Investment ideas can be intimidating for many newcomers just starting out, but it is an important part of saving a variety of financial goals and building wealth. Don’t get too caught up in whether it’s the best time to start right now, as you will encounter a variety of market environments throughout your investment life.
However, before investing, it is important for investors to know what their tolerance is for risk. Certain investments have more risk than others, and you don’t want to be surprised after you have made an investment. Think about how long you can do without the money you invest in, and whether you won’t access it for more than a few years.
Below are top investment ideas for beginners.
Best investments for beginners
1. 401(k) or another workplace retirement plan
This is one of the easiest ways to get started with an investment and comes with some major incentives that could benefit you now and in the future. Most employers offer to match some of the things you agree to save from your normal salary for retirement. If your employer offers a match and you do not take part in the plan, you will refuse free money.
In traditional 401(k), contributions are made before they are taxed and grow tax-free until retirement age. Some employers offer Roth 401(k). This allows you to contribute after tax. If you select this option, you will not pay taxes on your withdrawals during your retirement.
These workplace retirement plans are great savings tools as they are automated once you make your first choice, can be consistently invested over time and likely to have a high contribution limit. You can often also invest in Target-Date mutual funds that manage your portfolio based on a specific retirement date. As you approach the target date, fund allocations will move away from high-risk assets such as stocks, taking into account the shorter investment period.
2. Mutual funds
Mutual funds are one of the best investments for beginners, as they offer investors the opportunity to invest in stocks or bonds (or other assets) that they may not be able to easily build on their own.
The most popular mutual funds track indices such as the S&P 500, which consists of around 500 large companies in US index funds. Usually, it costs very low fees for fund investors, and sometimes there are no fees at all. These low costs help investors maintain more capital gains for themselves and become a great way to build wealth over time.
3. ETF
A fund, or ETF, traded on an exchange, is similar to a mutual fund in that it holds a basket of securities, but trades throughout the day, just like stocks. ETFs do not come with the same minimum investment requirements as mutual funds. This usually arrives for thousands of dollars. ETFs can be purchased at the cost of one share and the fee or fees associated with the purchase, but can even be started if the broker allows stock investments.
Both ETFs and mutual funds are ideal assets with tax accounts like 401(k) and IRAs.
4. Individual stocks
Buying stocks at individual companies is the most risky investment option discussed here, but it is also one of the most rewarding. However, before you start trading, you need to consider whether buying stocks makes sense. Ask yourself if you’re investing in the long term. This generally means at least five years, and ask yourself if you understand the business you are investing in. Stocks are priced every second on the trading day, which is why people are drawn to the idea of ​​short-term trading when they own individual stocks.
However, stocks are partial ownership of the actual business and will rise over time with the property of the underlying company you invested in. If you feel that you don’t have the expertise or stomach to overcome it with an individual stock, consider taking the more diverse approaches that mutual funds or ETFs offer instead.
5. High-yield savings account
This is an easy way to increase your money profits beyond what you’re getting in a typical checking account. High-yield savings accounts opened through online banks tend to pay on average higher interest than standard savings accounts, allowing customers to access their money regularly.
Additionally, online banks still offer high rates with high savings accounts, which could be a great place to park the money you’re saving for purchases in the coming years or keep in case of an emergency.
6. Certificate of deposit (CD)
CDs are another way to earn additional interest on your savings, but they tie you up for longer than a high-yield savings account. You can purchase CDs for various periods, such as six months, one year, or five years, but you usually don’t have access to the money before the CD matures without paying a penalty.
These are considered extremely secure and will cover up to $250,000 per depositor per ownership category when purchasing through a federal insured bank.
Why start investing now
Investing is important if you want to maintain your savings purchasing power and achieve long-term financial goals, such as retirement and wealth building. If you place your savings in a traditional bank account and earn little or no interest, inflation ultimately reduces the value of your hard-earned cash. By investing in assets such as stocks and bonds, you can ensure that savings can catch up with or even surpass inflation.
Short-term investments such as high-yield savings accounts and money market mutual funds help you gain more in savings while working towards larger purchases, such as down payments in the car or home. Stocks and ETFs are considered suitable for long-term goals such as retirement.
It’s important to align your investments with time frames when you need money. Money needed immediately should be a safe and accessible investment, but money that you don’t need for long periods can invest in more profitable but more unstable assets.
– Dr. James Royal, Bankrate Investment and Wealth Management Principal Writer
Important considerations for beginner investors
- Risk tolerance
-
Before you start investing, you will want to understand your own tolerance for risk. Unstable investments such as stocks can make some people very uncomfortable when they decline and can sell at the worst times. Knowing risk tolerance can help you choose which investment is best for you.
- Financial goals
-
Establish both short-term and long-term goals you want to achieve through savings and investment. Understanding your investment goals can help you plan solidly.
- Active or Passive
-
You also need to decide whether you want to be a passive investor or an active investor. Passive investors usually own a variety of assets such as mutual funds and ETFs that charge low fees, but aggressive investors may choose individual investments or mutual funds that aim to outperform the market. Research shows that passive investments tend to outperform aggressive investments over time.
- Do it yourself or hire someone
-
You can also manage your own investments through an online broker or hire a financial advisor (or robo-advisor) to help. Doing it yourself can reduce costs, but advisors can help people just getting started.
- tax
-
If you own an investment in an individual or joint account, you will need to pay taxes on interest, dividends and capital gains. You can avoid these taxes by owning investments in tax retirement accounts such as IRAs.
How much money do you need to start investing?
The good news is that you don’t need much money to start investing. Most online brokers don’t have a minimum account to start, and some people offer small stock investments for beginners starting with a small amount.
For just a few dollars, you can buy ETFs that can build a diverse portfolio of stocks. Micro Investment Platforms even allow you to have your purchases made via a debit card packed together as a way to get started on your investment.
Conclusion
If you’re just starting out as a first-time investor, consider your risk tolerance and financial goals before paying for your investment. Some investments, such as high-yield savings accounts, will give you quick access to your money in the event of an emergency. On the other hand, stocks should probably be part of a long-term investment plan instead.
Many first investors also turn to robo-advisors. The algorithm automatically selects and manages a diverse portfolio of exchange sales funds for you based on your individual financial needs and appetite for risk.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Furthermore, investors recommend that past investment products performance is not a guarantee of future price increases.