We boil down investing to three basic steps
At Stash, we want to take the mystery out of investing.
We know there can be a lot of confusing terms, and it can be intimidating, even scary, to figure out the smartest way to put your money in the market or to even get started buying your first stock, bond, or fund.
That’s why we’ve boiled down our investing philosophy into three basic steps that we call the Stash Way:
- Invest for the long-term
- Invest regularly
Read on and we’ll explain the three pillars of the Stash Way.
Invest for the long-term
Over the years, market gains have outpaced standard savings rates in bank accounts. Looking ahead, experts expect markets to return about 5%. With the power of compounding and regular investing, you have the ability to build wealth for the financial future you want.
During the financial crisis that began in 2008, key stock indexes lost on average 40% of their value or more. Times have changed, however. And some of the hardest hit indexes have recovered their losses. The Dow Jones Industrial Average, for example, has nearly quadrupled in value since 2009.
After you’ve set aside savings for an emergency fund, consider investing in the market, and making regular investments a part of your savings plan. Even if you take small amounts and invest them every week or every month, that can add up through the power of something called compounding.
Compounding is when the interest on the assets you own also earns interest, which can magnify your savings and your wealth.
Regular investing like this also has a name. It’s called dollar-cost averaging. We’ll give you an example of what that means. Let’s assume you put $20 each week into the market in a conservative fund that tracks the broader market. On some weeks, the market will be up, and the share price for the fund will also go up. During other weeks, the market will go down, and so the share price of the fund will also go down. On the up weeks, you’ll be paying more for the fund, and on the down weeks, you’ll be paying less.
Over time, the highs and lows should balance themselves out.
You’ve heard the term, don’t put all of your eggs in one basket. If you drop the basket, you’ll break all the eggs.
Diversification means you’re not putting all of your eggs in one basket, so you can better weather the stock market’s ups and downs. That means you won’t put all of your money in too few stocks, bonds, or funds.
When you’ve diversified your portfolio, it will hold a variety of investments that are not all subject to the same market risks, including stocks, bonds, and cash, as well as mutual funds and exchange-traded funds (ETFs).
By diversifying, you’ll be choosing investments in numerous economic sectors—not just the hot industry of the moment—as well as in different geographies around the globe.
More about diversification
Here’s an example of what that means. If you buy only technology stocks or stocks in the energy industry, you’d be putting all of your eggs in one basket. If tech stocks experience trouble, or the energy industry suddenly must deal with a natural disaster, it’s likely the stocks in those industries will decline together, and you’d lose more money than if you were diversified.
A diversified portfolio might have stocks in technology and defense, but they also might include consumer staples, energy stocks, and possibly commodities, such as metals, to name just a few possibilities. It’s also likely to include bonds and some cash.
One way to start diversifying is by purchasing an exchange-traded fund, or ETF. ETFs are investment funds that are traded on an exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. They invest in numerous companies at once.
ETFs often correspond to a particular size company, industrial sector, market, or even social goal. So, you could own shares in an ETF that owns blue-chip stocks of large companies, or the stocks of less well-known, smaller companies.
You could also purchase shares of ETFs that specialize in emerging markets, commodities, or consumer products, to name a few different options. An ETF might also invest in companies that are helping the environment or working to increase the number of women in leadership positions at large companies.
The way of the Stash
We know that markets are always changing, they can go up one day and down the next, and that volatility can be scary. But we also know that if you follow the Stash Way, it can smooth out some of the bumps and help you to grow savings and wealth.
Investing in the stock market always carries risk. There is no guarantee that what you’ve invested in will make money. But we think if you follow the three basic principles of the Stash Way, you can minimize risk and set yourself on a path to realizing your financial goals.
Stash is on a financial journey with you, and that includes helping you make smart decisions about investing.
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