A Simple Way to Start Investing in the Stock Market

So you’ve opened a brokerage account and you’re ready to start putting your money to work. The big question is: what should you buy first? For many people just getting into , the answer isn’t a single stock but an entire index.

An index is really just a big collection, or a “basket,” of stocks. Imagine taking the 500 largest U.S. companies and putting them all into one basket—that’s essentially the S&P 500. It’s worth knowing that indices like this are market-cap weighted, meaning bigger companies like Apple have a much larger impact on the index's movement than smaller ones like Campbell's Soup. If Apple has a rough day, the whole S&P 500 feels it.

Understanding the Major Stock Indexes

You’ve probably heard of a couple of other major indexes. The Dow Jones Industrial Average (DJIA) has been around since 1896 and tracks just 30 large, well-established companies. When you hear on the news that “the Dow” dropped 300 points, this is what they’re talking about. These companies, often called “blue chips,” are known for being mature, profitable, and relatively stable. Occasionally, a company gets swapped out, like when General Electric was replaced by Walgreens.

Then there’s the Nasdaq 100, which is heavily focused on technology companies. This index gives you a piece of industry giants like Apple, Google, and Amazon. Many of these are also considered blue-chip companies due to their size and influence.

The Easiest Way to Invest: ETFs

If you wanted to invest in the S&P 500, buying all 500 stocks individually would be a complicated and expensive nightmare. Thankfully, there’s a much simpler way: the Exchange-Traded Fund, or ETF. An ETF is a fund that trades on the stock exchange just like a regular stock, and you can buy or sell it throughout the day from your brokerage account.

Each major index has a corresponding ETF. For instance:

tracks the S&P 500.
tracks the Dow Jones Industrial Average.
tracks the Nasdaq 100.

Buying shares of QQQ, for example, is a straightforward way to get exposure to the biggest names in tech. It's a popular vehicle for both short-term trading and long-term , allowing you to benefit from the growth of the tech sector over time.

Adopting a Passive Investing Strategy

This leads us to a strategy called indexing, which is a form of “passive investing.” Instead of constantly researching and picking individual stocks, you simply buy an index ETF like SPY or QQQ and hold on to it. This approach doesn't involve a lot of active decision-making. The fund automatically handles adjustments for you, selling stocks that leave the index and buying ones that are added. These are designed for long-term growth.

Today, indexing is widely seen as one of the smartest and safest ways for the average person to approach . By owning the S&P 500, you’re essentially guaranteed to match the market's long-term return, minus some minor fees. It used to be a niche strategy, but now a huge portion of market money—somewhere between 50% and 70%—is in indexing. While this might mean future returns won’t be quite as high as they were in the past, it’s still a far better approach for most people, especially since active is difficult and requires skills many haven't developed.

Smart Ways to Buy In

A popular method for indexing is “cost averaging.” This means you invest the same amount of money every month, regardless of what the market is doing. By doing this, you avoid the risk of putting all your money in at a market peak. Your purchases average out over time, giving you a solid overall price.

When considering , you’ll often face a choice between an ETF and a mutual fund. A low-cost mutual fund like the Vanguard 500 has a tiny annual fee (0.04%), but you can only buy or sell shares once per day at the closing price. The SPY ETF has a slightly higher fee (0.0945%) but offers the flexibility to trade anytime the market is open. For many beginners, SPY is more accessible since you can start with just a few hundred dollars, whereas the Vanguard 500 fund requires a $3,000 minimum investment.

Starting your journey by in an index like the S&P 500 is a fantastic first step. The best approach might be to buy some SPY and try not to look at it for the next 30 years. And if you see the market taking a downturn—what’s known as a bear market—it can actually be a great time to invest a little extra. Lower prices mean your dollars buy more shares, setting you up for better returns down the road.