Worried About Choosing the Wrong Stocks for Your Portfolio? Here's an Easier Solution.
Why take on the stress when there's a simpler alternative?
By Maurie Backman
Building wealth through investing sounds simple in theory -- buy great companies, hold them for the long term, and watch your money grow.
In reality, picking individual stocks can be stressful. Every investment decision comes with uncertainty, and even experienced investors sometimes make costly mistakes.
If you're worried about choosing the wrong stocks for your portfolio, there's a simpler alternative to consider. One exchange-traded fund (ETF) in particular gives you broad market exposure without requiring you to constantly analyze individual companies or keep tabs on their performance.
Why hand-picking stocks can be so difficult
When you buy shares of an individual company, you're betting that the business will perform well. But that requires you to evaluate factors like earnings, competition, management quality, and more.
Even if you do your research, unexpected events could quickly change a company's outlook. Regulatory changes, product failures, or shifting trends could send any given stock lower with little warning.
In other words, even if you put in the work, you can't see into the future. And since there's a lot riding on your investment choices, it's easy to fall into the trap of stressing every time you add shares of a given company to your portfolio.
The right ETF could simplify things -- and remove some of the anxiety
While you could put together a portfolio of stocks based on hours of research, an easier approach could be to buy shares of the Vanguard S&P 500 ETF (VOO +0.42%). The fund tracks the S&P 500 index, which consists of the roughly 500 largest publicly traded companies by market cap.
Instead of trying to identify winners, the Vanguard S&P 500 ETF puts a collection of stocks into your portfolio. And because these are all large-cap, established businesses, you may find that your portfolio grows nicely over time without the same risks that come with owning stocks individually.
This isn't to say that the S&P 500 will gain value every year. That probably won't happen. But holding an S&P 500 ETF over many years is more likely to help you grow your money than not.
And remember, with the Vanguard S&P 500 ETF, you're getting a diverse mix of companies. You don't have to keep checking your portfolio to make sure you're invested in different corners of the market. The fund does that for you.
Of course, investing in the S&P 500 does carry risk. And the Vanguard S&P 500 ETF is likely to experience its share of volatility if you hold it for many years.
But that volatility may be less stressful for you than the volatility that comes with owning individual stocks. So if you don't want the pressure of having to build a portfolio from scratch, don't. Instead, fall back on the S&P 500 and take the easier approach to accumulating wealth.