Investing for Beginners: How to Start Investing in 2024

In recent times, many investment companies have created policies that make investing for beginners to invest their money. Even people with low income can now take advantage of investment opportunities, whereas in the past it was only the wealthy who could invest.

With several investment opportunities, there’s no excuse for anyone to skip out. And that is good news with the reason that investing is a great way to grow wealth.

Why is Investing Important?

Perhaps you overheard someone reminiscing about how cheap petrol and other items and services used to be. This is because inflation diminishes the value of money as years pass by.

By investing, you may resist inflation. And reduce your chances of receiving the same quantity of goods and services in the future as an individual.

Investing helps individuals to make their money work for them because of compounding.

Also, the earlier individuals start investing, the more benefit they will gain from compounding.

What Beginners Should Consider

Before beginners jump into investing, there are quite some things to think about. If you are a beginner, consider what goal you are expecting to achieve by investing within your time horizon. Alongside the length of time you have to invest before reaching that goal.

If the time horizon for your goal is too short, investing might not be a better option for you. Check out our article on how to invest in short-term or long-term goals.

Risk Tolerance and Diversification of Investment

All investments are known to have some level of risk because the market is volatile. It is important that you understand your personal risk tolerance.

This implies knowing how comfortable you are with risk or how much volatility you can handle as well.

When investing, a good rule of thumb is not to put all your hope in one dimension. Instead, diversify by spreading your money across various investments as this will help you to reduce investment risk.

This is why we outline below the use of mutual funds and exchange-traded funds as our recommended investment option. For the most part, it allows investors to purchase baskets of securities rather than individual stocks and bonds.

Types of Investment Plans

There are several types of investment plans that a beginner might want to utilize and take advantage of. Below, we’ll be talking about some of these types of investments.

1. A 401(k) or Other Employer Retirement Plan

If you have a 401(k) or another retirement plan at work. It is likely the first place you should put your money if your company matches a portion of your contributions.

This match is free of money and a guaranteed return on all your investments.

You can contribute up to $19,500 to your 401(k) (or $26,000 if you’re 50+), but this doesn’t imply you should. The beauty of a 401(k) is that it is not an investment minimum.

Moreso, you can start with as little as 1% of each paycheck. Despite this, it’s a good idea to aim to contribute at least as much as your employer can match.

For instance, a common matching arrangement is about 50% of the first 6% of your salary that you contribute.

To capture the full match in that scenario, you would have to contribute at least 6% of your salary each year. But you can still find your way into that over time.

2. Robo-Advisor

You know you’re supposed to invest, you’ve managed to scrape together a little bit of money to do so, but you would rather wash your hands of the whole situation.

The good news is that you largely can. Thanks to robo-advisors for this possibility offered. Their services manage your investments for you with the utilization of computer algorithms.

Due to low overhead, they will only charge low fees instead of human investment managers. A robo-advisor costs 0.25% to 0.50% of your account balance per year. They will allow you to open an account with no minimum.

They are a great way of investing for beginners because they often require very little money and they do most of the work for you. That doesn’t mean that you shouldn’t keep an eye on your account.

Despite being your money, you would never want to be completely hands-off, but a robo-advisor will do the heavy lifting that allows investing for beginners

Some services also give educational content and tools for investing for beginners, and a few even allow you to customize your portfolio to a degree if you determine to experiment a bit in the future.

3. Investment Apps

Several investing apps allow investing for beginners. One such is Acorns, which rounds up your purchases on a linked debit or credit card to invest the change in a diversified portfolio of ETFs.

Relative to this, it works as a robo-advisor, managing that portfolio for you.

There is no minimum to open an Acorns account of investing for beginners. However, the service will start investing for you immediately after you’ve accumulated at least $5 in round-ups. You can also make lump-sum deposits.

Another app option is Stash, which helps teach investing to beginners alongside how to build their portfolios out of ETFs and individual stocks. This service also offers a managed portfolio.

4. High-Yield Savings Accounts

Online savings accounts and cash management accounts offer higher rates of return than you may get in traditional bank savings or probably a checking account.

Cash management accounts are pretty much like a savings account-checking account hybrid. They may pay interest rates similar to savings accounts, though they are offered by brokerage firms and may come with debit cards or checks.

This kind of investing for beginners is best for short-term savings or money you may want to access occasionally or in case of an emergency or vacation fund.

In addition to this, transactions from a savings account are limited to only six per month. Cash management accounts give more flexibility and in some cases higher interest rates.

If you are new to saving and investing, a better option is to keep between three and six months’ worth of living expenses in such an account before allocating more towards the investment products.

With regards to opening a savings account, online banks always offer higher rates than what you would expect from traditional banks with physical branches.

Investment companies and robo-advisors like Betterment and SoFi offer competitive rates on cash management accounts as they offer a good option for investing for beginners.

5. Certificate of Deposit

This is a federally insured savings account that gives a fixed interest rate for a certain period.

A Certificate of Deposit (CD) is for the money you pretty much know you’ll need on a particular date in the future (e.g., a home down payment or a wedding). Common term lengths associated with this are one, three, and five years.

Therefore, if you’re trying to safely increase your money for a specific purpose within a specific time interval, CDs are a good option for you.

It is important to note that from getting your money out of a CD early, you will likely have to pay a fee. As with other types of investments, it is noteworthy not to buy a CD with money you might need soon.

CDs are sold based on term length. The best rates are found in online banks and credit unions, however. 

6. Money Market Funds

Money market mutual funds are an investment product of investing for beginners. Be careful not to get confused with money market accounts which are bank deposit accounts similar to savings accounts.

When you invest in a money market fund, be rest assured that your money purchases a collection of high-quality, short-term government, bank, or corporate debt.

Investors use money market funds to endorse a portion of their portfolio as a better safer investment than stocks, or as a holding pen for money allocated for future investment.

While money market funds are generally active, providing modalities for investing for beginners, you don’t have to expect higher returns (and higher risk) from other investments. Money market fund growth is prone to high-yield savings account yields.

Money market mutual funds can be bought directly from a mutual fund agency or a bank. However, the broadest selection is only available from an online discount brokerage.

7. Government Bonds

A government bond is a loan that accrues from the borrower to a government entity like the federal or municipal government.

They pay investors interest on the loan over a particular period, basically one to 30 years.

In exchange for your safety, you will not see a high return on government bonds as with other types of investments.

If you were to have a portfolio of 100% bonds (uncommon to a mix of stocks and bonds), it would be very hard to hit your retirement or long-term goals.

8. Corporate Bonds

Corporate bonds operate in the same way as government bonds if only you are making a loan to a company, but not to the government.

As such, these loans are not endorsed by the government, thus making them a riskier option.

Investors seeking fixed-income security with much higher yields from the company than government bonds will be capable of taking on a bit more risk in return.

With Corporate bonds, the higher the likelihood the company will go out of business, the higher the yield. Conversely, bonds offered by large, stable companies will generally have a lower yield.

However, it would be up to the investor to find a risk/return balance that would work for them.

Similar to government bonds, you can buy corporate bond funds or individual bonds via an investment broker.

9. Mutual Funds

This is a mutual fund that pools cash from investors to buy stocks, bonds, or other assets. Mutual funds give investors a platform to diversify and spread their money across various investments.

The is a set designed to hedge against any single investment’s losses.

If you’re saving for retirement or probably another long-term goal, mutual funds are a convenient way to get along with it. Thus getting exposure to the stock market’s superior investment returns without having to buy and manage a portfolio of individual stocks.

Some funds reduce the scope of their investments to companies that meet certain criteria, such as companies in the biotech industry, technology, or corporations that pay high dividends. This will allow you to focus on certain investing niches.

Mutual funds are available directly from the companies that manage them, including discounted brokerage firms. Almost all of the mutual fund providers we review offer no-transaction-fee mutual funds (which means no commissions) as well as tools to help you pick funds.

Be conscious that mutual funds require a minimum initial investment ranging from $500 to thousands of dollars, though some providers and agencies will waive the minimum if you agree to set up automatic monthly investments.

10. Index Funds

An index fund is a type of mutual fund that endorses the stocks in a specific market index (e.g., the S&P 500 or the Dow Jones Industrial Average).

The goal is to provide investment returns that equal the underlying index’s performance which would not be for an actively managed mutual fund that pays professionals to curate a fund’s holdings.

Index mutual funds are some of the best investments available for long-term savings goals.

According to Fernandez, young investors who can emotionally weather the market’s ups and downs could even do well to invest their entire portfolio in stock funds in the early stages.

11. Exchange-traded funds (ETFs)

ETFs are much like mutual funds in the sense that they pool investor money to purchase a collection of securities, providing a single diversified investment. Investors get to buy shares of ETFs just like they would buy shares of an individual stock as well.

Just like index funds and mutual funds, ETFs are a good investment depending on whether you have a long time horizon.

Notwithstanding, ETFs are ideal for potential investors who don’t have enough money to meet the minimum investment requirements for a mutual fund for the reason that an ETF share price may be as much lower than a mutual fund minimum.

ETFs have ticker symbols just like stocks and are available via discount brokerages. It is worthy of note that Robo-advisors also use ETFs to construct client portfolios.

12. Dividend Stocks

Dividend stocks can offer fixed income of bonds as well as tremendous growth of individual stocks and stock funds.

Dividends are frequent cash payments companies that pay to shareholders and are oftentimes associated with stable, profitable companies.

While the share prices of many dividend stocks may not increase as high or as quickly as many growth-stage companies.

Some, Dividend Stocks, may be attractive to investors due to the dividends and stability they provide.

Any investor, ranging from first-timers to retirees, opts into this kind of investing.

Young investors, for example, may do well to look into dividend growers, which are companies with a strong track record of consecutively increasing their dividends.

These companies may not have high yields as their policy for investing for beginners, but if their dividend growth keeps up, they could offer this in the future.

Over some time, combined with a dividend reinvestment plan, it can result in returns that reflect those of growth stocks that do not pay dividends.

Older investors seeking more stability or fixed income can consider stocks that pay consistent dividends.

In a shorter timeline, reinvesting these dividends is not a guaranteed goal; instead, it takes dividends as cash that could be part of a fixed-income investing plan. The easiest way to buy dividend stocks is via an online broker. 

13. Individual Stocks

The stock represents a share of ownership in a company. Stocks give the largest potential return on your investment while exposing your money to an increased level of volatility.

Investors with a well-diversified portfolio who are willing to take on a little more risk. Due to the volatility of individual stocks, a good rule of investing for beginners limits their stock holdings up to about 10% or less of their overall portfolio.

The easiest way to buy stocks is through an online discount broker or its alternatives.

14. Alternative Investments

If you are not investing in stock, bond, or cash equivalent instruments, there is a good opportunity for your investment to be part of the alternative asset class.

This type of investment includes cryptocurrencies like Bitcoin and Ethereum, private equity, gold and silver, hedge funds, and even coins, stamps, alcohol, and art.

Alternative investments rose to fame in the years following the Great Recession, when both stockholders and bondholders saw their savings drop significantly.

Gold prices, for instance, surged in 2011, hitting highs that were not toppled until August 2020. But this is par for the course in alternative investments, as these often unregulated instruments are rife with volatility.

It also endorses investors who would want to diversify from traditional investments and hedge over stock and bond market downturns.

While some online brokers will offer access to lucrative alternative investments, most of them will offer alternatives that are available only via private wealth management firms.

However, ETFs such as gold and private equity ETFs are made available to track the asset itself, as well as companies revolving around the asset including gold mining and refining companies.

15. Real Estate

Traditional real estate investing encompasses buying a property and selling it later for a profit, or probably owning properties and collecting rent as a fixed income. But there are other, far more hands-off ways to invest in real estate.

One common option is through real estate investment trusts or REITs. These are companies that own income-generating properties (think malls, hotels, offices, etc.) and offer regular dividend payments.

Real estate crowdfunding platforms, which often pool investors’ money to invest in real estate projects, have also risen in popularity in recent years.

Investors who already have a healthy investment portfolio and are seeking further diversification or are willing to take much higher risks to yield higher returns.

For the reason that real estate investments are highly illiquid, investors should not put any money into an investment they may need to access quickly.

Some REITs can be bought on the public stock market via an online stockbroker, while others are only made available in private markets.

Similarly, some crowdfunding agencies are open to accredited investors only, while others are always open to any investors not putting restrictions on who can invest.

What are the Principles of Investing

In the finance world, the market is used to refer to a place where you can buy and sell shares of stocks, bonds, alongside 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. Big-name firms like Schwab and Fidelity will let you do this similarly to how you’d open a bank account.

To fully understand the principles of investing for beginners, it is also important to outline stocks and bonds as publicly traded companies that utilize the market to raise money for their operations alongside growth.

When a company gives bonds on the market, they are generally asking investors for loans to raise money for their organization. In this case, the investors buy the bonds, then the company pays them back in addition to a percentage of interest over time.

Stocks, on the other hand, are small pieces of equity in a company. When a company goes from private to public, its stock can be certainly bought and sold on the market. This means that it is no longer privately owned.

A stock price is basically reflective of the value of the company, though the actual price is determined by what market participants can pay or accept at any given time.