Follow the Market with ETFs
Alright, so you want to invest in stocks. But, what if you don’t have the time or want to make the effort to do research into a company. You don’t want to create spreadsheets that review metrics. The only thing you hear on the news is about Tesla and Apple, so other than them, who do you invest with. What if there was a way to invest in the US stock market? Well, below is how you can follow the markets with investing in ETFs.
What is an ETF?
An Exchange Traded Fund (ETF) is a type of security that follows an index or sector. Typically, you can purchase shares of an ETF like you would an average stock share on platforms like Robinhood. Consider it like a mutual fund. If you have an ETF that follows the S&P 500, then it is a fund with shares of each of the companies in the S&P 500 with the same ratios. This way, when you see the S&P 500 went up 1%, the ETF also went up 1%.
Follow the Market: Dow Jones
The Dow Jones Industrial Average represents 30 prominent companies in the US stock exchange. This is one of the oldest and most followed index. Many use this number to equate to the health of the US economy. If you wanted to invest in an ETF to follow this index, you would want to invest in ticker symbol DIA.
Follow the Market: S&P 500
The Dow Jones may be the oldest index, but in my opinion, it is not the best indicator of the economy. It only has 30 companies it follows. In research, 30 is the minimum sample size you need. The larger the sample size, the better. This is why the Standard and Poor’s 500 (S&P 500) is a better indicator. This index represents 500 large companies that meet specific criteria. When I invest in market ETFs, this is one I purchase. The ticker symbol for the S&P 500 ETF is SPY.
Follow the Market: Russell 3000
Again, this is a better indicator for the economy because it follows the largest 3,000 publicly traded companies in the US. It is weighted by its capitalization, so the top holdings are Apple, Microsoft, and Amazon. With 3,000 companies, it represents around 98% of the total market. To invest in this fund, purchase ticker symbol IWV.
Follow the Market: Russell 2000
Even more popular than the Russell 3000 is its little brother the Russell 2000. The difference between these two is the 2000 represents small-cap companies. It is the 2000 smallest in the Russell 3000. This index shows the health of the little to middle guys. To follow this market, the ticker symbol is IWM.
Follow the Market: NASDAQ
The NASDAQ grew in popularity with the pandemic. The reason for this is the ETF is composed of mainly technology stocks. These companies did incredibly well with quarantine and having to rely heavily on technology. Additionally, the crypto market has helped launch companies, such as Nvidia and AMD, to all time highs, far greater than most companies. Investing in the NASDAQ would have given you an ROI much greater than any other market by percentage. To invest in this ETF, the ticker symbol is QQQ.
Should You Follow the Markets?
Many professionals who do extensive research and diversify their investments do not surpass some of these markets. These ETFs are perfect for the investor that doesn’t have the time or desire to do their own research to get the most out of their investments. Again, these ETFs can be purchased on Robinhood. I personally invest in these ETFs along with the combination of strategies to create a fully diversified portfolio.
Disclaimer
Once again, I am not a financial advisor. These tips are some things I have validated with my own personal experiences. If you feel you need more personal advice, please consult a professional financial advisor.
