How To Start Investing For Beginners

Investing is a great way for individuals to grow their wealth and boost their savings. It’s not just for Wall Street brokers playing the stock market – in fact, investing in the stock market is now easier than ever.

All that said, we understand that investing can be intimidating. You’ll likely have lots of questions, including which investments are right for you, how the investment process works and whether you even have enough money to invest.

Luckily, investing doesn’t have to be complicated or unattainable if you have the right tools to start. Let’s dive into the world of investing money for beginners.

8 Types of Investments

There are a lot of options available when it comes to investing. The first thing you should do is figure out where you want to start.

Here are eight options to get you started on your investing journey. Remember that no investment vehicle is truly zero risk. Consider speaking with a financial professional who can help plan an investment strategy for your individual goals.

1. Target-Date Funds

You may already have an investment account that you’ve never considered anything more than an employment perk. If you have a retirement account through your employer 401(k) account, you’re already investing, likely in what’s known as a “target-date fund.”

A target-date fund is a diverse group of investments based on the year you anticipate retiring. It’s usually managed by the investment firm associated with your 401(k) or employer-sponsored account and is set up to automatically rebalance as you get older to keep your risk low.

If you don’t have a 401(k), you can likely open an individual retirement account (IRA) and invest in a target-date fund through the IRA. The IRA is the type of account that holds your investments, and there are a several options to choose from, including a traditional IRA and a Roth IRA.

2. Exchange-Traded Funds (ETFs)

Exchange-traded funds (ETFs) are a basket of securities and assets put together by an investment company that targets a specific investment strategy. They are relatively low-risk – like mutual funds – but they’re also low-cost funds, meaning they’re accessible even if you don’t have a lot of money to dedicate to investing.

Like mutual funds, ETFs are designed to ensure a diversified portfolio to protect investors from risk. This makes ETFs an attractive option for beginner investors, especially if you don’t have a large amount of money to invest.

3. Mutual Funds

Mutual funds are a great investing option for beginners because they can be relatively low risk. Mutual funds, in simple terms, allow you to pool money with other shareholders to purchase stocks or bonds. They come with built-in diversification, meaning your investment will be spread across various assets. That way, if one investment or industry is struggling, you’ll have others to balance your portfolio.

Additionally, most mutual funds are managed by professionals who handle the heavy lifting of trading for you. That said, they usually come with higher minimum investment amounts, so they may take a bit more money upfront to get started. 

4. Individual Stocks

Investing in stocks usually means buying a small portion, or “share,” of an individual company. The thinking is that you’ll benefit from your stocks as the company (hopefully) increases in value over time, though investing in an individual company is generally much riskier than investing in a fund, comprised of hundreds of thousands of companies.

The goal of investing in an individual stock or the stock market in general is to earn a good return on investment (ROI). For example: A $5 investment today could be worth $100 in 25 years meaning you’ll profit $95, even with no additional contribution. That said, individual stocks are also known for their volatility. If you’re prone to stress about each market move, other investment options would likely work better for you.

5. Bonds

Bonds are financial products created when an investor or bondholder loans money to an organization, government, or company (the bond issuer). The bond behaves like an IOU. The organization then returns the value of the bond when it ”matures” and until then, you earn interest on it.

Bonds make good investments for beginners because they’re low-risk – you know when you’ll get your money back and how much it will be. There are four types of bonds:

• Government: These bonds are issued by domestic and foreign federal governments. For example, the U.S. Treasury Department issues treasury bonds to fund government projects, making them exempt from state and local income taxes.
• Municipal: These bonds are issued by state and local governments to fund municipal projects. Also known as “muni bonds,” municipal bonds may be exempt from taxes at the federal and state level.
• Corporate: A type of bond issued by corporations to raise capital to fund operations, expand the business or finance new projects. These bonds can be riskier with higher interest rates and are subject to taxes at all levels.
• Agency: Issued by government agencies or government-sponsored enterprises, these bonds fund things like mortgages and agricultural assistance programs. Agency bonds are not exempt from taxes depending on the kind you invest in.

6. High-Yield Savings Accounts Or Certificates Of Deposit

Similar to a regular savings account, a high-yield savings account lets you save your money, albeit with a higher interest rate. While not traditionally considered an investment, they are still a beneficial option to gain a return on the money you put into the account via paid interest. Certificates of deposit (CDs) are similar, except you agree to leave a specified amount of money in the account until an agreed-upon date.

Both options are low-risk and can help you grow your savings over time, but high-yield savings accounts are more flexible than CDs in terms of when you’re allowed to withdraw funds.

7. Automated Investments

Robo-advisors are online-based platforms that allow for automated financial management and require little (or no) human oversight. Regardless of where you are in your investment journey, a robo-advisor will use technology to manage your investments on your behalf and often educate you along the way with recommendations and guidance.

8. Index Funds

Index funds allow you to invest in a funds that mirror a specific market index’s performance. There are many types of domestic and foreign indices, but the most popular in the United States are the S&P 500, NASDAQ, and The Dow Jones (DJIA).

Typically, index funds are passively managed and don’t require portfolio management by a professional. They’re similar to mutual funds in that they offer a diversified portfolio and low fees, which means potentially higher returns for you.

How To Get Started As A Beginner Investor

In addition to knowing which type of investment is best for you, new investors need to consider other factors before setting up an investment account.

1. Determine How Much You Can Invest

Saving and investing aren’t the same, and depending on the type of investing you do, there’s some risk involved. So investing shouldn’t put you in a position where you’re unable to pay your monthly bills or not maintain an emergency fund. Once your baseline budget is stable, though, investing can be a great way to continue to supercharge your savings.

The good news is you don’t need to be a millionaire to start investing. In fact, many platforms allow you to get started with as little as $5, but the more you can invest the harder your money will work for you over time. For example, let’s say you start with a $500 investment and contribute $100 monthly for 10 years with a 5% annual return. After 10 years, you’ll have $16,352. That’s nearly $4,000 interest earned in addition to the amount you contributed over time.

2. Know Your Risk Tolerance

Risk is an inherent part of investing, though it’s less risky and more predictable over the long term of 10 years or more. Risk tolerance indicates how comfortable you are with the volatility of investments and what risks you’re willing to take with your investment strategy.

If you’re not comfortable with risk, taking a long-term approach to investing and understanding there will be fluctuation in the days and years along the way is best. Related, if you have a shorter-term goal of 5 – 10 years or less, it’s likely best to put that money in a savings account where you’re not impacted by the movement of the stock market. 

3. Create Financial Goals And An Investment Strategy

What do you want to accomplish with your investing? Are you saving for a comfortable retirement, a nest egg, an emergency fund or a specific goal – like starting a business? With clear short-term or long-term goals, you’ll know how much you can and should invest based on the timeline for your money to grow.

4. Start Investing Early

It might be tempting to wait until you feel like you have the “right” amount of money for investing. But the truth is – like with most financial choices in life – the “right time” doesn’t always look like what we imagine.

The sooner you begin your investing adventure, the sooner you’ll be able to see your earnings start compounding.

You can start today with whatever amount you’re comfortable with and watch it grow over time. You can also add to your investment over time, too. But starting sooner rather than later is key.

Investing For Beginners FAQs

There’s a lot to know about investing, and we’ve covered some of the basics for beginners. But if you still have some questions, we’ve got answers.

Is $100 enough to start investing?

It’s entirely possible to start investing with $100. Of course, you can invest less or more, depending on your situation.

You can make a one-time investment and only touch it again once you make a withdrawal, or you can contribute some money each month or year as time passes. Your investment plan can be as specific to your needs as possible.

Do I need a financial advisor to start investing?

No, you don’t necessarily need a financial advisor to start investing, but you may want one if you’re more comfortable with the idea of a professional managing your investments. Alternatively, you can open an account with any major brokerage company like Vanguard or Fidelity and select a fund that works for you like a target-date fund, index fund or mutual fund to get started.

The Bottom Line: You Can Start Investing Today

Investing is more accessible than ever, and with the right knowledge, you can put your money somewhere it will grow as you plan for retirement or future goals.