investing for beginners presentation

Introduction to Investing

"Take Charge of Your Finances" Advanced Level

Saving and Investing

Once an appropriate amount of

liquid assets are reached

Recommend refocusing goals from saving to investing

Remember: The purpose of savings is to develop financial security

What is Investing?

• Purchase of assets with the goal of increasing future income
• Focuses on wealth accumulation
• Appropriate for long-term goals

What are examples of long-term goals that can be accomplished by investing?

Rate of Return

Total return on investment expressed as a percentage of the amount of money invested

Remember: Return is the profit or income generated by savings and investing

Investments usually earn higher rates of return than savings tools

What is Mandy’s Rate of Return?

Mandy saved $2,200 in a money market deposit account. After one year, she has a return of $110. What is Mandy’s rate of return?

Mandy’s rate of return on investment is 5%

What is Derek’s Rate of Return?

Derek invested $900. When he withdrew his money from the investment, he had a total of $1,050. What is Derek’s rate of return?

Derek’s rate of return on investment is 16.7%

Risk- uncertainty regarding the outcome of a situation or event

Investment Risk- possibility that an investment will fail to pay the expected return or fail to pay a return at all

All investment tools carry some level of risk

What is the risk level of savings tools?

Rise in the general level of prices

Inflation Risk

The danger that money won’t be worth as much in the future as it is today

Inflation risk is usually not a concern with savings since the goal of savings is to provide current financial security

Strive to have the rate of return on investment be higher than the rate of inflation

Types of Investment Tools

Usually a stockholder owns a very small part of a company

A share of ownership in a company

Owner of the stock

Return on Stocks

If stock is sold for a market price higher than what was paid

Share of profits distributed in cash to stockholders

Stockholder may or may not receive dividends- depends on company profit

Current price that a buyer is willing to pay for stock

If stock is sold for a market price lower than what was paid

Stockholder will receive a return

Stockholder will lose money

What is received?

Form of lending to a company or the gov't (city, state, or federal)

Annual interest is paid to investor

Once the maturity date is reached, the principal is repaid to the bondholder

Bonds are less risky than stocks but usually do not have the potential to earn as high of a return

Mutual Funds

Mutual fund- when a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds

Make sure to research the fees charged by a mutual fund

Reduces investment risk

Fees may be high

Saves investors time

A mutual fund that invests in the stocks and bonds that make up an index

A group of similar stocks and bonds- Standard and Poor 500

What is the difference between a mutual fund and an index fund?

High diversification

Usually charge lower fees than mutual funds

Still charge fees

Real Estate

• Any residential or commercial property or land as well as the rights accompanying that land
• A family home is usually not considered an investment asset
• Can be risky and more time consuming but has potential for large returns

Examples of real estate investments include rental units and commercial property

Speculative Investments

Commercial Paper

Collectibles

Financial Risk Pyramid

Speculative Investment Tools

Increasing potential for higher returns

Increasing risk

Savings Tools

Checking Account

Savings Account

Money Market Deposit Account

Certificate of Deposit

Savings Bonds

Investment Tools

Index Funds

The risk level for specific investment tools may vary

Investment Philosophy

Everyone has a tolerance level for the amount of risk they are willing to take on

Investment Philosophy - an individual’s general approach to investment risk

The greater the risk a person is willing to make on an investment, the greater the potential return will be

Generally divided into three categories: conservative, moderate, aggressive

Portfolio Diversification

Portfolio Diversification- reduces risk by spreading investment money among a wide array of investment tools

Creates a collection of investments that will provide an acceptable return with an acceptable exposure to risk

Assists with investment

risk reduction

Referred to as “Building a Portfolio”

Buying and Selling Investments

Brokerage firm acts as a buying and selling agent for an investor (except for real estate and certain speculative investments)

transactions

Offer investment advice and one-on-one attention from a broker

Only complete investment transactions

Offer no advice to investors but charge 40-60% less

Profits earned on investments are unearned income

Taxes are often owed on unearned income

Taxes are due on most investment returns in the year the unearned income is received

Tax-Sheltered Investments

Government tries to encourage certain types of investments by making them tax-sheltered

Tax-sheltered investments are usually not tax-free!

Tax-sheltered investments- eliminate, reduce, defer, or adjust the current year tax liability

• Child/dependent care
• Education expenses
• Health care expenses

When are taxes for tax-sheltered investments usually paid?

There are often limits to the amount that can be invested

What is the benefit of a tax-sheltered investment if taxes still have to be paid?

Employer-Sponsored Investment Accounts

• Type of tax-sheltered investment
• Money is automatically taken out of employee’s paycheck
• Employers often contribute a portion of money to the investment with no additional cost from the employee

Employer contributes the same amount of money to the employee’s investment account

Employee benefits from having double the amount of money invested!

Advantages to Employer-Sponsored Investments

Reduces tax liability

Makes investing automatic

Possibility for employer to match investment

It is recommended that a person utilize these investment tools as much as possible if they are offered

Allows a person to easily calculate when the future value of an investment will double the principal amount

Albert Einstein

Credited for discovering the mathematical equation for compounding interest, thus the “Rule of 72.” At 10% interest rate, money doubles every 7.2 years,

“It is the greatest mathematical discovery of all time.”

What Can the “Rule of 72” Determine?

How many years it will take an investment to double at a given interest rate

How long it will take debt to double if no payments are made

The interest rate an investment must earn to double within a specific time period

How many times money (or debt) will double in a specific time period

“Rule of 72” FYI

• Only an approximation
• Interest rate must remain constant
• Interest rate is not converted to a decimal
• Equation does not allow for additional payments to be made to the original amount
• Interest earned is reinvested
• Tax deductions are not included

Doug’s Certificate of Deposit

• Invested $2,500
• Interest Rate is 6.5%

Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How long will it take Doug’s investment to double?

Jessica’s Credit Card Debt

• $2,200 balance on credit card
• 18% interest rate

Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double?

Jacob’s Car

• $5,000 to invest
• Wants investment to double in 4 years

Jacob currently has $5,000 to invest in a car after graduation in 4 years. What interest rate is required for him to double his investment?

What is the Rule of 72?

What is the relationship between risk and return?

How can a person reduce investment risk?

What are the six main investment tools?

Who should a person contact to purchase investment tools?

What is a tax-sheltered investment?

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Making Smart Investments: A Beginner’s Guide

• Matthew Blume

Reduce the risk factor, increase the reward factor, and generate meaningful returns.

If you make smart decisions and invest in the right places, you can reduce the risk factor, increase the reward factor, and generate meaningful returns. Here are a few questions to consider as you get started.

• Why should you invest? At a minimum, investing allows you to keep pace with cost-of-living increases created by inflation. At a maximum, the major benefit of a long-term investment strategy is the possibility of compounding interest, or growth earned on growth.
• How much should you save vs. invest? As a guideline, save 20% of your income to to build an emergency fund equal to roughly three to six months’ worth of ordinary expenses. Invest additional funds that aren’t being put toward specific near-term expenses.
• How do investments work?    In the finance world, the market is a term used to describe the place where you can buy and sell shares of stocks, bonds, and other assets. You need to open an investment account, like a brokerage account, which you fund with cash that you can then use to buy stocks, bonds, and other investable assets.
• How do you make (or lose) money? In the market, you make or lose money depending on the purchase and sale price of whatever you buy. If you buy a stock at $10 and sell it at $15, you make $5. If you buy at $15 and sell at $10, you lose $5.

Where your work meets your life. See more from Ascend here .

Are you a saver or spender?

• MB Matthew Blume  is a portfolio manager of private client accounts at  Pekin Hardy Strauss Wealth Management . He also manages the firm’s ESG research and shareholder advocacy efforts. He earned a B.S. in electrical engineering from Valparaiso University and an MBA from Northwestern University’s Kellogg School of Management. Matthew is a CFA charterholder.

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Defining your goals

• Write your goals down Start by describing what's most important to you and when you want to achieve these goals (e.g., 1 year, 5 years, 10+ years).
• Define your priorities Determining which goals are most critical and identifying them as short- or long-term can help you create a plan for whether to save or invest and how to allocate your resources. Most people will have to pursue multiple goals at the same time.
• Determine how much you'll need to save Budget for essential goals first, then move on to other goals on your priority list.
• Consider the timeframe of your goals Decide how soon you'll need the money you are saving or investing.
• Review your plan periodically Modify your goals as your life circumstances or timelines change.

Juggling competing financial goals

The importance of time in the market.

See the impact of investing earlier

Watch the video to learn more about time in the market, the effect of time on your investments, choosing an account type.

• Individual brokerage
• Joint brokerage

• 529 college saving plans
• Custodial accounts

Can I have more than one account type?

Decide how much support you want while investing, build your own portfolio, invest with a professionally managed portfolio, work one-on-one with an advisor, determining your asset mix, your asset allocation is shaped by four main factors.

• Your financial goals
• Your time horizon, or how many years until you need access to the money
• Your comfort with risk — or market volatility — and capacity to take on risk
• How much readily available cash you need access to (also called liquidity)

Asset allocation: An essential guide

Is diversification the same as asset allocation, asset allocations for three different risk levels.

Why risk tolerance and time horizon matter

Read the full article

Finding investments that support your asset allocation, fixed income and bonds, cash and cash equivalents, did you know, want to learn more about building a portfolio, what is volatility.

Weathering periods of volatility

Maintain your focus during volatile days, what can you do when the markets get volatile, 4 things every long-term investor should know, psychology of investing, managing your emotions and avoiding common pitfalls.

Even the financial pros know they can't "time the market"

Rebalancing your portfolio, how your asset allocation could change over time.

What is portfolio drift?

Reasons to rebalance your portfolio.

• Your asset allocation has changed due to portfolio drift
• Your financial goals have changed or you've reached a financial goal
• You've reached a new life stage and have a different risk tolerance

Why is it important to periodically revisit your asset allocation strategy?

Tax considerations to keep in mind, tax-aware investment strategies you should consider, 4 tax moves to consider early in your career, common questions, what is the difference between saving and investing, what is compounding, what are the nasdaq, s&p 500 and the dow, ready to get started, 1  choose an account type, 2  decide how to invest, 3  have questions, you may also like.

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This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF) .

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Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

The performance data contained herein represents past performance which does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For performance information current to the most recent month end, please contact us.

Net Asset Value (NAV) returns are based on the prior-day closing NAV value at 4 p.m. ET. NAV returns assume the reinvestment of all dividend and capital gain distributions at NAV when paid.

Market price returns are based on the prior-day closing market price, which is the average of the midpoint bid-ask prices at 4 p.m. ET. Market price returns do not represent the returns an investor would receive if shares were traded at other times.

Returns include fees and applicable loads. Since Inception returns are provided for funds with less than 10 years of history and are as of the fund's inception date. 10 year returns are provided for funds with greater than 10 years of history.

Before investing consider carefully the investment objectives, risks, and charges and expenses of the fund, including management fees, other expenses and special risks. This and other information may be found in each fund's prospectus or summary prospectus, if available. Always read the prospectus or summary prospectus carefully before you invest or send money. Prospectuses can be obtained by contacting us.

Expense Ratio – Gross Expense Ratio is the total annual operating expense (before waivers or reimbursements) from the fund's most recent prospectus. You should also review the fund's detailed annual fund operating expenses which are provided in the fund's prospectus.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (Form CRS) (PDF) .

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation ("BofA Corp.").

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In this video, review the concepts discussed in strategic diversification. Circle back to determining trade risk, account risk and position size.

From the buy and hold strategy to constant mix, learn what position strategies work best for exchange traded funds. Gain in-depth insight about percentage risks and portfolio value to help you better understand the complexities of ETFs.

Stock ETFs have positive benefits for traders. For example, ETFs allow investors to track stocks in a single industry. By doing this, investors gain exposure to a myriad of equities and limited company-specific risk associated with single stocks. In this video, learn how to better navigate stock ETFs by implementing dollar cost averaging, which allows the investor to buy stocks at the average price during a certain period in time.

What will I learn?

Build an investment portfolio focused on creating real,   long-term wealth, navigate   exchange traded funds ,   dividend stocks , and other trading instruments, diversify and when to rebalance during   bull or bear markets, make   your own investment decisions   based on research and market trends, generate   dependable, consistent income   with dividends, while reducing portfolio volatility, this course includes:, over   78 lessons   of on-demand video, exercises, and interactive content, downloadable worksheets to use while you invest, lifetime access   to course so you can watch and re-watch whenever you want, this course is for:   beginner investors, even with small amounts of money, looking to take investing into their own hands..

Check out to get access to these online courses right away.

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Investing: A Beginner’s Guide

Investing is the process of buying assets with an intention of holding for more than one year.

Prior to becoming our CEO & Founder at Wall Street Oasis, Patrick spent three years as a Private Equity  Associate for Tailwind Capital  in New York and two years as an Investment Banking Analyst at Rothschild.

Patrick has an  MBA  in Entrepreneurial Management from The Wharton School and a BA in Economics from Williams College.

Currently an investment analyst focused on the  TMT  sector at 1818 Partners (a New York Based Hedge Fund), Sid previously worked in private equity at BV Investment Partners and BBH Capital Partners and prior to that in investment banking at UBS.

Sid holds a  BS  from The Tepper School of Business at Carnegie Mellon.

• Investing: A Beginner's Guide - An Overview

Investing: A Beginner’s Guide: Why Should I Invest?

• Beginner's Guide To Investing: Where To Invest?
• Beginner's Guide To Investing: Various Types Of Investing
• Principles Of Investing For Beginners

Mutual Funds & Exchange-Traded Funds (ETFs)

Investing: a beginner's guide - an overview.

Investing is buying assets to hold for more than one year. The support can be securities, commodities, tangible assets, etc.

In this article, we will focus only on the financial aspect of investing, considering the importance of time and energy, as they help us in decision-making.

Many retail investors have little financial understanding and need to be financially literate.

Financial literacy not only includes:

• Investing also includes better management of money and debt.
• Planning an annual family budget.
• The ability to differentiate and invest in various financial instruments for diversification. 

Financial literacy plays a crucial role in family planning, like making a balanced budget, buying a home, budgeting an emergency fund, funding children's education and marriage, or their retirement plans.

It's a human tendency to question 'why' when we ask someone something to do. By now, you might be wondering why I should even invest. We have tried to answer that. 

To understand why we should invest, let's take the example of a person 'A' who has never invested and compare this situation with a person 'B' who has been investing for the past 20 years.

For the sake of simplicity, let us consider that the person has invested only in equity. Let's assume that 20 years ago, both of these guys had a monthly income of 5,000$.

If we consider somewhere around, 3,000$ was spent every month on living. Person' A' has not invested, whereas Person' B' has invested his balance of 2,000$ if we assume that his portfolio has given a return of 15% per annum.

Let's make a few simple assumptions.

• Consider their annual salary increased at a rate of 10% 
• The Inflation rose 5% yearly, which increased spending by 5%.

Now let's compare their net savings after 20 years:

Now, if we compare the savings of both these persons, we can quickly figure out how investing has enabled Person B' to gain much more than he could have without investing.

It is one of the examples where I have considered equity as the way to invest, but in reality, you have many more options, and we will discuss all possible forms of investing in the next section.

Beginner's Guide To Investing: Where To Invest?

To answer where exactly to invest, we will look at all the various opportunities we have in different asset classes, which include:

Equity Investing

• Fixed Income
• Commodities 
• Other Asset Classes

A person has to choose the best asset class that suits the individual's risk and return temperament, considering some diversification.

We will look at these asset classes in detail further, but before diving into understanding these asset classes, let's look at some essential things we need to know before investing.

It might look straightforward to invest, but everything comes with a price. Therefore, we need to look at every aspect before investing. Here are some of the essential considerations for anyone who wants to invest.

• Identify the reason

You need to identify why you want to invest. Your investment decision may be for the following reasons:

• Grow your money
• Retirement purpose
• Child's education
• Child's marriage

And the list goes on. It may be whatever, but you need to make a goal and take the necessary steps to achieve that.  

• Risk and return

Investing in the equities/stock market is an excellent option if you know its risks. It's a general belief that the higher the risk, the higher the return.

• Bonds and FDs

Fixed Income is a perfect option if your target is not to multiply your savings but to ensure it is protected. Fixed Deposits and Bonds offer a fixed interest rate for your principal amount, but often these rates fail to beat Inflation.

Beginner's Guide To Investing: Various Types Of Investing

Discuss these asset classes in detail, along with their pros and cons. Then, investors usually allocate their money using a technique known as Asset Allocation.

They believe investors should be diversified among various asset classes, and an optimal portfolio should contain a mix of all different asset classes.

Let's understand this with an example; consider that a young professional working in a software company may be able to take a higher risk than an older person who is about to retire.

Generally, aggressive investors allocate 75% of their savings in equity and the remaining 25% to relatively less volatile investments, which include gold, silver, and Fixed Income.

Similarly, a defensive investor like an old-age person may wish to invest 80% of his savings in low-volume instruments such as fixed income and precious metals. On the other hand, he might invest only 20% of his savings in equity.

The ratio in which every person invests in different asset classes may vary depending on their risk appetite.

Investing through equity is the most widely used form of financing. It involves buying and selling shares of publicly listed companies on the stock exchange.

The New York Stock Exchange( NYSE ) and the National Association of Securities Dealers Automated Quotation System ( NASDAQ ) are two highly traded significant stock exchanges in the US.

Investing in the stock market can be done by directly trading stocks through a stock broker. It acts as an intermediary between investors and the stock exchange. Usually, there are 2 kinds of stock brokers:

• Full-service brokers: Provide services other than buying and selling shares that help clients make better investment decisions, like research reports and portfolio management advice.  
• Discount brokers: Services are restricted to buying and selling shares.

Investors usually make their investment decisions regarding any trade through fundamental and technical analysis. These are 2 ways to study the performance of any company and its stock price.

The stock price is determined by the supply and demand in the market; the more the need, the cost of stock increases, and the less demand decreases.

Usually, a company's performance determines the demand and supply, but sometimes the sentiments in the market drive the demand and supply, which causes the price movement.

Some companies pay dividends regularly to share the profits with shareholders.

• It provides an opportunity to create a high Return On Investment(ROI) if invested over the long term.
• It can serve as an alternate source of Income through dividends.
• Higher returns come with higher risks. Investing in stocks is risky; there is a high possibility of a negative Return On Investment if a company goes bankrupt.

Fixed Income Instruments

These financial instruments offer fixed-rate interest payments at low risk over a certain period as per the contract; the return is usually low as the risk is low. Some of the most popular kinds of fixed-income instruments:

• Banks offer fixed Deposits.
• Bonds issued by government/corporate companies.
• Public Provident Fund or PPF.

The government or corporations issue bonds to raise funds to finance operations or projects of the company.

All bonds have different credit ratings issued by credit rating agencies. Classified mainly as investment-grade bonds and non-investment-grade bonds.

The interest paid for bonds could be quarterly, semi-annual or annual intervals, varying from company to company. Finally, the capital is returned to the investor at the maturity period.

• Investing in fixed instruments helps diversify your portfolio.
• Steady Income throughout the bond periods acts as a source of Income till its maturity.
• Low rate of return
• Fluctuations in interest rates make trading bonds before maturity risky.

Real Estate Investment involves transacting (buying and selling) commercial and non-commercial land/Buildings.

It is significantly less volatile compared to equity or fixed-income investments. Typical examples would include transacting in sites, apartments, and commercial buildings.

You can also invest in real estate without purchasing a physical asset by investing in REITs.

Real Estate Investment Trusts(REITs) provide a way to have some real estate presence in your portfolio by allowing retailers to invest in companies that operate income-producing tangible estate-related assets. 

By investing in REITs, you become a property shareholder, and you are entitled to earn regular Income produced through commercial properties, shopping malls, apartments, and hotels.

There are two sources of Income from real estate investments: Rental Income and Capital appreciation of the investment amount.

To invest in rental properties, you have to become a commercial property or a house owner to rent. It would help if you also managed other responsibilities like paying the mortgage, paying taxes, finding tenants, etc.

To invest with the expectation of capital appreciation, one must identify undervalued properties that have the potential to increase their market value with some repair and update or buying in a booming market, holding it for some time, and then selling at a higher price.

The real estate sector is significantly less volatile and can create huge returns if invested long-term. However, it also has high transaction costs, high maintenance costs, and low liquidity.

Everything You Need To Master Financial Modeling

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Commodities

Commodities include metals, crude oil, energy, and food grains. Investors can purchase items directly through the market or indirectly through mutual funds and exchange-traded funds that invest in commodities of your interest.

Investments in gold and silver are considered one of the most popular investment avenues. Gold and silver, over a long-term period, have appreciated and were able to beat Inflation.

• It offers leverage in the futures market which can make much money with significantly less investment if invested smartly. 
• It protects against Inflation.
• Commodity markets are very volatile.
• Factors like exchange rates, interest rates, and the global economy affect commodity prices.
• High leverage can sometimes lead to higher losses.

Everything You Need To Master Financial Statement Modeling

To Help you Thrive in the Most Prestigious Jobs on Wall Street.

Principles Of Investing For Beginner's

Understanding certain principles that help you make better investment decisions, provide better returns, and minimize losses is essential.

Discipline is key to learning any skill; following these principles makes you a disciplined investor.

1. Risk and Opportunity The first principle you must understand is that risk and return are directly proportional. Therefore, investors should realize all the risks involved in the investment.

2. Fundamental Analysis While investing in equity, investors need to study the company and its sector. Investors should have complete knowledge of the company's business model before investing.

Tools for Fundamental Analysis:

• Annual Report
• Investor Presentations
• News related to the sector

3. Technical Analysis

Technical analysis is a popular technique that helps you make trading decisions. It enables you to develop a point of view on a particular stock or index and define the trade, keeping in mind the entry, exit, and risk perspectives. 

It helps you determine: 

• When to buy and when to sell
• Risks involved
• Expected reward and loss

Technical analysis is the study of charts and identifying patterns in them. It is helpful in short-term trades. 

4. Invest Regularly

It is essential to understand that investing regularly can help you utilize the corrections in the stock market. Most people try to time the market but fail; it's vital to know that the time spent in the market is more important than trying to time it.

It is recommended to invest in equities for the long term. Long-term investing helps your investment compound, and it can create a huge amount of return.

Even after mastering technical analysis and being able to understand the global cues, it's very difficult for you to time the market. 

Dollar-cost averaging ( DCA ) is one of the best ways to invest in equities, wherein a fixed sum is regularly invested into a security or a basket of securities. DCA eliminates market timing and gives a structure to your investments.

DCA is also beneficial for retail investors who don't have large sums of money; they can accumulate large sums if continue over extended periods of time.

These are a few popular ways of investment that allow investors to invest in multiple assets simply by investing in an (MF)Mutual Fund or ( ETF ) Exchange Traded Fund .

• Mutual Fund: It is a type of investment instrument that invests in a basket of stocks handled by a fund manager who is legally compelled to work in the best interest of mutual fund shareholders.
• ETFs : Exchange Traded Funds are also a basket of stocks, tracking an index or some group of commodities, etc, but unlike mutual funds, we can directly invest in them through the stock exchange .
• Investing for Beginners Conclusion: Investing in an Education in Investing

Investing without having complete knowledge about the investment is risky. It's very important to invest in knowledge that will reap better benefits than any sought investment.

Researched and authored by Pranav Kanjarla | LinkedIn

Reviewed and Edited by Aditya Salunke  |  LinkedIn

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Home » Invest » Investing for Beginners: Learn the Basics of Investing in 2024

Investing for Beginners: Learn the Basics of Investing in 2024

Unlock the fundamentals of investing in 2023 with expert insights and practical advice. Ready to take the first step toward financial growth?

Jeff Rose, CFP®

Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents , and author of the personal finance...

Kevin Mercadante

Kevin Mercadante has been writing about personal finance since 2010, covering investing, retirement, taxes, credit cards, real estate, mortgages and insurance. His...

• Updated: March 8, 2024
• 14 Min Read
• This page features 3 Cited Research Articles

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If you’re a beginner investor, or if you haven’t quite gotten started – perhaps because you think you need a lot of money or you’re not sure what the best investment is – you’ll need to learn the basics. That will eliminate many of the myths and even convince you there’s no reason not to be investing .

Almost everyone knows Warren Buffet is one of the richest men in the world, like $100 billion rich . But did you know he began investing with just $228? He used it to purchase six shares of Cities Services preferred stock – three for himself and three for his sister.

Everyone has to start somewhere, and that start is usually a modest one. Maybe you won’t ever be the next Warren Buffet, but you’ll have to get started – from wherever you are now – if you hope to begin building real wealth.

Investing is all about setting realistic investment goals and then creating a plan to help you reach them. Fortunately, there are plenty of investment choices and tools to help you get the job done. We’re going to cover them all in this guide.

It’s also important to be aware of the risks that are inherent to investing. First, there’s an inverse relationship between risk and reward. The higher the potential reward, the greater the risk associated with an investment.

But you can diversify around the risk, minimizing it while also getting the benefit of the gains it can produce.

Finally, you’ll need to keep your expectations grounded in reality. As Warren Buffett says, make investments that you understand.

Investing isn’t really about getting rich quickly, but more about getting rich slowly. It’ll take plenty of discipline and a whole lot more patience. But the long-term rewards will more than justify the effort.

Table of Contents

Investing 101 guide, investing for beginners, caution to new investors, bottom line – investing for beginners, why is investing important.

This is a beginner’s guide, so while there are multiple reasons for investing, here we’ll cover six of the most important:

1. Building long-term wealth. Millions of Americans live paycheck-to-paycheck . Investing is the best long-term solution to the trap.

2. Preparing for retirement. Even if you have Social Security and a pension, having income from your investments will provide an even more secure future when you can no longer work.

3. Meeting shorter-term financial goals . This can include making a down payment on a house or preparing for your children’s education.

4. Minimizing the need for credit. The more money you have saved and invested, the less reliant you’ll be on high-interest debt.

5. Having money to pass on to your children. The stronger the start your kids will get in life, the better their lives will be. You can help by building investments to pass on to your children or even to be ready to help them as they get out of life’s starting gate.

6. As a strategy for dealing with inflation. Developing investment income streams is one of the best ways to prepare for the higher prices that the future might bring.

Next to your career, investing is probably the single most important financial activity you’ll participate in during your lifetime. While your career will provide for your immediate financial needs, investing is a process of building wealth for future obligations.

How to Start Investing as a Beginner

Investing as a beginner starts with establishing priorities. Two of the most important are goals and time horizons.

Start by making a list of future financial goals, such as a robust retirement account or a Roth IRA , then add a workable time horizon for financing each. For example, while retirement still maybe 30 or 40 years away, preparing for your children’s college education may be just 10 or 15 years out.

Next, consider the types of investments that are likely to work best for you. For most investors, the best returns will come from the stock market. That may mean committing most of your funds to the market.

But before you do, spend some time learning how the stock market works . Just as you invested time learning your career, you should do no less with the stock market.

Risk tolerance . Before you begin making any big investment decisions, you’ll first need to determine how well you tolerate the risk of losing money – if only in the short run. That will help you to develop the right portfolio allocation between equity investments (stocks, real estate, etc.) and fixed income.

Vanguard offers their free Investor Questionnaire that can help you determine your risk tolerance. It will also recommend a portfolio allocation based on your tolerance level.

Types of Investments

As a beginning investor, there are five primary investments you should consider:

Stocks 

These are shares of ownership in companies. That gives you the ability to invest in the most popular businesses and products in the economy. They tend to be high-risk/high-reward investments.

We’ll talk a little more about stocks in a minute.

These are debt securities issued by corporations and governments. They pay a fixed rate of interest, and you are guaranteed to get a return of your principal when the bond matures.

But before investing in bonds, it’s important to learn what is a bond . There are multiple types of bonds, bond issuers, and even bond funds. In addition, it’s important to know the difference between bonds and stocks , if only because some bonds behave a lot like stocks.

We’ll also cover bonds later in this post.

Mutual Funds

These are investment pools that hold stock, bonds, or both. Generally speaking, investing in ETFs (exchange-traded funds) is the better choice. Since they’re typically index-based funds, they generally have low-cost fees and are designed to track the market.

Mutual funds, on the other hand, invest in securities, such as bonds, stocks, or short-term debt. They usually have fees as high as 3% and are actively overseen by a fund manager. Active management can result in big losses since few can outperform the market.

This is a digital asset that has grown to become one of the major stock market alternatives . In recent years, they’ve even outperformed stocks. But this is also one of the riskiest types of investments with a high degree of volatility.

If you’re interested, you should learn how to invest in Bitcoin in 2024 , since Bitcoin is by far the most popular crypto. But you should also look at some of the other 10 best cryptocurrencies to invest in .

Crypto has really evolved in the past decade, and there are different ways to play this market. You can read more about 4 Ways I’m Making Money with Crypto to see what I mean.

See below for more information about crypto as an investment class.

Real Estate

This is an excellent equity diversification in addition to stocks. Much like stock trading, it has the potential for both generating income (from rents) and long-term capital appreciation. The problem with real estate is the large chunk of investment capital needed to buy individual properties.

But there is a workaround if you want to invest in real estate, even as a beginner. Scores of real estate crowdfunding platforms have sprung up, offering investing to investors at all levels.

One of the best is Fundrise . With a minimum investment of $10, you can begin investing in the lucrative commercial real estate sector.

Read on to find out more about real estate investing .

Before we get into specific investments, let’s first look at the impact of investing, even with a very small amount of money.

I started my own investment journey while I was still in college. It was only $25 per month, but it was a start, and that’s what’s important. Once you begin, it’s just a matter of maintaining the discipline to continue and increasing your contributions as your income expands. You can do the same thing!

Let’s look at three investment scenarios, with various monthly contributions over multiple timeframes and at different investment rates of return:

Average Annual Investment Return: 5% (Even Mix of Stocks and Bonds)

Average annual investment return: 7.5% (mostly stocks, less bonds), average annual investment return: 10% (100% stocks).

Admittedly, that’s a lot of numbers. But that’s exactly what investing is – a numbers game.

Just to make a point, let’s focus on a single row of numbers. Look at the second table, the one with an average annual investment return of 7.5%. That portfolio might look something like 70% stocks and 30% bonds, which would be considered a moderately aggressive investment mix.

Let’s zero in on the $500 monthly contribution row. That works out neatly because it adds up to $6,000 per year, which is the amount of an annual IRA contribution for investors under 50.

Look across the row and see the impact of a 7.5% annual return on that contribution level. After 20 years, it’s over $270,000. But your out-of-pocket contributions in that same timeframe will be $120,000. That’ll be like getting $150,000 in free money !

In 30 years, you’ll have over $645,000, with contributions of just $180,000. That’ll be like getting $465,000 in free money!

After 40 years, you’ll have well over $1.4 million, on contributions of $240,000. That’ll be like getting more than $1.26 million in free money!

And after 50 years – well, I think you get the picture. But it all starts with regular contributions of even modest amounts of money, made consistently over many years.

That’s the “secret” of investment success.

The Five Major Investment Classes

Now that you have an idea of the math behind investment success, let’s look at the five major investment classes you’ll use to make it all work.

You can open a brokerage account with no money at all and begin investing in stocks with just a few dollars. That’s because you can purchase what are known as fractional shares .

These are slices of higher-priced stocks, that enable you to spread a relatively small investment across several different companies.

Stocks aren’t in a single investment either. For example, you can choose to invest in growth stocks, dividend stocks, or even penny stocks – among others.

Growth stocks are investments in companies that typically pay no dividends. Instead, profits are plowed back into the business to expand operations and sales.

These stocks have greater volatility than dividend stocks, rising more rapidly in bull markets and falling more dramatically in bear markets.

Dividend stocks pay regular dividends, with a substantial amount of profits being distributed to shareholders.

These stocks tend to be more stable than growth stocks, price-wise, rising less in strong markets, but falling more modestly in declining markets. But along the way, you’ll get the benefit of the cash flow from the dividends.

Finally, penny stocks might be classified more as speculations than investments. They don’t really trade for pennies, though they can. Instead, the term generally refers to stocks that trade at less than $5 per share.

They have such low prices, either because they are upstart companies or older companies that have fallen on hard times.

The speculation side of penny stocks is that they can produce outstanding returns if the issuing company is successful in either growing itself or recovering from whatever crisis caused the stock price to fall.

However, the reality is that most penny stocks produced poor returns, being long on promise and short on delivery. If you’re going to invest in these stocks, it’s best done with only a very small percentage of your portfolio.

Investing 101

The basic rule applies: don’t invest with money you can’t afford to lose.

But stocks are one of the more difficult investment choices, especially for a beginner. Choosing the right stocks to invest in is not easy and will require a considerable amount of time and research effort.

Let’s summarize stocks with a table showing the many different types of stocks:

These securities are typically available in minimum denominations of $1,000, though you can invest in U.S. Treasury securities with as little as $100. Investing is typically done through a brokerage account.

Much like stocks, bonds are higher on the difficulty scale than other investments. Because of the minimum investment amounts, you’ll need a larger portfolio to build a diversified bond allocation. Funds are a better way to invest in bonds.

Mutual funds usually have a minimum investment requirement of anywhere from $1,000 to $3,000. But you can invest in ETFs for no more than the price of a single share. If the ETF is trading at $50, that will be the minimum investment required. Either type of fund is available through an investment broker.

Funds are an easier way to invest and are strongly recommended for beginners. With just a small amount of money, you can buy into a professionally managed fund invested in hundreds or even thousands of securities.

Index Funds . There is no way to invest directly into an index like the S&P 500 or the Dow Jones Industrial Average index but there are Index Funds open for investment.

These funds track an index and only make adjustments to the portfolio to simulate the mix of holdings in that particular index. Several of the largest Fund Companies market these funds to the investing public as Mutual Funds or as an Exchange Traded Fund (ETF).

These low-cost funds are attractive because most professional money management firms find it difficult to match the returns of the Index most closely resembling the strategy of their fund.

There are many different categories of these funds available enabling the investor to have a widely diversified portfolio.

You can open an account with a cryptocurrency exchange, often with no money at all. But most set a minimum investment based on either a flat dollar amount or the price of the crypto you want to invest in.

A good example of a crypto exchange is Coinbase , where you can not only trade cryptos but also earn high interest in your current holdings.

This is potentially the most difficult investment class, at least if you are buying the property directly. But a lot of that risk is removed if you instead invest small amounts of money in real estate crowdfunding platforms , like Fundrise .

How to Prepare for Investing

Ironically, the best way to prepare for investing is to start with an emergency fund . That’s money you hold in a safe savings account that will be used only to cover emergency expenses or income disruptions.

Not only will it cover those contingencies, but it will also avoid the need to liquidate your investments.

Next, you’ll want to set good financial goals and habits. Successful investing requires discipline, and the combination of clear-cut goals and positive routines is best adopted early.

Have a plan to fund your investments on a regular basis. If you’re not a saver by nature, you’ll need to develop a budget. To do this, you can take advantage of the best free online budgeting tools .

Choosing the right one will be critical in deciding how to cut expenses . You’ll need to do that so that you’ll have the cash to continue investing consistently.

One of the very best and most popular budgeting tools is YNAB . It uses a five-step process that will help you to get ahead of your finances, so you will be in a better position to save and invest on a regular basis.

Below we’ll discuss different tools you can use to start DIY investing – though you might want to look into hiring a brokerage firm or a financial advisor if you want professional advice.

Investment Apps

Investment apps not only give you the ability to automate your investing activities, they often also include research tools, educational resources, and access to a wide range of investment choices. Most don’t require a minimum deposit or charge steep fees and commissions.

You may have heard, for instance, of the Robinhood app . It was designed specifically as an investment app where you can trade stocks, ETFs , and cryptocurrency on the same platform, all commission-free.

While its mobile app is intuitive and easy to understand by beginners, the company has been subject to several data breaches.

Other investment apps, such as Charles Schwab may be best suited to more seasoned investors, thanks to its real-time data, advanced research tools, and access to foreign markets.

As a full-service brokerage, it provides an ample selection of investment options and doesn’t charge commissions on ETFs, stocks, options, or mutual funds.

Robo-Advisors

Robo-advisors are online, automated investment platforms that provide professional investment management for a very low fee. That includes creating a portfolio based on your risk tolerance and goals and rebalancing it periodically to maintain target allocations.

This is considerably different from financial advisors, who are certified experts who provide advice and guidance on a wide range of financial topics, from retirement planning to tax laws to asset management — aside from investment strategy and investment advice.

You should investigate the best robo-advisors since there are now dozens of competitors in the space. One of the very best is Betterment . Not only do they provide investment management, but they also offer interest-bearing savings and other financial services.

As robo-advisors continue to develop and advance, different varieties are coming into existence. One excellent example is M1 Finance . It’s a robo-advisor that provides complete investment management free of charge.

However it allows you to choose the individual stocks and ETFs that will be in your diversified portfolio.

Stocks (and bonds), as well as funds, can be invested in through popular investment brokers. Two of the most popular are E*TRADE and Ally Invest . Each offers commission-free trades on stocks and ETFs, as well as comprehensive trading platforms.

High-Yield Savings

One of the best places to park emergency funds and short-term savings is in high-yield savings accounts. They pay many times more interest than local banks and credit unions .

You should investigate the best high-interest savings accounts so you can earn the highest interest possible on your idle cash.

If your employer offers a retirement plan, like a 401(k) , 403(b) , 457 , or TSP plan, you should participate. It will give you an opportunity to invest tax-deductible funds into a tax-sheltered investment account. Many employers also provide a generous matching contribution.

If you’re unfamiliar with how to manage the funds in a 401(k) plan , you can use a dedicated retirement plan robo-advisor like blooom . For a low flat fee, they’ll provide automated management of your plan, including a selection of funds with the lowest expense ratios.

If you’re new to investing – or even if you’ve been doing it for a while – it’s mission-critical to avoid detours. That can include participating in get-rich-quick schemes or investing in anything you don’t really understand.

For example, even though we covered penny stocks above, these are not a preferred investment for new investors.

I speak from personal experience on this topic. I once lost $5,000 on a penny stock – this is no joke! (Losing big money on an investment is never a laughing matter; a good learning experience, maybe – but never a joke!)

I got caught up in a discussion with a client about a penny stock company that was allegedly cutting some promising deals. He was enthusiastic about the company, and I allowed myself to get wrapped up in his excitement.

It seemed like it could be one of those once-in-a-lifetime investments, where a relatively small investment turns into something really big.

I won’t bore you with the details, but it was a comedy of errors. The stock was a lot more expensive than it seemed (largely because there’s very little public information on penny stocks), and I ended up taking a big loss on the same day I bought it.

Believe it or not, my experience with a penny stock is hardly unique. It’s the most typical outcome when people “invest” in these raw speculations.

And Then There Are Crypto Scams…

Speaking of raw speculations, crypto is another area where you can lose money and a lot of it. As interest in crypto has grown so have crypto scams .

I’m happy to say it wasn’t me, but I feel bad for a buddy of mine who got caught in one of these traps . It seems he met a girl on a dating app who lived outside the US (that was a big red flag that got missed early).

He became sufficiently comfortable with her that he allowed her to convince him to invest through her preferred crypto trading platforms.

It was a complicated scam, and easy enough to miss upfront. But the long and short of it is that my buddy was transferring his crypto into two accounts, one that was legitimate, and another that was anything but.

The girl succeeded in convincing him that they were on a path to romance – oh, and by the way – if you deposit $5,000 per month into the (illegitimate) account, they’ll guarantee daily profits on your investment.

You can probably guess how that turned out. Before the episode ended, my buddy lost his entire investment held with the bogus crypto platform.

It happened to him, and it could happen to anyone. It’s a new industry, growing rapidly and adding new exchanges and services all the time. Some of them are legitimate, but others are legitimate scams.

Naturally, you’ll want to get the best return on your money but understand that also makes you vulnerable to bad investments and scams.

Keep your eyes open, do your research, and always remember the time-honored saying: if it sounds too good to be true, it probably is.

When you first begin investing don’t expect it to necessarily be smooth sailing. That’s especially true if you invest during a bear market. Your portfolio may begin declining almost immediately.

But you should understand that market declines are perfectly normal.

You should be prepared to hold your investment positions through the decline. If you do, you’ll be rewarded with higher gains when the next bull market begins to develop. Over 10 years or more, rises and declines will almost certainly break in your favor.

One of the best ways to minimize the risk of market declines is through diversification. You can do this by holding a percentage of your portfolio in either short-term bonds, high-interest savings, or a combination of both.

And when you commit to the long-term use of this formula, you’ll watch your wealth gradually improve. The combination of regular investment contributions and investment earnings is the best way to build long-term wealth.

Armed with the information in this guide, the only thing holding you back is getting started. Don’t let money be an obstacle since you can open many different investment accounts with no money at all. And you can begin investing with as little as $50, $100, or $500.

3 Cited Research Articles

The Balance (2022, July 5) How Did Warren Buffett Become So Rich? https://www.thebalancemoney.com/warren-buffett-timeline-356439

SEC.gov (2020, Nov 9) Fractional Share Investing – Buying a Slice Instead of the Whole Share https://www.sec.gov/oiea/investor-alerts-and-bulletins/fractional-share-investing-buying-slice-instead-whole-share

Go Banking Rates (2022, Mar 17) Thanks to Inflation, 64% of Americans Now Live Paycheck to Paycheck https://www.gobankingrates.com/money/economy/inflation-64-percent-americans-live-paycheck-to-paycheck/

About the Author

Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents , and author of the personal finance book Soldier of Finance . He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion - educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel. Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University - Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® - Accredited Asset Management Specialist - and CRPC® - Chartered Retirement Planning Counselor. While a practicing financial advisor, Jeff was named to Investopedia's distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC's Digital Advisory Council. Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.

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Investing: An Introduction

• Search Search Please fill out this field.
• The Investment Risk Ladder
• Invest Sensibly, Suitably & Simply

Asset Class Expectations Given the Economic Environment

• Asset Classes FAQs

The Bottom Line

A beginner’s guide to asset classes

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

The investment landscape can be extremely dynamic and ever-evolving. But those who take the time to understand the basic principles and the different asset classes stand to gain significantly over the long haul.

The first step is learning to distinguish different types of investments and what rung each occupies on the risk ladder.

Key Takeaways

• Investing can be a daunting prospect for beginners , with an enormous variety of possible assets to add to a portfolio.
• The investment risk ladder identifies asset classes based on their relative riskiness, with cash being the most stable and alternative investments often being the most volatile.
• Sticking with index funds or exchange-traded funds (ETFs) that mirror the market is often the best path for a new investor.
• Stocks tend to have higher yields than bonds, but also greater risks.
• Many investment specialists recommend diversifying one's portfolio.

Understanding the Investment Risk Ladder

Here are the major asset classes, in ascending order of risk , on the investment risk ladder.

A cash bank deposit is the simplest, most easily understandable investment asset—and the safest. It not only gives investors precise knowledge of the interest that they’ll earn but also guarantees that they’ll get their capital back.

On the downside, the interest earned from cash socked away in a savings account seldom beats inflation. Certificates of deposit (CDs) are less liquid instruments, but they typically provide higher interest rates than those in savings accounts. However, the money put into a CD is locked up for a period of time (months to years), and there are potentially early withdrawal penalties involved.

A bond is a debt instrument representing a loan made by an investor to a borrower. A typical bond will involve either a corporation or a government agency, where the borrower will issue a fixed interest rate to the lender in exchange for using their capital. Bonds are commonplace in organizations that use them to finance operations, purchases, or other projects.

Bond rates are essentially determined by interest rates . Due to this, they are heavily traded during periods of quantitative easing or when the Federal Reserve —or other central banks—raise interest rates.

Mutual Funds

A mutual fund is a type of investment where more than one investor pools their money together to purchase securities. Mutual funds are not necessarily passive , as they are managed by portfolio managers who allocate and distribute the pooled investment into stocks, bonds, and other securities. Most mutual funds have a minimum investment of between $500 and $5,000, and many do not have any minimum at all. Even a relatively small investment provides exposure to as many as 100 different stocks contained within a given fund's portfolio .

Mutual funds are sometimes designed to mimic underlying indexes such as the S&P 500 or the Dow Jones Industrial Average. There are also many mutual funds that are actively managed , meaning that they are updated by portfolio managers who carefully track and adjust their allocations within the fund. However, these funds generally have greater costs—such as yearly management fees and front-end charges—that can cut into an investor’s returns.

Mutual funds are valued at the end of the trading day, and all buy and sell transactions are likewise executed after the market closes.

Many investment specialists advise their clients to diversity into a wide range of securities rather than focusing on just a few stocks.

Exchange-Traded Funds (ETFs)

Exchange-traded funds (ETFs) have become quite popular since their introduction back in the mid-1990s. ETFs are similar to mutual funds, but they trade throughout the day, on a stock exchange. In this way, they mirror the buy-and-sell behavior of stocks. This also means that their value can change drastically during the course of a trading day.

ETFs can track an underlying index such as the S&P 500 or any other basket of stocks with which the ETF issuer wants to underline a specific ETF. This can include anything from emerging markets to commodities, individual business sectors such as biotechnology or agriculture , and more. Due to the ease of trading and broad coverage, ETFs are extremely popular with investors.

Shares of stock let investors participate in a company’s success via increases in the stock’s price and through dividends . Shareholders have a claim on the company’s assets in the event of liquidation (that is, the company going bankrupt) but do not own the assets.

Holders of common stock enjoy voting rights at shareholders’ meetings. Holders of preferred stock don’t have voting rights but do receive preference over common shareholders in terms of the dividend payments.

Some investments, such as hedge funds, are only permitted to wealthy investors.

Alternative Investments

There is a vast universe of alternative investments, including the following sectors:

• Real estate : Investors can acquire real estate by directly buying commercial or residential properties. Alternatively, they can purchase shares in real estate investment trusts (REITs). REITs act like mutual funds wherein a group of investors pool their money together to purchase properties. They trade like stocks on the same exchange.
• Hedge funds : Hedge funds may invest in a spectrum of assets designed to deliver beyond market returns, called “alpha.” However, performance is not guaranteed, and hedge funds can see incredible shifts in returns, sometimes underperforming the market by a significant margin. Typically only available to accredited investors, these vehicles often require high initial investments of $1 million or more. They also tend to impose net worth requirements. Hedge fund investments may tie up an investor’s money for substantial time periods.
• Private equity fund : Private equity funds are pooled investment vehicles similar to mutual and hedge funds. A private equity firm, known as the "adviser," pools money invested in the fund by multiple investors and then makes investments on behalf of the fund. Private equity funds often take a controlling interest in an operating company and engage in active management of the company in an effort to bolster its value. Other private equity fund strategies include targeting fast-growing companies or startups. Like a hedge fund, private equity firms tend to focus on long-term investment opportunities of 10 years or more.
• Commodities : Commodities refer to tangible resources such as gold, silver, and crude oil, as well as agricultural products. There are multiple ways of accessing commodity investments. A commodity pool or "managed futures fund" is a private investment vehicle combining contributions from multiple investors to trade in the futures and commodities markets. A benefit of commodity pools is that an individual investor's risk is limited to her financial contribution to the fund. Some specialized ETFs are also designed to focus on commodities.

Order your copy of Investopedia's What To Do With $10,000 magazine for more wealth-building advice.

How to Invest Sensibly, Suitably, and Simply

Many veteran investors diversify their portfolios using the asset classes listed above, with the mix reflecting their tolerance for risk . A good piece of advice to investors is to start with simple investments, then incrementally expand their portfolios. Specifically, mutual funds or ETFs are a good first step, before moving on to individual stocks , real estate, and other alternative investments.

However, most people are too busy to worry about monitoring their portfolios daily. Therefore, sticking with index funds that mirror the market is a viable solution. Steven Goldberg, a principal at the firm Tweddell Goldberg Wealth Management and longtime mutual funds columnist at Kiplinger.com, further argues that most individuals only need three index funds : one covering the U.S. equity market, another focused on international equities, and the third tracking a broad bond index.

More hands-on investors, however, may want to choose their own asset mix when crafting a diversified portfolio that fits their risk tolerance, time horizon, and financial goals. This means that you can try to capture excess returns by tilting your portfolio weights to favor certain asset classes depending on the economic environment.

Let's first consider the relative performance of stocks and bonds, which historically have shown somewhat of an inverse correlation:

• When the economy is strong and growing, with low unemployment, stocks tend to perform well as consumers spend and corporate profits rise. At the same time, bonds may underperform as interest rates rise to keep track with economic growth and inflation. When inflation is high, fixed-rate bonds may also fare comparatively worse if the coupon rate is below the rate of inflation.
• When the economy is turning sour and recession hits, unemployment rises and people stop spending as much, hurting corporate profits. This, in turn, can weigh down on stock prices. But, as interest rates fall in response to a sagging economy, bonds may outperform.

Most financial professionals recommend a portfolio mix consisting of stocks and bonds, as described above. Other asset classes, too, may favor certain economic conditions; however, not all asset classes are suitable for investors.

• Real estate: A strong economy and low unemployment can lead to a robust housing market, which may benefit real estate investments. However, rising interest rates can put a damper on mortgage borrowing.
• Commodities: Inflationary environments can lead to an increase in the prices of certain commodities, making them a favorable asset class to use as an inflation hedge.
• Alternative investments: Private equity, venture capital, hedge funds, and other non-traditional investments may outperform in an environment of low interest rates and high liquidity. These types of investments, though, are not always available to individual investors and may require a significant outlay of cash and feature lower levels of liquidity.
• Gold: Gold is considered as a safe haven asset and it performs well in times of economic uncertainty, geopolitical tensions and during inflationary environment. This was especially the case during the COVID19 pandemic, which saw gold rise to all-time highs during the Spring of 2020.
• Cash and cash equivalents, (e.g. money market funds and CDs): These also tend to perform relatively well in uncertain or volatile economic environments is because they, too, are considered to be a safe haven. Investors may turn to cash as a way to preserve their capital and limit downside exposure to risk during bear markets. However, in a stable and low-inflation environment, cash will not usually provide returns as high as other asset classes such as stocks or bonds - but the stability and the low risk make a small allocation to cash an attractive option for investors seeking preservation of capital or for short term liquidity needs.

What Are the Different Asset Classes?

Historically, the three main asset classes are considered to be equities (stocks), debt (bonds), and money market instruments. Today, many investors may consider real estate, commodities, futures, derivatives, or even cryptocurrencies to be separate asset classes.

Which Asset Classes Are the Least Liquid?

Generally, land and real estate are considered among the least liquid assets, because it can take a long time to buy or sell a property at market price. Money market instruments are the most liquid, because they can easily be sold for their full value.

What Asset Classes Do Well During High Inflation?

Real estate and commodities are considered to be good inflation hedges , because their value tends to rise as prices increase. In addition, some government bonds are also indexed to inflation, making them an attractive way to store excess cash.

Investment education is essential—as is avoiding investments that you don’t fully understand. Rely on sound recommendations from experienced investors, while dismissing “hot tips” from untrustworthy sources. When consulting professionals, look to independent financial advisors who get paid only for their time, instead of those who collect commissions. And above all, diversify your holdings across a wide swath of assets.

Financial Industry Regulatory Authority. “ Certificates of Deposit (CDs) .”

Investor.gov. “ Bonds .”

Federal Reserve System. “ The Fed Explained: What the Central Bank Does ,” Page 24.

Investor.gov. “ Mutual Funds .”

U.S. Securities and Exchange Commission. “ Investor Bulletin: Index Funds .”

Financial Industry Regulatory Authority. “ Mutual Funds .”

U.S. Securities and Exchange Commission. “ Mutual Funds and Exchange-Traded Funds (ETFs) – a Guide for Investors .”

Financial Industry Regulatory Authority. “ Exchange-Traded Funds .”

Investor.gov. “ Stocks .”

Investor.gov. “ Real Estate Investment Trusts (REITs) .”

CFA Institute Research Foundation. “ Alternative Investments: a Primer for Investment Professionals ,” Pages 147-148.

CFA Institute Research Foundation. “ Alternative Investments: a Primer for Investment Professionals ,” Pages 14-15.

Investor.gov. " Private Equity Funds ."

Investor.gov. “ Commodities .”

Kiplinger. “ The Only Three ETFs You Need .”

• Investing: An Introduction 1 of 38
• What Is the Stock Market, What Does It Do, and How Does It Work? 2 of 38
• A Look at Primary and Secondary Markets 3 of 38
• How to Buy and Sell Stocks for Your Account 4 of 38
• Trading Hours for the World’s Major Stock Exchanges 5 of 38
• Types of Stock Exchanges 6 of 38
• How to Invest in Stocks: A Beginner’s Guide 7 of 38
• What Owning a Stock Actually Means 8 of 38
• The Basics of Trading a Stock: Know Your Orders 9 of 38
• How to Reduce Risk With Optimal Position Size 10 of 38
• How Do I Place an Order to Buy or Sell Shares? 11 of 38
• 6 Reasons to Sell a Stock 12 of 38
• Income, Value, and Growth Stocks 13 of 38
• How Do I Keep Commissions and Fees From Eating Trading Profits? 14 of 38
• What Type of Brokerage Account Is Right for You? 15 of 38
• Investing vs. Trading: What's the Difference? 16 of 38
• Stock vs. ETF: Which Should You Buy? 17 of 38
• Why Would Someone Choose a Mutual Fund Over a Stock? 18 of 38
• ETF vs. Mutual Fund: What's the Difference? 19 of 38
• Bond: Financial Meaning With Examples and How They Are Priced 20 of 38
• Bond Yield: What It Is, Why It Matters, and How It's Calculated 21 of 38
• 4 Basic Things to Know About Bonds 22 of 38
• How to Buy Bonds: Corporate, Treasury, Municipal, or Foreign 23 of 38
• How to Invest in Corporate Bonds 24 of 38
• Introduction to Treasury Securities 25 of 38
• The Basics of Municipal Bonds 26 of 38
• What Are the Risks of Investing in a Bond? 27 of 38
• Options vs. Futures: What’s the Difference? 28 of 38
• Options Trading: How to Trade Stock Options 29 of 38
• The Importance of Diversification 30 of 38
• How to Calculate Your Portfolio's Investment Returns 31 of 38
• What Are Corporate Actions? 32 of 38
• Why Dividends Matter to Investors 33 of 38
• What Are Stock Fundamentals? 34 of 38
• 5 Essentials You Need to Know About Every Stock You Buy 35 of 38
• Sector Breakdown: What It Is and How It's Used 36 of 38
• How to Analyze a Company's Financial Position 37 of 38
• Technical Analysis: What It Is and How to Use It in Investing 38 of 38

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NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.

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Investments for Beginners: 6 Ways to Get Started

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The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Investing is a strategy to grow your money.

It increases your chances of being able to afford the same amount of goods and services in the future that you can today.

The benefit of compound earnings is that any profit you earn is reinvested to earn additional returns.

Before you jump in, consider your goals and investing time horizon.

Diversification helps reduce risk in your portfolio.

The biggest misconception about investing is that it’s reserved for the rich.

That might’ve been true in the past. But that barrier to entry is gone today, knocked down by companies and services that have made it their mission to make investment options available for everyone, including beginners and those who have just small amounts of money to put to work.

In fact, with so many investments now available to beginners, there’s no excuse to skip out. And that’s good news, because investing can be a great way to grow your wealth.

The best investments for beginners

1. a 401(k) or other employer retirement plan.

If you have a 401(k) or another retirement plan at work, it’s very likely the first place to consider putting 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 rule of thumb to try to contribute enough to get your employer match. For example, a common matching arrangement is 50% of the first 6% of your salary you contribute. To capture the full match in that scenario, you would have to contribute 6% of your salary each year. But you can work your way up to that over time.

Most 401(k) contributions are made pretax. That means, 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. Some 401(k)s today will place your funds by default in a target-date fund — more on those below — but you may have other choices. Here’s how to invest in your 401(k) .

To sign up for your 401(k) or learn more about your specific plan, contact your HR department.

2. A robo-advisor

Maybe you’re on this page to eat your peas, so to speak: You know you’re supposed to invest, you’ve managed to save some money to do so, but you would really rather wash your hands of the whole situation.

There’s good news: You largely can, thanks to robo-advisors . These services 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.

And if you’re interested in learning how to invest, but you need a little help getting up to speed, robo-advisors can help there, too. It’s useful to see how the service constructs a portfolio and what investments are used. 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.

» Ready to get started? See our picks for the best robo-advisors

3. Target-date mutual funds

These are kind of like the robo-advisor of yore, though they’re still 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.

Let’s back up a little and explain what a mutual fund is: essentially, a basket of investments. Investors buy a share in the fund and in doing so, they invest in all of the fund’s holdings with one transaction.

A professional manager typically chooses how the fund is invested, but there will be some kind of general theme: For example, a U.S. equity mutual fund will invest in U.S. stocks (also called equities).

A target-date mutual fund often holds a mix of stocks and bonds. If you plan to retire in about 30 years, you could choose a target-date fund with 2050 or 2055 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.

» View the best brokers for mutual funds

4. Index funds

Index funds are like mutual funds on autopilot: Rather than employing a professional manager to build and maintain the fund’s portfolio of investments, index funds track a market index.

A market index is a selection of investments that represent a portion of the market. For example, 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.

Because index funds take a passive approach to investing by tracking a market index rather than using professional portfolio management, they tend to carry lower expense ratios — a fee charged based on the amount you have invested — than mutual funds. But like mutual funds, investors in index funds are buying a chunk of the market in one transaction.

Index funds can have minimum investment requirements, but some brokerage firms , including Fidelity and Charles Schwab, offer a selection of index funds with no minimum. That means you can begin investing in an index fund for less than $100.

» Learn more: A beginner’s guide to index funds

5. Exchange-traded funds (ETFs)

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 such as 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. That share price is essentially the ETF’s investment minimum, and depending on the fund, it can range from under $100 to $300 or more.

Because ETFs are traded like stocks, brokers used to charge a commission to buy or sell them. The good news: Most brokers have dropped trading costs to $0 for ETFs. If you plan to regularly invest in an ETF — as many investors do, by making automatic investments each month or week — consider a commission-free ETF so you aren’t paying a commission each time.

» Learn more: See our list of the best ETF brokers

6. Investment apps

Several investing apps target beginner investors.

One is Acorns , which rounds up your purchases on linked debit or credit cards and invests the change in a diversified portfolio of ETFs. On that end, it works like a robo-advisor, managing that portfolio for you. There is no minimum to open an Acorns account, 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 is Stash , which helps teach beginner investors how to build their own portfolios out of ETFs and individual stocks. Stash also offers a managed portfolio.

» Ready to get started? Find the best investing apps .

Why investing is 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 potential benefit you gain from compounding.

» Learn more: What is inflation and why is it surging?

Never done it before? Here's what to consider

If you're a beginner to investing, there are some things to think about before you jump in.

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.

» Ready to start investing? Learn how to open a brokerage account

The bottom line on investing for beginners

Time waits for no one — and neither does inflation. That's why it's a good idea to consider compounding your money by investing.

As a beginner, investing can sound intimidating — but by setting goals and a time horizon, you can make it easier. And with diversification, you can make it a bit safer. If you're interested in investing, retirement plans, robo-advisors, funds and investment apps are all places to consider.

On a similar note...

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Introduction to Investing

Many people just like you turn to the markets to help buy a home, send children to college, or build a retirement nest egg. But unlike the banking world, where deposits are guaranteed by federal deposit insurance, the value of stocks , bonds , and other securities fluctuates with market conditions. No one can guarantee that you’ll make money from your investments, and they may lose value.

The U.S. Securities and Exchange Commission enforces the laws on how investments are offered and sold to you. Protecting investors is an important part of our mission. We cannot tell you what investments to make, but this website provides unbiased information to help you evaluate your choices and protect yourself against fraud.

What kinds of investment products are there?

Are you headed in the right direction.

Visit the Roadmap to Saving and Investing

A few people may stumble into financial security. But for most people, the only way to attain financial security is to save and invest over a long period of time. You just need to have your money work for you. That’s investing.

Knowing how to secure your financial well-being is one of the most important things you’ll ever need in life. You don’t have to be a genius to do it. You just need to know a few basics, form a plan, and be ready to stick to it. There is no guarantee that you’ll make money from investments you make. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money. For more information, SEC’s publication Saving and Investing: A Roadmap To Your Financial Security Through Saving and Investing .

How the Markets Work

The stock market is where buyers and sellers meet to decide on the price to buy or sell securities, usually with the assistance of a broker : Let's take a closer look at what you need to know about how stocks are traded.

The Role of the SEC

The U.S. Securities and Exchange Commission enforces the laws on how investments are offered and sold to you. Protecting investors is an important part of our mission.

Retirement and Retirement Plans

For most Americans, a retirement savings plan, which you build over time during your working years, is an essential part of securing your retirement. Learn what you can do, while employed and once retired, to make the most of your investments.

Retirement Plans

Learn about retirement plans and how to maximize your benefits.

Employer-Sponsored Plans

• Pension Plans

Federal Government Plans

Self-directed plans.

• IRAs -  traditional

Switching Jobs

Understand the investment implications that come with a job change and related terminology such as lump sum distributions and rollovers .

Find out how to manage your life's savings.

Retirement Resources

Info for new retirees and seniors

Managing Lifetime Income

• Asset allocation
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Senior Specialist Designations

What do they really mean?

Social Security

How the Social Security system works

Avoiding Retirement Fraud

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