Investment Choices for Beginners

Investment Choices for Beginners

Many people are interested in investing but do not know how or where to begin. Fortunately, there are many investments available for beginners so there is no excuse not to get started. Since investing is the best way to build wealth, that is good news. Let’s take a look at a few fitting ways to invest for beginners. If you have a 401(k) or another retirement plan at work, it’s probably the first place you should invest your money — especially if your company matches a portion of your contributions. That match is free money and a guaranteed return on your investment. You can start with as little as 1% of each paycheck, though it’s a good idea to consider contributing at least as much as your employer match. When you elect to contribute to a 401(k), the money will go directly from your paycheck into the account without ever making it to your bank. To sign up for your 401(k) or learn more about your specific plan, contact your HR department. Target-date-mutual funds are widely used and incredibly popular, especially in employer retirement plans. Target-date mutual funds are retirement investments that automatically invest with your estimated retirement year in mind. A target-date mutual fund often holds a mix of stocks and bonds. If you plan to retire in 30 years, you could choose a target-date fund with 2050 in the name. That fund will initially hold mostly stocks since your retirement date is far away, and stock returns tend to be higher over the long term. Over time, it will slowly shift some of your money toward bonds, following the general guideline that you want to take a bit less risk as you approach retirement.

Several investing apps target beginner investors. One app rounds up your purchases on linked debit or credit cards and invests the change in a diversified portfolio of ETFs. S0, it works like a robo-advisor, managing that portfolio for you. There is no minimum to open some investment app accounts, and the service will start investing for you once you’ve accumulated at least $5 in round-ups. You can also make lump-sum deposits. Another app option helps teach beginner investors how to build their own portfolios out of ETFs and individual stocks. Robo-advisors manage your investments for you using computer algorithms. Due to low overhead, they charge low fees relative to human investment managers — a robo-advisor typically costs 0.25% to 0.50% of your account balance per year, and many allow you to open an account with no minimum. They’re a great way for beginners to get started investing because they often require very little money and they do most of the work for you. That’s not to say you shouldn’t keep eyes on your account — this is your money; you never want to be completely hands-off — but a robo-advisor will do the heavy lifting. Some services also offer educational content and tools, and a few even allow you to customize your portfolio to a degree if you wish to experiment a bit in the future.

Index funds are like mutual funds but instead of using a professional manager to build and maintain the fund’s portfolio of investments, index funds track a market index. The S&P 500 is a market index that holds the stocks of roughly 500 of the largest companies in the U.S. An S&P 500 index fund would aim to mirror the performance of the S&P 500, buying the stocks in that index. Index funds tend to charge lower fees than mutual funds. Index funds can have minimum investment requirements, but some brokerage firms offer a selection of index funds with no minimum. That means you can begin investing in an index fund for less than $100. ETFs operate in many of the same ways as index funds. They typically track a market index and take a passive approach to investing. They also tend to have lower fees than mutual funds. Just like an index fund, you can buy an ETF that tracks a market index like the S&P 500. The main difference between ETFs and index funds is that rather than carrying a minimum investment, ETFs are traded throughout the day and investors buy them for a share price, which like a stock price, can fluctuate. If you plan to regularly invest in an ETF — as many investors do, by making automatic investments each month or week — you should choose a commission-free ETF so you aren’t paying a commission each time. If you are ready, then it’s time to get started! All the best.

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All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed an investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as a recommendation or as a guarantee of any specific outcome or profit.

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