Simply put, investing is a means of growing your money by putting a little away now in the hopes of seeing more of it later. However, investing for beginners can understandably be overwhelming. There’s a lot to consider, and everyone’s financial situation is different. That’s why it’s important to do your research, and we’re here to help.
Use this as your guide to the basics of investing. Afterwards, you’ll feel you’ve better prepared yourself to make the best decisions for your financial circumstances and future. Follow along and hit play on our video for your investing for beginners crash course, including:
Understand Why Investing is Important
If you go to the movies with your grandparents, they might tell you about a time when tickets were just 36 cents—and they’re right. Movie tickets, along with the cost of other goods and services, tend to go up yearly because of something called inflation. Unfortunately, inflation decreases the value of your money over time.
One way to potentially grow your wealth and combat inflation is through investing. By putting your money into an investment vehicle, such as a 401K plan or high yield savings account, you may be able to outpace the growth of inflation.
Compound interest can further help this effort by simply reinvesting the money you’ve already earned on your investments, allowing you the ability to grow your money even faster. This is all done so that you can take control of your financial future.
Consider Important Factors Before Investing
As you start exploring what to consider before investing your money, there are some investing terms and concepts you should familiarize yourself with:
- Age: Consider your age when making long-term and short-term investments.
- Financial goals: Align investments with your long term and short term financial goals.
- Active or Passive Investing: Decide if you want to have an active role in managing your investments.
- Taxes: Think of how taxes may reduce the returns you see on your investment annually.
- Personal finances: Determine how much income you can commit to investing.
- Risk Tolerance: Heavily consider the risk associated with the investment you’re interested in.
- Portfolio Diversification: Spread your money across multiple investments to help reduce risk.
- Growth Expectations: Think of how quickly you’d like your money to grow.
Determine What Kind of an Investor You Are
Now it’s time to think about what type of investor you want to be. Some beginner investors like taking an active role in managing their investments, while others like to have certified professionals and tools do the work for them. There’s nothing wrong with either—just be sure to pick the option that you prefer.
Online Broker Investor
Online brokers can either be full-service or discount. Full-service brokers come with a full suite of services like the name implies. You can expect to receive professional financial advice about your retirement, healthcare, and anything else concerning your personal assets.
Discount brokers have risen in popularity as more people see the benefits of investing their money. These online brokers give you the tools you need to complete your own investing transactions. They also often come with educational resources on how to properly manage your investments. It is important to note that discount brokers sometimes charge additional fees and have minimum deposit requirements that could increase your upfront costs.
Robo-advisors are a type of discount broker that allow you to track and manage your investments all in the palm of your hand. Their goal is to streamline the process of making easy investments for everyday people—including beginner investors—and to lower costs all around. And we’d say they’ve seen success, with over 5 million people expected to use some kind of robo-advisors by 2025.
If you’re on a tighter budget, you could always look into whether your employer offers investment plans for employees. If available, you could commit 1-2% of your salary to a 401(k) retirement plan. You likely won’t miss the small difference in your paycheck and it requires little work, turning investing into a more hands-off project.
Pick What Type of Investment Is Right For You
You have quite a few options when it comes time to picking the type of investment for your money. Take a look at some of the most common investment for beginners avenues today:
1. 401(k) Plans
If you have a budget that limits how much of your money you can invest, 401(k) plans may be a great option—especially since some employers will match your contributions. These plans take a lot of the work out of managing your investments. The percentage of your salary that you decide to contribute will go right from your paycheck and straight into your retirement savings account.
Individual Retirement Accounts (IRAs) are also an option explored by employers, but they often don’t come with employer contribution matching and may have withdrawal fees.
2. Mutual Funds
Mutual funds are another tool beginner investors use to start their portfolios. They allow people to reduce the risk associated with investing by splitting their investments amongst different types of securities like stocks and bonds. Some prefer this because it can be a lower cost option for professionally-managed investments.
3. Exchange-Traded Funds (ETFs)
Exchange-traded funds (ETFs) are similar to mutual funds. They allow people, including beginner investors, to split their investments up to reduce the risk of investing. However, the market index can impact their value. Unlike 401(k) plans and mutual funds, if the market goes down, so does your savings and vice versa.
Bonds are a kind of loan you give to a company and might be considered one of the best investments for beginners—you could think of one as an IOU. You’ll purchase a bond for a certain amount and fixed interest rate, and your employer company will agree to pay you back on a certain date. Over that period of time, your money will increase at the interest rate agreed upon, making it one of the less risky investments you can make.
5. High Yield Savings and CDs
High-yield savings accounts offer little risk, flexibility for your funds, and generally allow you to earn more interest on your money as compared to the average rates associated with traditional savings accounts. However, these accounts do often come with balance requirements and withdrawal limitations.
Certificates of deposit (CDs) are another form of investment with little risk and are similar to savings accounts . Their main difference lies in your agreement to keep your money untouched for a specific amount of time, often facing penalty fees if you try to make early withdrawals.
As an added benefit, both savings accounts and CDs offered by a federally insured bank or financial institution are FDIC-insured up to $250,000, which will protect your money in the event of a market collapse.
Sometimes, retirees find they need more than Social Security and investment savings to support their daily lives after retirement. Annuities can be a great solution because they provide a steady stream of income that you can’t outlive. Secured by a contract between you and an insurance company, you would provide a lump sum of money that would grow over a 10 to 30 year period. Based on the contract you sign, you will then begin receiving payments that can help support your lifestyle.
7. Individual stocks
Stocks are one of the most common forms of investing. A company uses its stock shares to fund company operations and growth initiatives to compete with its competitors. People find individual stocks attractive because of the potential return they could receive if the company sees major success. However, the risk lies in the potential for the company to do poorly, which could lead to losses for all parties involved.
How to Purchase Individual Stocks
The process of purchasing individual stocks can be summed up in three steps:
- Choose a brokerage firm: Look for a brokerage with affordable accounts for your budget that have a good reputation.
- Apply online: Typically, this will only take a few minutes. You’ll need to provide some information like your Social Security number, employment information, and other personal details.
- Deposit funds: There are several ways you can do this including an electronic funds transfer from your checking or savings account or a wire transfer. Check with your brokerage firm to see how you can transfer the money into your account.
Be Mindful of Common Investing Mistakes
There’s no getting around it: Investing can be complicated, especially for beginners. Here are some of the biggest investing mistakes that beginner investors make:
- Setting and forgetting your investments: Be sure to monitor your investments on a regular basis using Mint’s Investment Tracker to ensure that you are still on the right track.
- Stagnant portfolios: Not increasing your investment as you make more money can also be a mistake.
- Emotionally buying or selling: Getting overly excited or panicked about fluctuations in the stock market can lead to poor investment choices.
- Waiting too long to start investing: Nearly anyone can start investing—even with a small budget.
Now that you know how to start investing your money, you’re ready to take charge of your financial future. Whether you’re planning to start investing right away or need to focus on your finances first, sign up for Mint to help you manage your money and set yourself up for success when it comes to your finances!
FAQs About Investing for Beginners
Take a look at some frequently asked questions when it comes to learning how to start investing for beginners.
You can start investing with nearly any budget. However, your options will vary depending on how much you have to spend. While many mutual funds have a minimum investment of $1,000, you can purchase some individual stocks for just a few dollars.
Brokers may charge you a commission fee for every trade you complete. This could be anywhere up to $10 per trade. They do tend to add up after a while, which is why investors will limit how many trades they take part in. Fees are also charged to portfolio management services that the broker offers.
Supply and demand determine stock prices, which is in turn determined by how well the company is doing. Generally speaking, the better a company is doing, the more people are going to want to invest in them. This drives up the price of a stock, which means people who own shares of that company make a profit.
People who want to invest but have a limited budget may consider options such as opening an IRA account or signing up for their employer’s 401(k) retirement plan.
Purchasing certificates of deposits (CDs) and bonds tend to be some of the least risky investments people can make.
Yes, if you decide to borrow money from a broker with a margin account, then you can end up owing more than the stock is worth.
If you have $100 you want to invest, you could consider the following:
– Start an emergency fund
– Contribute to your 401(k) plan
– Open an IRA
– Download a Robo-Advisor app
– Invest in an exchange-traded fund (ETF)
The S&P 500, also known as the Standard & Poor’s 500, is a stock index made up of 500 of the largest companies in the United States. People typically turn to this to understand the overall performance of U.S. stocks.
Sources: Insider Intelligence | FDIC 1 & 2
This is for informational purposes only and should not be construed as legal, investment, credit repair, debt management, or tax advice. You should seek the assistance of a professional for tax and investment advice.
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