According to the National Financial Educators Council, a lack of financial literacy cost Americans an average of $1,015 per person and over $243 billion collectively in 2024. On a separate note, research from Gallup found that 62% of Americans own stocks. While investing is becoming more popular, it’s evident that there’s plenty of confusion surrounding the topic.
If you’re a regular retail investor with a middle-class income, you likely want to take investing seriously but may not be sure about where to begin. It’s understandable if you’re cautious because you may not be in a position where you can afford to take on significant risks with your investments. The good news is that you don’t have to take substantial risks to start investing in stocks.
Find Out: How To Start Investing With Less Than $1,000
Learn More: How Much Money Is Needed To Be Considered Middle Class in Your State?
The following are stocks and exchange-traded funds (ETFs) that could help middle-class people earn money without taking on substantial risks.
Also see six investing moves that benefit millionaires but can hurt the middle class.
ETFs for Long-Term Investing
“I always advise people to invest in simple, passive, long-term investing,” said Jay Zigmont, Ph.D., CFP, founder of Childfree Trust. “That means investing in three ETFs: the entire U.S. stock market, the world stock market and bonds. In this way, you’re invested in the market as a whole and diversified.”
Zigmont recommended the Vanguard Total Stock Market ETF (VTI), which invests in the stock market; the Vanguard Total International Stock ETF (VXUS) for the world stock market; and the Vanguard Total Bond Market ETF (BND) for bonds.
These are all considered “safe” investments that may not be subject to the same risk as individual stocks.
Explore More: Why You Should Start Investing Now (Even If You Only Have $10)
Dividend-Paying Blue Chip Stocks
“Investing in low-beta, dividend-paying blue-chip stocks offers capital preservation with modest, taxable growth,” said Chad D. Cummings, Esq., CPA, CEO of Cummings & Cummings Law. “Middle-class investors with limited risk tolerance and a $5,000 starting point should begin by allocating capital to low-beta, high-quality equities.”
Cummings recommended Johnson & Johnson (JNJ), PepsiCo (PEP) and Procter & Gamble (PG) because these companies have a beta value under 0.6, indicating that their price volatility is significantly lower than that of the broader market. They pay dividends too, so they could also provide dependable income.
Sector-Specific ETFs
Cummings also pointed out that investing in sector-specific ETFs may provide diversification, which is crucial for a middle-class investor seeking to minimize risk.
He said that a cautious investor could consider ETFs like the Health Care Select Sector SPDR Fund (XLV) or the Consumer Staples Select Sector SPDR Fund (XLP) in order to spread risk.
Stocks for Beginners With Limited Funds
A recent U.S. News article shared the best stocks for beginners with limited funds, featuring companies with a well-diversified product line and a history of being well managed.
Two notable stocks on the list were T-Mobile (TMUS) and Microsoft Corp. (MSFT). With 131 million mobile phone subscribers in the country and over 5,000 physical locations, T-Mobile is a vital part of the economy. Microsoft is a household name and a well-established tech company that is in a strong position to continue growing into the future.
Investing Considerations for Middle-Class People
While it’s essential to invest in securities that can provide a reliable return with minimal risk, you’ll also want to ensure that you’re investing in the correct type of account. Cummings emphasized that even holding “safe” stocks in a taxable account without proper retirement planning could erode real returns over time. He believes that middle-class investors often fail to coordinate brokerage investments with tax-advantaged vehicles.
“A better approach would be to place dividend-heavy or rebalancing-heavy assets into an IRA or Roth IRA to defer or avoid taxation. Failure to coordinate asset location strategy can reduce effective yield by 100 to 200 basis points annually: a meaningful loss for portfolios of this size,” Cummings said.
You’ll want to ensure that you maximize your real earnings by investing your funds in the ideal account for your various goals.
Investing Disclaimer
It’s important to conduct your own research before investing in the stock market. There are always risks associated with investing because it’s impossible to predict future market swings. Zigmont stressed that you should invest only in things you understand. This is sound advice because investing can already feel stressful enough, so you at least want to be confident about where you’re putting your money.
“Before acting, middle-class investors should conduct a legal and tax review of each security and seek professional advice,” Cummings said. He also stressed that you consult a CPA before making major investment decisions so that you don’t trigger short-term gains or create an improper portfolio concentration.
Editor’s note: This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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This article originally appeared on GOBankingRates.com: 10 Stocks and ETFs That Could Be Good for the Middle Class
