As the current year comes to a close, investors are probably thinking about ways to bolster their finances in 2024. One way to do that is to consider investing in the stock market.
That’s a smart way to build lasting wealth, especially because the S&P 500 has returned on average 10% annually over the last 100 or so years. Even better, investors don’t have to have a lot of starting capital or be experts in financial analysis.
With just $1,000, here’s how you can start investing in 2024.
A laid-back approach
A very popular and legitimate way to start investing is to go the passive route. For people who don’t have the ability or time to research individual securities, this is a smart way to gain exposure to the stock market.
That $1,000 could all go toward buying an index fund, like the Fidelity 500 Index Fund. This gives investors a safe, low-cost way to benefit from the rise of the S&P 500, which includes the 500 largest businesses in the U.S. In other words, investors have access to the financial success of these companies. According to past performance, that’s a lucrative bet to make.
Warren Buffett has said numerous times that for the vast majority of people out there, owning an index fund is the best thing to do. I’d have to agree with this statement. It requires no extra work or time, can even be automated, and you can be sure that you’re setting yourself up for long-term financial success.
But I’d also go one step further. I also believe it’s a good idea to dollar-cost average by adding more capital on a recurring basis, say monthly or quarterly. Investors would not only be able to take advantage of multiple entry buying points, but this ensures that you are consistently saving.
The end result over many years and decades can be life-changing. Investing $1,000 upfront, followed by $50 per month for 30 years, and earning a 10% annual return, you’d end up with over $121,000. That’s truly astonishing.
Image source: Getty Images.
The other way to invest that $1,000 is to allocate capital to specific stocks, taking a more active approach to your portfolio. Of course, in order to do this successfully, one would need to have the time and appropriate abilities to research single stocks.
It doesn’t have to be complicated. The Motley Fool recommends that investors pick at least 25 stocks for their portfolios, with the intention to own them for at least the next five years, and ideally longer. But where do you begin when identifying what to buy?
I think it’s critical to focus on companies that have an economic moat, or traits that allow them to defend against the threat of competition. This could be network effects, which is what Meta Platforms benefits from. It could be a powerful brand, like what Apple, Nike, or Ferrari all have. Or the moat could come from scale advantages, which is what Costco possesses.
Making sure these businesses have solid growth prospects is also key. Rising sales and profits typically help support a higher stock price. Moreover, growth can mean a company is stealing market share in its industry.
It’s also paramount that investors don’t ignore valuation. All else equal, paying an attractive price-to-sales multiple or price-to-earnings (P/E) ratio can increase the return potential.
Apple’s current P/E multiple of 31.6 is very expensive, in my opinion, so I wouldn’t rush to buy the stock right now. But when Buffett’s Berkshire Hathaway first purchased shares in early 2016, shares carried a valuation one-third the current level, which certainly added to the gain.
Investors shouldn’t be intimidated. With $1,000, it’s time to start investing in the stock market in 2024.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Costco Wholesale, Meta Platforms, and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
How You Can Start Investing With Just $1,000 in 2024 was originally published by The Motley Fool
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