Investing Money For Beginners

When it comes to investing money for beginners it can sometimes feel like you’re not doing enough, or there’s no point. That certainly isn’t the case however. If you want to invest money for beginners then read this article!

Best investments for beginners

1. High-yield savings accounts

This can be one of the simplest ways to boost the return on your money above what you’re earning in a typical checking account. High-yield savings accounts, which are often opened through an online bank, tend to pay higher interest on average than standard savings accounts while still giving customers regular access to their money.

This can be a great place to park money you’re saving for a purchase in the next couple years or just holding in case of an emergency.

2. Certificates of deposit (CDs)

CDs are another way to earn additional interest on your savings, but they will tie up your money for longer than a high-yield savings account. You can purchase a CD for different time periods such as six months, one year or even five years, but you typically can’t access the money before the CD matures without paying a penalty.

These are considered extremely safe and if you purchase one through a federally insured bank, you’re covered up to $250,000 per depositor, per ownership category.

3. 401(k) or another workplace retirement plan

This can be one of the simplest ways to get started in investing and comes with some major incentives that could benefit you now and in the future. Most employers offer to match a portion of what you agree to save for retirement out of your regular paycheck. If your employer offers a match and you don’t participate in the plan, you are turning down free money.

In a traditional 401(k), the contributions are made prior to being taxed and grow tax-free until retirement age. Some employers offer Roth 401(k)s, which allow contributions to be made after taxes. If you select this option, you won’t pay taxes on withdrawals during retirement.

These workplace retirement plans are great savings tools because they’re automatic once you’ve made your initial selections and allow you to consistently invest over time. You can even choose to invest in target-date mutual funds, which manage their portfolios based on a specific retirement date. As you get closer to the target date, the fund’s allocation will shift away from riskier assets to account for a shorter investment horizon.

4. Mutual funds

Mutual funds give investors the opportunity to invest in a basket of stocks or bonds (or other assets) that they might not be able to easily build on their own.

The most popular mutual funds track indexes such as the S&P 500, which is comprised of around 500 of the largest companies in the U.S. Index funds usually come with very low fees for the funds’ investors, and occasionally no fee at all. These low costs help investors keep more of the funds’ returns for themselves and can be a great way to build wealth over time.

5. ETFs

Exchange-traded funds, or ETFs, are similar to mutual funds in that they hold a basket of securities, but they trade throughout the day in the same way a stock would. ETFs do not come with the same minimum investment requirements as mutual funds, which typically come in at a few thousand dollars. ETFs can be purchased for the cost of one share plus any fees or commissions associated with the purchase, though you can get started with even less if your broker allows fractional share investing.

Both ETFs and mutual funds are ideal assets to hold in tax-advantaged accounts like 401(k)s and IRAs.

6. Individual stocks

Buying stocks in individual companies is the riskiest investment option discussed here, but it can also be one of the most rewarding. But before you start making trades, you should consider whether buying a stock makes sense for you. Ask yourself if you are investing for the long-term, which generally means at least five years, and whether you understand the business you are investing in. Stocks are priced every second of the trading day and because of that, people often get drawn into the short-term trading mentality when they own individual stocks.

But a stock is a partial ownership stake in a real business and over time your fortune will rise with that of the underlying company you invested in. If you don’t feel you have the expertise or stomach to ride it out with individual stocks, consider taking the more diversified approach offered by mutual funds or ETFs instead.

Why is investing important?

You might have heard someone reminisce about how cheap gas prices (or some other product or service) used to be back in the day. This is because inflation erodes the value of money as years go by.

By investing, you can better combat inflation, increasing your chances of being able to afford the same amount of goods and services in the future that you can today.

Investing helps you make your money work for you because of compounding. Compound earnings means that any returns you earn are reinvested to earn additional returns. And the earlier you start investing, the more benefit you gain from compounding.

Things to consider before you get started

Before you jump in, there are some things to think about.

Your goals and time horizon

Consider what goal you are wanting to achieve by investing and your time horizon, the length of time you have to invest before reaching that goal. If the time horizon to your goal is short, investing might not be the best solution for you. Check out our article on how to invest for short-term or long-term goals.

Risk tolerance and diversification

All investments have some level of risk and the market is volatile, it moves up and down over time. It’s important for you to understand your personal risk tolerance. This means gauging how comfortable you are with risk or how much volatility you can handle.

When investing, a good rule of thumb is not to put all of your eggs in one basket. Instead, diversify. By spreading your dollars across various investments, you can reduce investment risk. This is why the investments we outline below use mutual funds or exchange-traded funds for the most part, which allows investors to purchase baskets of securities instead of individual stocks and bonds.

Investing money for beginners: Mistakes to avoid

If you are hoping to build wealth over time, then investing is the best way to do that. But, investing comes with a series of common mistakes that many people make. Let’s take a closer look below so that you can avoid them in the future.

1. Don’t wait to invest

Although it is important to educate yourself before investing, you should not wait too long to get started. With investing, you want to have the value of time on your side. The sooner you are able to start investing, your investments will have more time to grow. That time could lead to significant growth due to the power of compounding.

2. Investing money can be emotional for beginners

When you start to invest, you will realize that you have some big emotions attached to your investments. After all, you are hoping that these investments will lead to a better future.

The stock market comes with highs and lows, you should be emotionally prepared to weather these storms. When the market inevitably drops, you should not pull all of your money out of the market.

3. Don’t time the market

The goal of your investment portfolio should be building a long-term plan that aligns with your financial goals. Once you’ve built a long-term investment plan, then you can adjust appropriately over time.

4. Nothing happens overnight

When you start investing, you should not assume that your money will grow overnight. In fact, it will rise and fall many times on the way to growth.

As you get started, realize that investing is a long-term strategy for wealth building. But it will not make you rich overnight.

Conclusion

Are you a beginner looking to begin your investment journey? I’ve been investing for a little over 8 years now and have learned many lessons. In fact, I just completed my second book titled “Investing Money for Beginners” which gives an overview about investing but from a beginner’s point of view. As a result, the book is a nice read for those who are curious about investing but don’t know where to begin.

The million dollar question is “how do I invest money for a beginner?” Since the beginning of time, people have been racking their brains over this one. Its complexity makes it seem cumbersome and intimidating to many. However, overall, investing money for beginners is actually an easy process if you have the right tools to help you out.