Think you don’t have enough money to start investing? Think again! You can learn how to start investing even if you start your investing journey with just $100. Although the amount you invest might start out small, it can be a turning point in your finances. Investing money for beginners doesn't have to be hard either!
When you decide to start investing, the most important part of the process is educating yourself. Once you have a better understanding of investing, you will feel more comfortable as an investor growing your investments over time.
If you are reading this, then you are in the right place to get started. In this post, you learn about how to start investing. (P.S. As a woman, studies show you can be an amazing investor!)
What is investing?
When you decide to invest your money, you are choosing to put it into a vehicle with the goal of receiving a return down the line. At some point, you hope that the money you put into an investment will grow. In most cases, you plan for little involvement on your part once you’ve invested the money.
Although most people associate investing with the stock market, there are many other ways to invest. For example, you could invest in real estate or your own business. No matter what you choose to invest in, you hope to earn money on that investment in the future.
Why is investing important?
Saving money is an important place to start building a better financial future. However, your savings are diminished each day by the powers of inflation. Although your savings account might have the same balance ten years from now, that money will not have the same purchasing power that it has today.
With investing, you are able to grow your money over time and keep the powers of inflation at bay. Historically, the stock market has provided returns between 6% and 7%, with inflation factored in. Those returns can grow your savings dramatically over time.
Plus, the power of compounding can add to your nest egg. If you choose to reinvest your earnings over the course of many years, you’ll benefit from the compounding effect. Compounding is a process that grows your money over time by reinvesting your investment earnings.
If you are just starting your journey of building wealth, then investing can help you reach those long-term goals faster. Instead of trading your time for money in order to build wealth, you can have your money work for you.
When your money starts to earn money through your investments, you won’t be completely dependent on your day job or your savings.
When should you start investing?
Before we dive into some good investments for beginners let's talk about when you should start investing. Investing strategies typically involve a long-term timeline. With that, the best time to start investing is as soon as possible. The sooner you are able to start investing, the more time you’ll have to allow your investments to grow.
Generally, you will use these investments to fund your retirement. So it is a good idea to start as soon as you can. You’ll want to give your investments plenty of time to build your wealth.
Investing is an extremely important part of your financial journey. However, there are a few things that you should tackle before you start investing. Let’s take a closer look.
After you pay down high-interest debt
Paying off debt is the first step in investing for beginners. If you have any debt that is draining your resources each month, then you should focus on paying that down first.
Specifically, high-interest debt, as this debt costs you the most as a result of compounding interest. Once you’ve paid down your debt, you’ll be able to invest more comfortably. An example would be high-interest credit card debt.
You have an emergency fund
Living one paycheck from the edge is not a good feeling. An emergency fund can allow you to enjoy more financial breathing room in your life. Before you start investing, consider building an emergency fund.
Once you’ve paid down your debt and built an emergency fund, then it is time to invest. If you start young, then the power of compounding can work in your favor. Even if you only have a few dollars to start investing, you should take action today.
Keep in mind, if your employer offers a free match on your investments, you definitely want to take advantage of this match. It is essentially free money!
How to start investing money for beginners
Investing can change your financial future for the better. You don’t need a lot of money to start investing. In some cases, you only need a few dollars to get started.
Of course, you might have a goal of increasing your investments over the long term. But don’t let limited resources stop you from building your long-term wealth.
1. Begin investing money into employer-sponsored accounts
You may work for a company, where you likely have access to some employer-sponsored investment accounts. In general, these accounts are aimed at saving for your retirement in a tax-advantaged way.
Many employers offer a 401(k) or 403(b). If your employer doesn’t offer a retirement account, then consider opening a Roth IRA to start saving for your retirement. Both options are good investments for beginners.
2. Try a robo-advisor (A great way to start investing for beginners)
Robo-advisors are one of the best investment strategies for beginners. A Robo-advisor is essentially a virtual financial advisor. The use of algorithms and technologies eliminates the need for a human financial advisor.
It will provide automated financial management services and tailor your investment recommendations based on your goals. This can definitely teach you how to start investing in stocks.
It is a great way to invest when it comes to how to invest with little money. The benefit of using a Robo-advisor is that the fees are typically lower, even though you are getting customized portfolio recommendations. Most Robo-advisory firms offer low minimum investment requirements and take care of portfolio rebalancing automatically.
If you are interested in trying a Robo-advisor and want to learn how to start investing in stocks, then check out our favorite investment apps below:
Acorns makes things simple for people wondering how to invest for beginners. You can start with just $5, and it takes just a few minutes to sign-up. It has the feature of a round-up savings account, but it invests your spare change instead!
You can also dedicate a portion of your paycheck to build more into your investments. They offer two types of subscriptions one is a personal plan for just $3 per month, or you can opt for the family plan and include your kids for $5 a month.
Betterment is an excellent choice because they offer automated investing along with higher-yield savings accounts and no-fee checking accounts. They offer various diversified portfolio options that you can choose from depending on your risk tolerance and goals.
You can start with $10, but the fees on your investments depend on the type of portfolio you choose. However, the 0.25% annual fee plan is best for beginners because it has a 0 minimum balance. Their portfolios include EFTs in the stock and bond portfolios because of the low management fees and tax efficiency they offer.
SoFi is a great place to start investing money for beginners because you can start with just $1! They offer automated investing so you can work towards building wealth more easily. Another perk is they don't charge management fees which is great for beginner investors or young investors. They offer automatic rebalancing of your portfolio, and there is no minimum balance required.
However, they do have limited account types but still have a pretty good pick of portfolios for someone just getting started. And the fact that you can start with just $1 is pretty great too.
3. Seek out a brokerage account
There are many investment services available on the market today. Each offers different services and charges different fees. As you sift through your options, consider what matters to you most. In some situations, you may want to buy and sell stocks on a regular basis.
These transactions can add up quickly at some brokerage firms. In other situations, you might choose an index fund with fees built-in. Either way, you'll want to find a brokerage account that minimizes fees for your investment strategy.
Many brokerage accounts are set up to let you invest with little money. Here are a couple of great options to start with:
Fidelity is one of the largest asset managers in the world, and they have been around since 1946! They offer a broad choice of investments, including stocks, mutual funds, bonds, certificates of deposits, and more.
Fidelity also offers fractional share trading, which makes investing for beginners more affordable. There are no account fees, no minimums to open, and $0 commission trades.
TD Ameritrade is another excellent option for beginner investors. They also offer low rates to start such as no commission fees, no trade minimums, no data fees, or platform fees. There are plenty of investment strategies for beginners they offer that include stocks, bonds, forex, exchange-traded funds, and more.
4. Certificates of deposits
Certificates of deposits (CDs) are good investments for beginners and a safe place to grow your money if you have a low-risk tolerance. Although you will likely miss out on bigger returns through the stock market, you won’t have to worry about any dips along the way.
5. Invest in yourself
Investing in yourself is just as important as investing in the stock market. You might choose to invest in your financial education, which could save you thousands of dollars over the course of your life.
You might choose to invest in your business, which could allow you to take control of your income. Or you could choose to invest in your health. After all, a healthy body makes life more enjoyable.
Investment strategies for beginners: Where should you invest first?
Now you know about some of the different investing options. That said if you're trying to determine where to get started with investing first, here is our suggestion.
1. Leverage tax-advantaged retirement savings accounts from your employer first
Employer-sponsored accounts are the best place to start investing money for beginners. Examples of these account types include 401k, 403b, and 457b. By leveraging tax-advantaged accounts, you can take full advantage of their tax benefits.
Basically, your contributions into your retirement account will be taken out of your paycheck before your taxes are deducted (also known as your Pretax income). As a result, the taxes on your income after these deductions (post-tax income) would be lower.
Also, these accounts offer a deferred tax benefit. This means you don't have to pay taxes on your investments until you start to make withdrawals on the accounts once you reach retirement age (age 59.5). Or at the required withdrawal age set by the IRS (age 72).
2. Setup your own IRA
Next, you can go about setting up a traditional or Roth IRA or both depending on your eligibility to save and invest even more.
If your employer does not offer any type of retirement savings plan, this is a great place to start. These account types also have their own tax advantages, which is another reason they are good investments for beginners.
3. Open your own brokerage account
Once you've leveraged the tax advantage accounts you are eligible for, you can open a regular brokerage account. This will allow you to invest any extra money you have after you have maxed out your tax-advantaged accounts.
Keep in mind that while a regular brokerage account is a taxable account, you don't have to pay any taxes until you actually sell your investments. These types of taxes are called Capital Gains Tax.
How to invest for beginners: 6 Key Tips
Investing is a great way to build a solid financial future. However, there are some pitfalls to look out for as you learn how to start investing. If you can avoid some of these mistakes, then you stand to save yourself thousands of dollars.
1. Avoid the fees (and understand them)
When you learn how to start investing and begin looking through funds to invest in, you’ll notice that each comes with a set of fees. In many cases, the fees can range from 0.5% to 2%. Although that tiny swing in percentage points might not seem like an important detail, it can make a big difference in your portfolio’s growth.
In fact, a 2% fee could add up to hundreds of thousands of dollars over the course of your investing career. When you decide to invest, you should make sure to research the fees and minimize them wherever possible.
2. Prepare with your risk tolerance in mind
When you choose to invest your money, you should assume that you might lose some of your investment along the way. The market will rise and fall.
Although it historically has risen through the years, that is not an indicator that it will continue to rise steadily. It is likely that there will be some dips along the way.
It is important to understand your risk tolerance and consider that as you invest your money. Take our quiz to gain a better understanding of your risk tolerance. Researching your investments is also key when it comes to assessing risk.
The best way to mitigate your risk in the market is diversification of your investments. You don’t want to pool all of your investments into one particular company that goes under. Learn how to start investing in stocks, bonds, mutual funds, and more.
Instead, you want your investment spread out in many sectors of the market. If one area of the market falls, then you will not be left with a sinking portfolio.
4. Rebalance along the way
When learning how to invest for beginners, you should stay on top of your investments over time. Make sure that you are still on track with your objectives and the timeline still fits into your goals. The market will rise and fall, you’ll need to rebalance to ensure that you don’t leave all of your eggs in one basket.
Automatic rebalancing can also be a great approach to ensuring your portfolio is always in alignment.
5. Don’t try to time the market
Remember, investing is a long-term strategy to build wealth. You should not try to time the market by buying low and selling high. Not even the most advanced investors can consistently beat the market. Instead of looking for short-term wins, focus on the long-term gains.
Although you won’t build wealth overnight through the stock market, you can with many years of continued investment.
6. Don’t forget about taxes
My final tip is to remember taxes when you are planning out your investments. There are different strategies that you can use to lower your potential tax burden, but they require careful planning.
If you aren’t sure about the tax implications of your situation, then consider talking to a tax professional.
What type of investment process is right for you?
No one can answer this question except for you. You need to think about how old you are, how long until you retire, and what your risk tolerance is. Beyond that, think of your personality and what makes sense for you.
Robo-advisor options are best for people who like to control their own investments and like technology. Others who prefer some guidance may want to work with a financial advisor to discuss their options. After researching, choose what you're comfortable with.
Investing for beginners: Mistakes to avoid
If you are hoping to build wealth over time, then investing is the best way to do that. But, investing comes with a series of common mistakes that many people make. Let's take a closer look below so that you can avoid them as you learn how to invest for beginners.
1. Don't wait to invest
Although it is important to educate yourself before investing, you should not wait too long to get started. With investing, you want to have the value of time on your side. The sooner you are able to start investing, your investments will have more time to grow. That time could lead to significant growth due to the power of compounding.
2. Investing money can be emotional for beginners
When you learn how to start investing, you will realize that you have some big emotions attached to your investments. After all, you are hoping that these investments will lead to a better future. And many people have a fear of loss that may make investing more challenging.
The stock market comes with highs and lows, you should be emotionally prepared to weather these storms. When the market inevitably drops, you should not pull all of your money out of the market.
Instead, you should wait until it rebounds and you are ready to make a withdrawal. However, this is easier said than done.
In order to avoid a painful experience, make sure to understand your risk tolerance before you start investing. With that, you can choose investments that are less likely to cause panic in your life. Stick to what makes you comfortable, and always make your investment decisions with a clear head.
3. Don't time the market
The goal of your investment portfolio should be building a long-term plan that aligns with your financial goals. Once you've built a long-term investment plan, then you can adjust appropriately over time.
4. Nothing happens overnight
You should not assume that your money will grow overnight when you start investing. In fact, it will rise and fall many times on the way to growth.
As you get started, realize that investing is a long-term strategy for wealth building. But it will not make you rich overnight.
These tips make investing money for beginners a breeze!
The best way to build wealth through investing is to get started as soon as possible. You can learn how to start investing today! Even if you are just starting with $20, you can build your portfolio over time.
If you want to learn more and make good investment choices, then consider taking our completely free investing course. You’ll learn more about how to start investing in stocks, how to research your investments, and how to pick the right broker for you.