Do you keep your money in a savings account? You may feel like you’re playing it safe, but depending on interest rates and inflation, savings alone may not always keep up over time. Investing can be one way to put your money to work by potentially earning interest, dividends, or appreciation if you qualify and complete the required steps.
If you’ve never invested before, it can feel intimidating. With the right approach, many beginners are able to start exploring short- and long-term investment options. It doesn’t necessarily take thousands of dollars to begin—some platforms allow you to start with relatively small amounts, depending on eligibility and account requirements.
What Is Investing?
When you invest, you use your money to purchase assets that may increase in value over time. Any increase in value or income generated may represent a return, but gains are not guaranteed and losses are possible. Investments can include physical assets, like real estate, or financial assets such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
Different Types of Investments
We’ve touched on several investment types above. Here’s a closer look.
Mutual Funds
A mutual fund pools money from multiple investors and is managed by a professional. The fund invests in a range of securities, which may provide diversification through a single investment. Some mutual funds distribute dividends or capital gains if you qualify and complete the holding requirements. The value of mutual fund shares can go up or down based on the performance of the underlying investments.
Bonds
When you purchase a bond, you’re generally lending money to a company or government entity in exchange for interest payments. U.S. Treasury bonds, such as T-Bonds, are often considered lower risk, though they typically offer lower potential returns. Many bonds pay a fixed interest rate if held to maturity, but market values can fluctuate before then.
Stocks
Buying stocks means purchasing shares of a company. Some companies may pay dividends to shareholders if you qualify and complete the applicable holding period. Stock prices can rise or fall based on company performance and market conditions. Selling a stock for more than you paid may result in a gain, while selling for less may result in a loss.
Real Estate
You can invest directly in real estate by purchasing property, though this often requires significant capital, time, and ongoing management. Another option is real estate funds or ETFs, such as those offered by Fundrise or a Real Estate ETF. These investments pool money across multiple properties, which may offer diversification. Returns, including dividends, depend on performance and are not guaranteed, and share values may change over time.
How to Start Investing
When you’re ready to explore investing, consider the following steps.
Choose Your Approach
Decide whether you want to manage investments yourself, use a robo-advisor, or work with a broker. Some people start small to learn how different options work. Robo-advisors, such as Betterment or WealthSimple, typically allocate investments based on information you provide, for a fee. Brokers may offer personalized advice, often for a commission or percentage of assets.
Open Your Account
Once you choose an approach, you’ll need to open and fund an account. If you invest through an employer-sponsored retirement plan, such as a 401(k), review contribution limits and any employer match, which may be available if you qualify and complete enrollment requirements. For personal accounts, you can usually start with an amount that fits your budget.
Make Adjustments Over Time
As you gain experience, you may choose to adjust your investment mix. This could include changing contribution levels or reallocating assets based on your goals, time horizon, and risk tolerance. There’s no requirement to take on more risk, and changes should reflect your personal situation.
Goal Setting – Risk vs. Reward
All investments involve some level of risk. Higher potential returns often come with greater risk of loss. Many investors aim to balance risk and reward by choosing investments that align with their goals and comfort level, rather than focusing solely on maximum returns.
Diversification – Why It Matters
Diversification means spreading your money across different investments instead of concentrating it in one place. This approach may help reduce the impact of poor performance in any single investment, though it does not eliminate risk. Mutual funds, ETFs, and robo-advisors often include diversification by design.
Hands-On vs. Hands-Off Options
Consider how involved you want to be. Hands-on investing requires making active decisions and monitoring performance, which can influence results. Hands-off options, such as mutual funds, target-date funds, or ETFs, typically require fewer ongoing decisions, though performance still varies with market conditions.
Maintaining and Adjusting Your Investments Over Time
Investment strategies often change as life circumstances evolve. Income changes, family needs, and time until retirement can all influence how you invest. Younger investors may choose growth-oriented strategies, while those closer to retirement often prioritize stability, though no approach guarantees specific outcomes.
Explore Your Options
Investing doesn’t have to be all or nothing. Starting with a small amount can help you learn how different investments work. Returns are not guaranteed, and growth takes time, but exploring your options can help you decide what approach feels right for you now and in the future.