Investing in a volatile market like today’s is particularly daunting for young people – all they’re seeing is inflation, war with Russia, and higher prices at the gas pump and grocery store.
Yet, I’ve run into countless young people around my daughters’ age who are working, earning some extra income, and want to invest. The problem is, they just don’t know where to start.
As someone who’s been doing this for decades, I always jump at the chance to share my wisdom. And recently, I had the chance to chat with a group of young people while I was skiing at the Kirkwood Mountain Resort near Lake Tahoe. I gave them my best foolproof advice for making the market work for them as though I were talking to my own daughters.
This investment advice is made for folks who’ve been reluctant to jump in when market conditions are so volatile – and it’s just as relevant for newcomers and seasoned investors.
So today, I’m going to show you what I showed them – a foolproof three-part investment strategy and three “starter” tech investment vehicles that can jumpstart any investment portfolio…
Foolproof Three-Part Investing Strategy
Coaching young or new investors comes naturally to me – it’s something I do regularly with my very own daughters, both of whom became finance majors.
In fact, roughly 11 years ago, I started talking to them about the importance of avoiding debt and putting their money to work in the markets.
For a time, we made a game out of it. We had investing contests to see which daughter could score the higher gains. Of course, they had dad’s help in selecting high- tech investments that could crush the market.
But not everyone has that type of guidance at their fingertips. I once chatted with at least six young adults who had extra cash that they wanted to invest – they just didn’t know anyone they trusted enough to get them going. And they’re not alone in wanting to invest.
Following GameStop’s (GME) infamous fall, 39% of young adults surveyed see the stock market as an opportunity to “make money quickly”, while 40% see stocks as a long-term investment and only 20% see it as “too risky.”
This is why they really need my help.
See, these young folks would be lucky to earn more than 2% on a savings account or money market fund. If they just got the stock market’s average long-term gain of roughly 7% a year, they would be doing more than three times better.
Now, when I talk to young adults about investing their money wisely, my first goal is to avoid overwhelming them.
I just want to help them get off the ground with a simple, three-part strategy that anyone can follow.
Here’s what that looks like:
- Start as soon as you can, invest regularly, and dollar- cost average over the long haul. This may be investing every week or every month, as your budget allows.
- When all else fails, park your cash in a basic S&P 500 exchange- traded fund (ETF) like iShares Core S&P Total U.S. Stock Market ETF (ITOT) so you at least get a nice average return.
- After that, make sure you have exposure to tech, the greatest wealth machine ever created, and start with solid ETFs.
Because the first part of this strategy is pretty much self-evident, let’s drill down and take a closer look at numbers two and three.
I recommend ITOT because it gives you instant diversification with a cost-effective ETF that has a core holding in leaders from high tech and the life sciences. It also has a built-in mnemonic device or memory aid…
When I say, “Just remember, ‘ITOT you to invest your money wisely,’” they all say the same thing – “Got it, that’s easy to remember.”
Of course, as you should know by now, our goal here at Strategic Tech Investor is to consistently outperform the market. And that’s where part three of this strategy comes into play.
I’ve identified three tech-related ETFs that give everyone from novice investors to risk-loving options traders a solid foundation.
Take a look at these three winners:
Tech ETF Wealth Builder No. 1
The iShares Expanded Tech Sector ETF (IGM) is my go-to ETF – it covers all the leaders in tech, a group that has been a big factor in the market’s rally for nearly a decade now.
We’re talking about firms like Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Meta Platforms Inc. (FB), and Microsoft Corp. (MSFT), which make up around 30% of its portfolio.
While many of the firms in the iShares fund have done a great job reaching into global markets, they all count on North America as their major source of strength. Given concerns about trade tensions, that’s a great place to be.
And there’s plenty of depth here as well.
Holding some 314 stocks, IGM trades at roughly $ 318.32 and has a 0.43% expense ratio. Over the past five years, it’s returned 116.07%, easily beating the S&P’s 67.58% profits.
Tech ETF Wealth Builder No. 2
When it comes to racking up high profit margins, it’s hard to beat the software sector with its steady stream of licensing revenues. Even better, many of these firms are moving to cloud-based business models that yield even higher earnings.
In other words, the SPDR S&P Software & Services ETF (XSW) has a built-in one-two punch. With 207 stocks in its portfolio, XSW doesn’t just cover the waterfront of software and the cloud.
It also includes firms involved in e-commerce, social networking, data processing, internet software, big data, and information technology consulting and services.
Trading at roughly $ 115.36 per share, XSW has returned roughly 89.15% to investors over the past five years compared to the S&P, which returned 67.58% over the same period.
Tech ETF Wealth Builder No. 3
Medical devices are on the front lines of healthcare innovation – it’s a field that covers everything from in-vitro diagnostics to remote heart monitoring to deep brain stimulation.
A lot of the innovation in this sector is taking place right here in the U.S., which accounts for about 40% of the global medical device market . In 2018, this market was worth $425.5 billion, and it’s projected to reach $612.7 billion by 2025, according to Fortune Business Insights.
That’s why I recommend the iShares U.S. Medical Devices ETF (IHI) as a cost-effective way to play the whole field at
once. Nearly 70% of this portfolio is anchored by 10 of the world’s most innovative device makers, such as Medtronic (MDT), Abbott Laboratories (ABT), and Boston Scientific Corp. (BSX).
Trading at $51.88, the fund charges a 0. 41% expense ratio, and over the past five years, it has yielded 95.26% profits, beating the S&P by 28%.
So, as you can see, investing in tech ETFs can be highly lucrative – and is a great, low-risk place for investors to hone their chops.
Cheers and good investing,
— Michael A. Robinson
Source: Strategic Tech Investor