It can be tempting to buy individual stocks – especially with all the talk about stock memes and popular stocks like Tesla seemingly continuing to soar – but it’s so much riskier. In any given year, about 40% of all stocks are likely to have negative returns, says Arnott.

Index funds are also a good alternative due to their cost. Unlike actively managed funds, which factor in the costs of a Wall Street professional choosing which stocks to include, passively managed index funds automatically select stocks that match the sector of the market they are tracking. The average expenses of active funds in 2020 were 1.04% ($ 104 out of $ 10,000 invested) while the average expenses of passive funds were only 0.45% ($ 45 out of $ 10,000 invested), according to Morningstar. The fees for some total market funds we have called are even lower: the Fidelity Total Market Index Fund has a fee of just 0.02% and the Vanguard Total Stock Market ETF, 0.03%.

But remember, if you are planning to invest, financial advisers recommend that you first build up an emergency fund of three to six months of your spending. And while a broad market index fund makes sense for someone investing with an individual brokerage account, which you can open through online brokerage platforms, it is a different story if you are investing with a vehicle. different, like a 401 (k).