I’m not very good at picking stocks, nor am I interested in learning how to pick companies to invest in. That’s why I chose a brokerage firm which offers many different exchange traded funds. With the ETFs in which my broker allows me to investI can get equity exposure by buying an S&P 500 index fund that invests my money in about 500 major US companies.
But while I don’t invest in many individual stocks, I recognize that index investing will not allow me to beat the market and will limit my potential returns. Since I want to maximize the chances of earning lots of investment income to grow my wealth, I want to buy stocks of companies that might perform well.
The good news is that I devised a strategy to do this that really paid off. And taking my approach ended up being the smartest investment move I’ve ever made.
This is how I invest in companies
Although I don’t invest often, I have done well with the investments I have made. And I believe there is a simple reason for that.
You see, I buy stocks in companies that I personally use, understand well, and believe have a competitive advantage based on my personal experience with them.
If I use a product or service that I believe stands out from competitors because it is easier or more intuitive to use, more affordable, or otherwise superior in some measurable way, then I will generally consider whether that benefit perceived competitiveness is one that other companies could easily replicate. If not, and if the features I like seem to provide a significantly better customer experience, I will often check to see if the company is publicly traded. If I find out that is the case, I will buy shares.
Fortunately, it has become easier than ever for me to do so thanks to fractional shares and the elimination of commissions. I don’t need to spend a lot of money to buy shares of a company just because I like their product. I can simply decide how much money I’m comfortable investing and buy how many whole or partial shares I can afford with that amount. And I don’t pay a commission for doing it.
Here’s why this approach paid off for me
Investing can be complicated, but it doesn’t have to be. Most people are very familiar with the companies they do business with and often choose them wisely after doing some research. If you understand if a business has a competitive advantage and if that advantage is likely to be sustainable, it can have a huge impact on the likelihood that the business will end up being successful in the long run.
Now, if I was investing all or even most of my money in individual stocks, I would probably want – and need – to do more research. And if you’re betting your entire financial future on buying stocks in individual companies, you’ll probably want to take steps to become a smarter investor.
But if you have a little extra cash and want to try investing in a business that you personally like, this decision might work out just as it has for me over time.
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