on stocks is a great way to build a lot of wealth for retirement, and it could be your ticket to meeting other major goals as well.

But if you're going to buy stocks, it's important that you do so strategically. And so the next time you're tempted to add shares of a given stock to your brokerage account, be sure to ask yourself this important question.

Why am I investing in this company?

There are different factors that may be motivating you to invest in a given company. Maybe you like the way that company has expanded its product line without taking on too much debt. Maybe you're a fan of the company's management team and think it will take the business to a very profitable place. Or maybe you're looking to diversify your portfolio, so you've landed on a company whose market sector you're currently light on.

All of these are valid reasons for buying a stock. But one thing you don't want to do is choose a stock at random without there being a specific thought pattern behind it.

Along these lines, it's generally not a good idea to invest in a specific company simply because it tends to be in the news a lot. Sometimes, companies gain publicity for reasons that aren't ideal (think executive scandals or speculative products). And so hearing a company name mentioned a lot isn't automatically a good reason to buy it.

Have a specific plan

It's always a good idea to establish an investment strategy based on your goals and risk tolerance. Whenever you're tempted to buy a stock, you should really make sure the company in question fits into your strategy to some degree.

If part of your strategy is to load up on a certain number of growth stocks, and you come across a company that you think has solid growth potential, then you should feel comfortable moving forward with that investment. But you definitely shouldn't just pick stocks out of a hat, or buy the same stocks your friends are buying and hope for the best.

The more strategic you are in the course of building your portfolio, the more success you're likely to have as an investor. So digging into the "why" is a good bet before moving forward with any investment choice, even if it's a company whose shares you've purchased many times before.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The 1 question you must ask yourself before buying a stock appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The past five months have been loaded with turbulence from an investing standpoint. And late last week, the S&P 500 Index finally plunged into bear market territory after weeks of steady declines.

It's enough to make even the most seasoned, level-headed investor get rattled. But if you want to get through this rocky period, it pays to take some advice from investing giant Warren Buffett.

Just look away

The current stock market slump isn't the first of its nature investors have had to endure. The market has been through numerous periods of steep declines, and while many of today's investors have experienced a bear market before, that doesn't necessarily make it easier to cope with.

But if you want to increase your chances of getting through this bear market unscathed, Warren Buffett says your best bet is to simply look away. Specifically, he advises investors not to watch the market too closely during periods like this.

Buffett insists that investors who load up on quality stocks and hold them for many years will come out ahead in the long run. So even though things might seem bleak right now, it's important to remember that in the grand scheme of a 30-, 40-, or 50-year investing career, today's bear market could end up being a non-event.

In fact, the best thing to do during a bear market is to avoid selling off stocks when their value is down. If you do, you'll only guarantee yourself losses. If you leave your portfolio alone, there's a strong chance it will recover in time.

But the more you check up on your portfolio, the more rattled you might get -- and the more likely you might be to make a rash decision that causes you to take needless losses. That's why it pays to heed Buffett's advice and simply walk away.

Seize the opportunity

If you can't stomach the idea of seeing major losses in your portfolio during a stock market downturn, don't check your portfolio. It's that simple.

That said, if you happen to be sitting on a pile of cash you don't need for near-term bills or emergencies, it could pay to take advantage of current market conditions by purchasing stocks on the relative cheap. If you already own a number of companies whose long-term prospects you believe in, those are the stocks to keep buying during a bear market.

Another option? Load up on broad market index funds. That way, you'll get instant diversification and you won't have to put as much thought into your investing decisions.

Warren Buffett has long insisted that broad market index funds are a great choice for the everyday investor who's willing to sit back and let a portfolio gain value over time. So loading up on S&P 500 index funds is a good bet right about now.

Keep calm

It's natural to worry when stock values drop significantly. But if your stress level is currently through the roof, do yourself a favor and just walk away.

Checking your portfolio daily when it's down is only apt to cause you undue anguish. If you need a way to channel your energy, take up a sport that will allow you to blow off steam, or put on your running shoes and hit a local trail. But don't spend night after night checking on your portfolio. If you don't walk away, you might end up making a fear-driven decision that turns those on-screen losses into actual ones.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Warren Buffett says investors should do this 1 thing when stock values are down appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

On May 20, the S&P 500 index fell into bear market territory. A bear market is defined as a period when stock values fall 20% or more from a recent high.

This is the first time in over two years that stocks have fallen so sharply. The last decline of this nature happened in March 2020, on the heels of the COVID-19 outbreak. 

Of course, a bear market can be an unsettling thing, even if you're a seasoned investor. But here's why you don't need to start panicking.

1. Bear markets aren't that unusual

Since World War II, there have been 17 bear or near-bear markets, according to a Morningstar report. That's not a particularly large number, but it's also not a small number. So if you're new to investing, you can rest assured that this sort of thing has happened before.

2. Bear markets don't always last that long

On average, bear markets last about a year. But that doesn't always happen. The bear market investors endured in early 2020 was fairly short-lived, and stocks managed to more than recover their value before the end of the year.

Granted, without a crystal ball, it's impossible to predict how long a given bear market will last. But while the idea of stocks being down for a year might seem terrifying, the reality is that you really only stand to get hurt by a bear market if you liquidate stocks at a loss. If you leave your portfolio alone, you may not lose a dime during a bear market.

3. The stock market has a long history of recovering from bear markets

It's definitely unsettling to see your portfolio value tank. But it's important to remember that the stock market has a long history of recovering from downturns. Not only that, but some of the market's strongest periods of performance have happened on the heels of a bear market.

4. Bear markets can spell opportunity for long-term investors

During a bear market, stock values decline significantly. That's a bad thing if you're looking to liquidate stocks. But if you're looking to buy stocks, it's actually a good thing.

While timing the market isn't a recommended investing strategy, buying stocks during a bear market could prove to be quite lucrative. Of course, you don't want to just buy any old stocks. Rather, focus on the same quality businesses you were buying before market conditions took a turn for the worse (unless there's a specific reason to stay away from those stocks).

Another good option during a downturn? Invest in the broad market by buying shares of an S&P 500 ETF. That's an easy way to take guesswork out of the equation at a time when you may be rattled and not in the best position to make analytical decisions.

Try to keep your cool

A bear market can be scary, but the key is to not act impulsively when stock values are down. Instead, find ways to stay calm, whether it's diving into a hobby or devoting more time to exercise and self-care. At the same time, consider adding to your portfolio when stocks are down to set yourself up for some solid returns down the line. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post US stocks just hit bear market territory, but here's why you don't need to worry appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

To say that the first four months of 2022 have been turbulent from an investing standpoint would be an understatement. Stocks have been volatile since January and many portfolios are down significantly year to date.

But while it's never fun to lose in the range of 10% to 15%, some investors are growing increasingly concerned over a fully-fledged, prolonged bear market. That's when stocks fall 20% or more from a recent high.

Bear markets can be tough to endure and harder to recover from than stock market downturns that are more modest. But if you make these moves, you won't have to sweat a bear market at all.

1. Make sure your assets are allocated appropriately

It's one thing to have a portfolio that's 80% stocks in your 40s or 50s. But it's another thing to go that heavy on stocks in your mid-60s when retirement might only be a year or two away.

One of the trickiest things about bear markets is that it's hard to predict how long they'll last. Our most recent bear market, which happened in early 2020 on the heels of the COVID-19 outbreak, was fairly short-lived. But a bear market could last years.

If you're nearing retirement, it's important to keep a substantial portion of your assets outside of the stock market (such as in cash or bonds). But if retirement is decades away, you probably don't need to make any changes to your asset allocation, even if stocks comprise the bulk of your IRA or 401(k) plan. That's because you should, in theory, have ample time to recover from a downturn.

2. Shore up your emergency fund

Many people assume they're doomed to lose money during a bear market. But if you leave your portfolio alone and wait for it to recover, you may not lose so much as a dollar.

That's why it's important to have a solid emergency fund -- one that can ideally cover up to six months' worth of essential living costs. That way, you'll be less likely to land in a situation where you have to liquidate stocks when they're down to access cash.

3. Stockpile some cash to invest with

Bear markets can be scary for investors, but they can also spell opportunity. Once you've beefed up your emergency fund, try setting aside extra cash for investing purposes.

When the stock market tumbles broadly, the value of quality stocks can drop as well. But that gives you a chance to scoop those shares up at a discount. You'll need cash to make that happen, though, so do your best to free some up.

That said, don't raid your emergency savings to scrounge up money to invest with. Doing so could lead to that same unwanted scenario of having to lock in losses should a need for money arise at a bad time.

Being prepared for a bear market could position you to get through one unscathed. And so rather than spend time fearing a bear market, set yourself up to get through the next one.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post How worried should you be about a bear market? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

It's a common myth that the people who do well in the stock market are investing geniuses with a knack for choosing the right companies. Sure, having that talent could yield great results for your portfolio. But if it's not a skill you possess, fear not.

There's another investment option you can fall back on that could be your ticket to growing serious long-term wealth. And if you're not convinced, consider this: It's such a viable investment that even billionaire Warren Buffett is a fan.

Invest in the broad market

Warren Buffett has famously said that for everyday investors, putting money into an S&P 500 index fund is a solid bet. Now to be clear, it's not that Buffett himself needs to rely on index funds. Clearly, the man knows a thing or two about picking stocks, as evidenced by the billions of dollars he's managed to accrue in his lifetime. And so for him, choosing individual companies makes more sense.

Rather, Buffett feels that S&P 500 index funds are a great choice for people who may not know that much about vetting stocks, or who don't want to take on the risk of putting their money into the wrong companies. And that's why it pays to consider loading up on them.

If you're not familiar with index funds, they're passively managed funds whose goal is to match the performance of the benchmarks they're tied to. If you buy shares of an S&P 500 index fund, you'll effectively own a piece of 500 different companies.

That's a good thing, because it lends to diversification in your portfolio. And a diverse portfolio can help you minimize losses during periods of market turbulence and grow long-term wealth.

Just how much wealth are we talking? Since 1957, the S&P 500 has delivered an average yearly return of around 10.5%. This isn't to say that the index has done well every year since 1957. (Remember the Great Recession?) Rather, that 10.5% returns accounts for both strong years and weak ones.

Now, if you put $250 a month into an S&P 500 index fund over the next 40 years, you might enjoy that same return. And if so, you'll end up with a portfolio worth $1.5 million. That's not too shabby -- especially if you consider yourself someone who doesn't know all that much about picking stocks.

Learn from one of the greats

Warren Buffett has proven that he's more than capable of beating the market. But that doesn't mean that the average investor is equipped to do the same. That's why he recommends putting money into an S&P 500 index fund. And if you follow his advice, there's a good chance you'll end up pleased with the outcome.

Of course, if you’re confident in your ability to assemble a portfolio of stocks that can outperform the broad market, go for it. But if you’d rather play it a bit safer, then it definitely wouldn’t hurt to listen to the words of someone who clearly has a knack for growing wealth. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Could this Warren Buffett recommendation be your ticket to a million-dollar portfolio? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

When it comes to building an investment portfolio, you have choices. You could load up on index funds, or you could buy individual stocks.

The benefits of choosing index funds is getting to own a whole bunch of different companies with a single investment. If you buy shares of an S&P 500 index fund, for example, you'll effectively own 500 different companies.

Index funds are great because they take a lot of guesswork out of investing, and they don't require the same intense research individual stocks do. But if there's one clear drawback to index funds, it's that they won't let you beat the broad market. That's because their goal is to match the market's performance, not exceed it.

If you have loftier goals, hand-picking stocks may be your best bet. But before you add your next stock to your portfolio, you should make a point to run through these key questions.

1. Do I see myself owning this company for 10 years or longer?

It can take a fair amount of time for a company's stock to gain significant value, or for a stock to recover from a bad earnings report or bout of unfavorable news. That's why, as a general rule, you should really only buy a given stock if you intend to hold onto it for many years. If you're not sure you want to commit to that time frame, then it may be that the stock in question isn't right for you.

2. Does this company have an edge over its competitors?

There are plenty of businesses that do a good job of generating revenue, maximizing cash flow, and limiting debt. But that alone doesn't necessarily make a given company a good buy.

Before adding a stock to your personal investment mix, consider whether the company at hand brings something to the table that its competition doesn't. It may be that the company has a savvy management team or an unmatched ability to innovate. Those are good reasons to choose one company over another.

3. Does this company lend to diversity in my portfolio?

Maintaining a solid level of diversity in your portfolio could help you grow a lot of wealth over time. It could also provide some degree of protection during periods of market turbulence.

Index funds do a great job of helping investors diversify. But if you're more focused on individual stocks, the next time you're tempted to buy one, figure out whether it will help you create or maintain a nice mix of assets. If you already own seven or eight healthcare stocks, for example, you may not want to buy another healthcare company if your plan is to limit your portfolio to 20 stocks in total.

Ask the right questions

Buying stocks isn't something you should do on a whim. Rather, you should put a lot of thought into the process. By running through these important questions, you may be less likely to regret your stock-buying decisions -- and end up wealthier in the long run.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Ask yourself these 3 questions before buying your next stock appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Many people went into 2022 thinking the stock market was headed for a full-fledged crash. And so far, that hasn't happened.

But it has been a volatile number of weeks for stocks, with the market dipping into correction territory. And at this point, it's hard to predict when things will settle down.

While some of the recent volatility we've seen can be attributed to earnings-related disappointment and unemployment news (in a somewhat surprising turn of events, stocks tumbled in the wake of positive job growth), the reality is that stocks have been due for a correction for quite some time. And also, corrections are actually pretty common, and many seasoned investors know not to get rattled by them.

If you're a newer investor, though, or a naturally skittish one, then the events of the past few weeks may have you shaken to your core. And you may be worried about future volatility as well. But while it's difficult to predict when stock values will decline, it's easy to take one key step to protect yourself in the face of market corrections.

Set yourself up to ride out those waves

The one thing it's important to tell yourself during a stock market correction is that you won't lose money unless you actually sell off assets at a price that's lower than what you paid for them. To, to put it a different way, if you just leave your stocks alone during volatile periods, you may not lose so much as a dime.

But to put yourself in a position where you're able to that, you'll need to make sure you have plenty of cash at the ready. That way, if unplanned expenses come your way, or if you lose your job, you won't have to rush to cash out investments to come up with the money you need.

That's why, as a general rule, it's a good idea to sock away three to six months' worth of bills in a savings account. While you won't earn interest much on that money (especially not these days), you'll secure your principal so it's there when you need it. And while you could technically keep that cash in your brokerage account uninvested, you're better off stashing it in savings so you're not tempted to buy stocks with it when market conditions turn favorable.

And to be clear, a stock market correction is actually a great time to add investments to your portfolio -- but you shouldn't use your emergency cash to do so. Rather, you should always maintain that cushion because it can not only help you avoid debt, but also avoid capital losses.

Will stocks settle down soon?

It's hard to say. We're still in the midst of a pandemic, and that alone could lead to prolonged volatility. And so the best way to alleviate your personal stress load in the near term is to keep your emergency fund well-stocked. That way, if the market continues to swing wildly, you'll be able to sleep at night knowing you're covered and won't have to tap your portfolio at the worst possible time. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The most important thing you need to get through a stock market correction appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

When we think about big names in the investing space, it's hard to gloss over Warren Buffett. But while Buffett has been overwhelmingly successful at beating the market, it's not a strategy he advocates for everyday investors. Rather, Buffett is a firm believer in one investment that has the potential to make the average investor quite wealthy, only without the risk that could come with hand-picking stocks in an effort to outperform the broad market.

Why index funds are a great pick

Whether you're new to investing this year or are simply looking to grow your portfolio, you have many choices for building wealth. You could, for example, load up on cryptocurrency if you have a strong enough appetite for risk. Or, you could choose a bunch of different stocks that you think have solid growth potential.

While Buffett may approve of the latter move if you're an educated investor and know what you're doing, he'd probably shake his head at the idea of putting money into digital coins. The investing giant has made it clear that he's not a fan of crypto and considers it risky and worthless.

At the same time, Buffett is a big advocate of broad market index funds, like S&P 500 index funds, for everyday investors who want to enjoy solid growth without taking on undue risk. Index funds are passively managed funds that have the goal of matching the performance of the benchmarks they follow.

Now, index funds aren't without flaw. When you buy them, you don't get a say in the investments they're loaded with, and they also won't help you generate a higher return than what the broad market delivers.

But the benefit of buying broad market index funds is that they take the guesswork out of investing. And also, they allow for instant diversification in your portfolio.

When you buy shares of an S&P 500 index fund, for example, you're effectively putting your money into the 500 largest publicly traded companies in the market today. You're also setting yourself up to benefit when the S&P 500 does well.

Now to be clear, the S&P 500 won't always do well. It may, over time, have strong years and bad years. But between 1957 and 2021, it's delivered an average annual 10.5% return. And so if you put $5,000 into some S&P 500 index funds this year, sit back, and do nothing, you'll end up with about $100,000 in 30 years if your investments deliver that same 10.5% average return.

Furthermore, let's say you steadily invest in S&P 500 index funds over time. If you put $500 a month into these funds over a 30-year period and manage to snag that average annual 10.5% (which, again, accounts for both good and bad years), you'll end up with $1 million portfolio -- all without having to put in a ton of effort.

Take Buffett's advice

To be clear, Buffett himself isn't loaded up on index funds. The reason? He doesn't have to be. As a stock-picking genius, he can afford to look outside of index funds and take on different levels of risk.

But if you're closer to the average investor than Buffett himself when it comes to stock-picking knowledge, then you may want to follow Buffett's advice rather than his lead and load up on broad market index funds this year. Doing so could make you incredibly wealthy over time. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This Warren Buffett recommendation could be your best investment in 2022 appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Though stock values have dropped at several points in the course of the past year, for the most part, 2021 has been a solid one for investors. And while many experts believe that the next stock market crash is right around the corner, I'm not convinced.

Right now, stock values are high, and that alone could lead to a near-term correction. But that doesn't mean the market will completely tank.

Furthermore, stock values have been high for a long time now, and while the market definitely took a tumble in March of 2020 when the pandemic first hit home, it recovered fairly quickly. And so if stocks do crash in the coming year, that downturn may be short-lived.

Either way, though, I think it's important to always be prepared for a stock market crash -- even if you're not lying awake at night worried that the next one will strike any day. And so now that we've reached the tail end of 2021, here are some moves I'm making in the coming weeks to gear up for potential turbulence in 2022 -- whether it comes to be or not.

1. Sneaking a little cash into my emergency fund

It's always a good idea to have a solid emergency fund -- enough money in the bank to cover three to six months of essential living expenses. That way, if you lose your job or encounter some unplanned bills, you'll have cash reserves to tap without having to land in debt or liquidate stocks to scrounge up the money.

Right now, my emergency fund is looking pretty robust, especially since I have about a year's worth of essential expenses on hand in cash. I tend to overfund my emergency savings because doing so gives me peace of mind as both a self-employed worker and an investor. And so between now and the end of the year, any money I don't spend on holiday expenses or other obligations will probably go into my savings so it's there for me just in case.

2. Making sure my portfolio is nice and balanced

A diverse investment mix could be just the thing to help you get through a stock market downturn. And so I'm planning to do a thorough review of my investments and make sure they're as balanced as I'd like them to be.

When you own stocks (or other investments), their value can rise and fall, leading to a scenario where you may be more heavily invested in a single market segment than you'd like to be. So my plan is to make sure that hasn't happened in my portfolio, and if I need to do some rebalancing, I'll make that move before stock values tumble.

3. Putting together a wish list of new stocks to acquire

It's easy to look at a stock market crash as a negative thing. But I like to view these events as buying opportunities.

In the past year, I've struggled to add to my portfolio because stock values have been so high. If they fall in the coming year, I want to be ready to pounce. And so I'm researching some companies now so that I'll be prepared to buy shares should the opportunity present itself.

Hope for the best but be prepared

Sitting around worrying about a stock market crash is not a good use of your mental energy. At the same time, though, you never know when things might take a turn for the worse. This especially holds true during these uncertain times as a pandemic continues to rage.

By boosting my cash reserves, balancing my portfolio, and strategizing about future investments, I'm empowering myself to deal with whatever stock market turbulence comes to be in the coming year. And doing the same may really work to your benefit. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The 3 things I'm doing to prepare for a 2022 stock market crash appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Get broad market exposure without breaking a sweat

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post How to build a diverse portfolio with zero investing experience whatsoever appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

It's been a rocky number of weeks for cryptocurrency investors, and now a number of popular digital coins, like Bitcoin and Ethereum, are down substantially from where they were just a month prior.

Of course, volatility is something all seasoned investors have experience with. The stock market, for example, has had its fair share of crashes throughout the years, and the cryptocurrency market, even more so.

But should the latest crypto crash cause you to rethink your strategy? Or should you stay the course as a cryptocurrency investor?

What the latest crash means

Just as stocks have the potential to crash when negative news comes out, so too can cryptocurrency values plummet whenever there's the slightest bit of negative press. Last week, China's central bank furthered its crackdown on cryptocurrency mining, which sent the value of digital coins on a downward spiral, to the point where Bitcoin had actually wiped out its 2021 gains.

But while a cryptocurrency crash can be unsettling the same way a stock market crash can, ultimately, this really isn't anything new. Crypto crashes happen often, and digital coins have recovered from them many times over, just as stocks have recovered in their own right.

As such, you don't necessarily need to change your investing strategy unless you come to the realization that digital currencies are too volatile given your personal risk tolerance (and to be clear, there's nothing wrong with acknowledging that you don't have the stomach for them). But what you should do is take steps to make sure a short-term cryptocurrency crash doesn't hurt you.

For the most part, that really means having an adequate amount of cash reserves on hand for emergencies. If you make a point to stock away three to six months' worth of living expenses in the bank, you'll put yourself in a much better position to ride out future cryptocurrency crashes. That way, if you end up needing money in a pinch, you won't have to sell the cryptocurrencies you hold -- potentially at a loss -- to get it.

That said, if you're fairly new to cryptocurrency, you should know that digital coins can be far more volatile than stocks, and for that reason alone, you may want to invest only a small portion of your assets in that market. In fact, a good rule of thumb is to go into cryptocurrencies assuming you'll lose all of your money.

Obviously, that's not what you want -- and that may not happen at all. But if you adopt that mindset, then you'll also end up stressing out a lot less if there's a massive crypto crash.

Remember, there's no such thing as a risk-free investment. It's possible to lose money even with so-called safe investments like bonds if circumstances happen to align that way. But cryptocurrency is particularly risky, and so it's important to make sure you're protected against periods of volatility. If you arm yourself with enough money in the bank, a crypto crash like the one that happened this past week shouldn't be something to lose sleep over.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Cryptocurrency values plunged this past week. Should you change your investing strategy? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Why did the Bitcoin price just plunge 6%?
• Bitcoin is back below US$77,000. Is this an opportunity for ASX investors?

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

These days, a growing number of people are taking the plunge and investing in cryptocurrencies. And while there are many digital currencies worth exploring, Bitcoin (CRYPTO: BTC) remains among the most popular. In fact, you may be thinking of putting some money into Bitcoin yourself. But before you do, make sure to address these key questions.

1. What's your motivation?

It's one thing to buy Bitcoin if you feel that it aligns with your overall investment strategy. Or, you may feel that adding it to your portfolio will provide you with some asset diversification, especially if, at this point, you're only invested in stocks. But if you're going to buy any cryptocurrency, you should have a specific reason for doing so. This shouldn't be one of those situations where you plunge into an investment because you keep hearing that other people are doing it.

2. Do you understand the risks involved?

Like all cryptocurrencies, Bitcoin's price can be very volatile. And while the same can be true of stocks, Bitcoin may be more easily influenced by individual movers and shakers than the shares of well-established companies. Recently, Tesla (NASDAQ: TSLA) CEO Elon Musk tweeted that his company would no longer be accepting Bitcoin payments for its popular electric cars. That single piece of news sent the token's value on a downward spiral. And while there are comparable situations in which one piece of breaking news can clobber a stock's value, Bitcoin has greater potential to fall victim to extreme price oscillations. That doesn't mean you shouldn't buy it -- but you should be well aware of the risks before you do.

3. Have you compared it to other cryptocurrencies?

Bitcoin may be one of the more easily recognized cryptocurrencies today. But familiarity with a name doesn't automatically make it the right choice. Look into other, newer cryptocurrencies before deciding which is the best one for your investment portfolio.

4. What's your plan once you own it?

When you buy stocks, it's important to have a strategy. You may, for example, adopt the buy-and-hold approach -- load up on quality stocks and keep them in your portfolio for years or decades. Similarly, you should have a strategy for owning Bitcoin. Do you aim to hold it for a long time, ignoring its short-term moves in the hopes that it becomes a long-term store of value? Or do you regard it as a shorter-term investment that you intend to sell quickly for a profit (if you can)? Plot out your game plan before moving forward.

5. What would happen to your finances if Bitcoin were to plunge?

Much of Bitcoin's future value hinges on whether it becomes a widely accepted form of currency or not. And right now, we really don't know what its future holds. As such, if you're going to buy it, you need to be prepared for the possibility that its price might decline drastically. That may not happen, but it's a risk you need to reconcile yourself to before you invest. So ask yourself: Would losing most or all of the money you plan to put into Bitcoin stop you from retiring when you want to? Would such a crash in its value prevent you from achieving other major items on your long-term agenda, like buying a house, or paying for a child's education? These are things you ought to think through as you consider how much of your money you want to commit to any cryptocurrency. Have the answers clear in your mind before you buy.

Bitcoin could end up being not just an appropriate investment for you, but a rewarding one. Just make sure you address these questions before putting money into it.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Answer these 5 questions before investing in Bitcoin appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Why did the Bitcoin price just plunge 6%?
• Bitcoin is back below US$77,000. Is this an opportunity for ASX investors?

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Years ago, when I bought one of my first stocks, its share price dropped several days later. As a newbie investor, I got spooked, so I unloaded those shares in an attempt to minimize my losses. A few days later, they were back up to the price I'd bought them at. A day or so after that, they rose even higher.

It's easy to laugh at my rash decision and glaring mistake now. Thankfully, I didn't lock in a particularly large loss at the time by selling hastily. But it did teach me a very important lesson: to not let panic or other emotions get in the way of my investing decisions.

In fact, giving in to emotions is one of the leading ways you can lose money in the stock market. If you've been a victim of emotion-driven investing before, here are some strategies to employ.

1. Take a buy-and-hold approach

When you think of investing in the stock market as a long-term game, you'll be less likely to get thrown by individual events along the way. The stock market has a strong history of recovering from losses. If you take a buy-and-hold approach -- load up on quality stocks now and hang onto them for decades -- you're less likely to get burned. You're also less likely to give in to panic every time your portfolio value dips.

2. Use dollar-cost averaging to your advantage

Many people worry about losing money on stocks and therefore hesitate to buy at certain times, like when stock values are up or when there's a recession at play. That's why a better bet is to commit to buying stocks at regular intervals, regardless of the circumstances at hand.

It's a strategy known as dollar-cost averaging, and it helps investors avoid falling down the counterproductive rabbit hole of attempting to time the market. With dollar-cost averaging, you might say you'll put $100 into the stock market every week. You might even get more specific and say you'll buy $100 worth of a particular stock. Dollar-cost averaging has been shown to help investors pay a lower average share price than timed purchases, and it's a simple way to take emotions out of the equation. 

3. Diversify

Having a wide range of investments can buy you peace of mind during periods of stock market volatility and make it less likely that you'll act irrationally. You can diversify by buying stocks from different segments of the market or by loading up on index funds. With index funds, your portfolio won't outperform the broader market, but you will benefit from general market upswings. Index funds also let you diversify in an instant, so you don't have to put in the time to research individual stocks or fret that you've chosen the wrong ones.

Most of us can't just flip a switch and turn our emotions off, but there are steps you can take to be a less emotional investor. That could, in turn, spare you a world of losses in the course of your lifetime.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This Is 1 of the Easiest Ways to Lose Money in the Stock Market appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The past seven months have been a wild ride for stocks. In March, the market crashed as a result of the coronavirus outbreak. Then, stocks recovered, only to encounter a major sell-off in early September. In fact, the stock market has bounced around a lot in October, and as we inch closer and closer to the upcoming presidential election, we could see even more turbulence.

As an investor, that puts you in a tough spot, so if you're worried about managing your portfolio during these trying times, here's one solution worth considering: dollar-cost averaging. It's a strategy that investing legend Warren Buffett has long advocated, and it's a good bet for navigating a volatile market like the one we're in.

How dollar-cost averaging works

The concept of dollar-cost averaging is simple: Pick some stocks, figure out how much you can afford to invest, and then commit to buying shares at preset intervals. For example, say you decide you want to buy Netflix Inc (NASDAQ: NFLX) and can dedicate $200 every two weeks toward its shares. (Technically, $200 isn't enough to buy a full share of Netflix right now, but you can buy fractional shares instead.) In that case, you'd buy Netflix every other week, regardless of the price it's trading at on the day you purchase your shares.

The idea behind dollar-cost averaging is that while you might overpay for shares some weeks, you'll also underpay other weeks. All told, things should all work out in your favor so that you're ultimately paying a lower price per share all in.

Dollar-cost averaging is a far safer bet than aiming to time the market during periods of volatility, because in doing so, you might miss out on great buying opportunities and risk getting stuck with a higher share price overall. Remember, the stock market is unpredictable on a good week, but when we're in the midst of election season, it can be even wilder. And at a time like that, being consistent is crucial.

Of course, if you want to take Buffett's advice even further, employ dollar-cost averaging to buy shares of S&P 500 Index (SP: .INX) index funds. That way, you get exposure to the broader market and aren't putting all of your money into a single stock. Buffett has stated many times over that index funds are a great way for the average investor to grow wealth, so if you don't want to do the legwork involved in vetting individual stocks, index funds are the way to go.

Take Buffett's advice

A man with the investing track record of Buffett is someone to take seriously. If you're looking to invest in the coming weeks, it pays to employ dollar-cost averaging rather than attempt to time the market in an effort to score the lowest stock prices. Investors who try timing the market often get burned, and given the way stocks could swing in the near term, a stable, steady approach is not only a safer bet, but most likely a more lucrative one as well.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Warren Buffett has this advice for investing in a volatile market appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

Maurie Backman owns shares of Netflix. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix. The Motley Fool Australia has recommended Netflix. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investing in the stock market is a proven way to grow wealth over time, and the sooner you get started, the better. But deciding how to invest can be challenging. If you opt for a collection of individual stocks, you'll need to spend time researching each company and making sure it's the right fit for your portfolio. If you go with index funds, you won't have to put in the same amount of legwork, but you may lose out on certain benefits that individual stocks have to offer.

For many investors, index funds are actually a good way to go. But here's why you may want to hand-pick your stocks instead.

Hand-picking your stocks allows you to choose companies that fit in with your personal investing strategy and appetite for risk. Say you're really not keen on putting airline stocks in your portfolio because you think that's a risky prospect given the hit the industry has taken during the coronavirus pandemic. If you buy S&P 500 Index (INDEXSP: .INX) funds, you'll be stuck with airline stocks in your portfolio, whether you like it or not. By choosing your own stocks, you avoid companies or industries you'd rather steer clear of.

2. You can avoid stocks that don't align with your ethics

Some people buy stocks because they believe in a company's growth potential. Other people buy stocks because they believe in the products or services being offered by a particular company, or because they believe in its mission. As just mentioned, when you buy index funds, you don't get to dictate which stocks land in your portfolio and which don't. This means that if you have a problem with a specific company from an ethical standpoint, you could end up having to invest in it anyway.

Imagine you're not a fan of tobacco companies. Since Philip Morris International Inc (NYSE:PM) is part of the S&P 500, if you buy funds based on that index, you'll end up owning its shares, which could pose a moral dilemma for you.

3. You'll have the potential to beat the market

Index funds aim to match the performance of the indexes they're tied to – not beat it. If you want your portfolio to deliver returns that exceed those of the broader market, then you'll need to assemble your own mix of stocks – ones with supreme growth potential and a clear edge over the competition. Beating the market isn't easy, but with the right approach, it can be done – but not with index funds.

What's the right move for you?

Ultimately, the decision to buy individual stocks versus index funds should boil down to how confident you are in your ability to choose the right companies, and how much time you're willing to spend in the process. If you're up for the challenge, then hand-picking stocks could be a great strategy that rewards you over time. But if you'd rather keep things simple on the investing front, then there's nothing wrong with reverting to index funds and enjoying the automatic diversity they allow for.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 reasons to hand-pick stocks instead of buying index funds appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investing your money is a great way to grow wealth and set yourself up for a secure future. But if you're going to invest, the last thing you'll want to do is fall victim to these blunders that could leave you broke and miserable.

1. Panic selling

When the stock market crashes (which happens more often than we'd like), it's easy to immediately panic and start selling off investments before their value tumbles even more. But if you go that route, you're likely to lock in losses that could've otherwise been avoidable.

Remember, you only lose money in stocks when you sell investments when they're down. But some market downturns are only temporary, and if you sit back and ride them out, your portfolio can recover. Just look at what happened earlier this year. In March, stocks plunged into bear market territory, and many investors were convinced we'd be in for a prolonged down market. Instead, those losses were erased by August.

2. Trying to time the market

Seasoned investors who have been following the stock market for years often struggle to time it, and the same thing is likely to happen to you. Predicting exactly when the broad market will rise or fall is extremely difficult, and it's a strategy that could cause you to lose out on money for no good reason. Rather than attempt to time the market, pledge to invest consistently.

A strategy called dollar-cost averaging can help you in this regard. In short, dollar-cost averaging involves investing a certain amount of money at predetermined intervals. For example, you might decide to invest $100 a week in a specific stock or set of stocks, rather than attempt to buy $400 worth of stock at one low point during the month. This way, you're more likely to end up with a lower average purchase price.

3. Holding losing stocks for too long

Not every stock you buy is guaranteed to be a winner, and frustrating as it may be to have an underperforming stock on your hands, you need to know when to cut your losses. If there's a stock that's been dropping in value since you bought it while the rest of your portfolio is thriving, you shouldn't hesitate to cut the cord. Holding onto that stock for longer could mean watching its value sink even further.

For many people, investing is a work in progress. You might start out with a certain strategy only to have it evolve over time as your budget and appetite for risk change. But whether you're first starting out as an investor or have been doing it for years, be sure to steer clear of the above mistakes. Doing so will help ensure that your portfolio serves you well, both in the near term as well as the long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 major investing mistakes to avoid at all costs appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Here are the top 10 ASX 200 shares today
• Dicker Data vs Megaport: Which ASX tech share has more upside?
• ASX 200 turns higher after a rocky start. Is a recovery on the table?
• PLS shares have surged 85% in a year. So why are short sellers circling?
• ANZ shares have climbed 13% in a year. Is there still room to run?

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.