The economy is in the pits and the stock market has dropped like a rock. In other words, it’s the perfect time to invest.
That may seem counter-intuitive, but remember: the trick is to buy LOW. Anytime the market crashes is a time for rejoicing and much buying of stock. But that doesn’t mean you should be picking up 1000 shares of random tech startups or of pharmaceutical companies whose only product is still in FDA testing. Those super-risky picks have their place, but they should represent only a small fraction of your portfolio.
The smart move is to invest in an index fund. An index fund holds stocks that mirror one of the major stock indexes, most commonly the S&P 500.
Indexes generally pick large, stable companies and they don’t change very often. That makes index funds perfect for casual investors since a) large stable companies are a much safer investment, and b) every time a fund changes its stock offerings, its investors end up paying a fee for it. Thus an index fund with little turnover will have much lower fees than an actively managed mutual fund.
Interestingly, index funds almost always outperform regularly managed mutual funds over the long haul… which just goes to show that even a brilliant (and highly paid) fund manager might not have a clue.
Another option, if you want to avoid fund fees entirely (or only want to invest a small amount) is to buy shares in an exchange-traded fund, or ETF. An ETF is a fund that’s traded in the market as though it’s a company. Several ETFs are also index funds. SPDR (also called Spyder) is an S&P 500 index fund, and DIA (aka Diamonds) is a Dow Jones index fund.
Because these ETFs are traded on the market as regular stocks, you can buy one share or 1000 shares – whatever you want or can afford.