If you are a brand new investor the question often comes up “what should my first investment be?”. You can ask lots of people this question and get lots of answers. If I was a new investor today I would purchase a no load S&P 500 mutual fund. I have accounts with multiple brokerages (I will add a future article about different brokerages) but my primary brokerage currently is Fidelity and so I own Fidelity 500 Index Investor (FUSEX 99.16 -0.68 -0.68%). Most brokerage has something similar.
The S&P 500, short for the Standard & Poor’s 500, is an index fund of 500 very large companies. It captures approximately 80% coverage of the overall stock market capitalization.
To be part of the S&P 500, a company must have a market capitalization greater than or equal to $6.1 billion as well as several other requirements. These are large, household names. It is a great way to create immediate diversification.
If I was starting over as a brand new investor, I would suggest putting $2,500 in an S&P 500 index fund and then $500 a month each month on the same day of the month (“dollar cost averaging”) until I had $10,000 in that fund. Once I had $10,000 in that fund as a good basis I would start on other investments. If necessary, you can adjust the initial investment as well as the monthly investment to fit your budget, but I would not change the $10,000 amount.
This $10,000 is a wonderful foundation that will provide steady and stable returns most years while you are able to fine tune your investments.