Halloween is around the corner, and before you throw on that questionable last-minute costume, remember that a night of trick-or-treating has a lot to teach you about long-term investing.
So grab your metaphorical pillowcase, and let's dive into a few lessons.
Want Candy? You Have to Start Somewhere
Did you spend weeks agonizing over your Halloween costume? Maybe you wanted the most elaborate one on the block, or you just couldn’t choose between superhero and vampire. Ultimately, though, having the perfect costume didn’t matter nearly as much as just putting something on and joining the fun.
Investing works similarly.
People tend to put off investing for all sorts of reasons. Maybe you feel like you need to save more money before you're comfortable moving it into a portfolio. Or, you feel like you don’t know enough about the markets or which investments to choose. You might be waiting for stock prices to come down or for the economy to feel a little less uncertain.
But while you're waiting for the "perfect" moment to begin investing, you're giving up something incredibly valuable along the way: Time.
The sooner you begin investing, the more time your money has to grow and compound. When your investment earns returns, those returns begin generating returns of their own. Given enough time, that snowball effect becomes a powerful driver of long-term wealth.
How ETFs are the “Variety Pack” of Investing
The sheer variety of candy tumbling out of your bag at the end of a successful trick-or-treat night is one of the most thrilling parts of the whole experience. Chocolates, caramels, sour gummies, lollipops… it all feels never-ending. We can’t help but compare your trick-or-treat bag to the diversification an ETF offers investors.
One of the biggest challenges investors face as they first get started is what to invest in. They might decide on an asset, like stocks. And then, they’re not sure what comes next. They might check out different sectors (IT, healthcare, consumer staples, etc.) or search for what everyone else is buying. People, especially beginner investors, often feel more comfortable investing in a business they’re personally familiar with, even if it doesn’t necessarily align with their goals or tolerance for risk.
Exchange-traded funds, or ETFs, can make this first step easier. It’s like if all the homeowners in your neighborhood were candy selection experts, and they got together to curate the ideal selection of sweets.
Rather than choosing individual companies yourself, an ETF allows you to purchase a basket of underlying investments through one fund. Depending on the ETF, you could gain exposure to dozens, hundreds, or even thousands of stocks or bonds with a single purchase.
Some ETFs track broad indexes (called index funds), while others focus on specific sectors, asset classes, geographic regions, or investment strategies.
ETFs are an accessible option for investors who are still finding their footing. Generally, they offer attractive characteristics including relatively low costs, liquidity, tax efficiency, transparency, and built-in diversification, making them an accessible option for any investor.
Keep Going, Stay Consistent
Now imagine getting dressed up, grabbing your candy bag, walking to your neighbor's house, and collecting one fun-size candy bar before heading home. Pretty disappointing Halloween, right?
The key to a successful trick-or-treat night is to knock on many doors and just keep going, even if you didn’t like what you got at the last house. Maybe one house gave you a single box of raisins (a decidedly disappointing “treat”) while the next handed out king-size candy bars.
The whole night, you couldn't predict what you'd get at each stop. But more importantly, you kept going, even when faced with an outcome you didn’t like.
In the same way, the key to long-term investing is to keep going, stay consistent, and not let the down periods deter you.
Introducing Dollar-Cost Averaging
Dollar-cost averaging is a common investment strategy used to keep emotional or impulsive decision-making at bay. You invest the same amount of money at regular intervals, regardless of what the market is doing. Rather than picking the “perfect day” to invest a large amount of money, you invest a predetermined amount at regular intervals.
For example, you might set up an automatic transfer of $250 from your savings to your investment account on the first of every month. Your contributions continue as scheduled regardless of what the stock market is doing.
When prices are higher, your $250 purchases fewer shares. When prices fall, the same $250 buys more shares. Over time, you're investing across a range of market conditions without having to continually decide whether today is a good or bad day to buy.
Dollar-cost averaging can take emotions out of the equation, which tend to cloud investor judgment. A market downturn might prompt you to stop investing until things improve, while a rising market makes you wonder whether prices have climbed too high to keep buying. With a consistent strategy, neither scenario dictates your next move.
If you’re enrolled in your employer’s 401(k), HSA, or similar plan, you’re likely already doing this. With automatic deferrals, a portion of each paycheck is invested before the money ever reaches your bank account.
You can apply the same idea to a taxable brokerage account by setting up recurring contributions. As your income grows, consider increasing those contributions incrementally. A raise or bonus, for example, makes it easy to invest a little more without sacrificing your lifestyle or other financial obligations.
Don’t Put All Your Candy in One Basket
After a successful night of trick-or-treating, the best part is dumping your entire haul onto the floor and taking inventory. Ideally, you have some good variety, because nobody wants to come home with an entire bag of the same disappointing nougat bar.
Your portfolio benefits from variety, too. In investing, it’s called diversification.
Diversification is one of the most fundamental components of long-term investing. Spreading your money across multiple investments reduces the risk of relying too heavily on one asset or one company’s performance.
Diversification is effective because different investments, assets, and sectors perform differently under the same market conditions.
Imagine your entire portfolio consisted of stock in one company. If that company suffered through even just one quarter of poor earnings, your whole portfolio would feel the impact.
Now imagine your money was spread across hundreds of companies representing technology, healthcare, financial services, consumer goods, industrials, and other areas of the economy. Weakness in one company or sector would, ideally, be offset by stronger performance elsewhere.
Depending on your own goals and needs, a diversified portfolio will likely include a mix of stocks and bonds, companies of different sizes, and investments across U.S. and international markets.
ETFs can once again make this easier by providing exposure to many companies through one fund. An ETF offers instant diversification without requiring you to research and purchase every stock individually.
That said, diversification can't eliminate investment risk altogether or guarantee positive returns either. Markets move up and down continually, and rather unpredictably. Spreading your money across different investments reduces your portfolio’s dependence on any single company or investment.
Don’t Be Scared to Start Investing This Halloween
When you’re just getting started on your investment journey, the choices feel overwhelming. You have thousands of investments to choose from, with no real, clear guidance on what belongs in your portfolio.
If you’re feeling unsure about what to do next, just remember to go “trick-or-treating.” Put on the costume (don’t worry too much about finding the best one) and get started. ETFs can make this first step easier.
Once you’ve started, keep knocking on doors. Consistent contributions and dollar-cost averaging can help you continue building your portfolio through different market conditions without the need to predict what happens next.
Finally, remember to bring home a good variety. Diversification spreads risk across different investments. Doing so helps avoid one company, sector, or asset determining your portfolio's entire performance.
Turns out, all those years spent strategizing around which neighborhood had the best candy may have been preparing you to become a better investor all along.
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