Investing your money in the stock market can lead to excellent returns, helping you achieve your long-term financial goals. However, the world of investing can seem intimidating, especially for first-time investors. The good news is that there are several options considered the best investments for beginners. These options cater to different goals, budgets, and comfort levels. In this guide, we will cover the most common options, but it’s important to note that a financial advisor can help you navigate your first investments and identify the best options for you.
Best Investments to Get Started
Are you just starting and wondering how to earn money on your savings? Here are a few ways to get started:
1. High-yield savings account (HYSA)
If you want higher returns on your money without the risk of investing, consider opening a high-yield savings account. HYSA offers a much higher Annual Percentage Yield (APY) than traditional savings accounts, allowing you to maximize your return on investment. When choosing an HYSA, it’s essential to shop around and compare different financial institutions. Look for information about minimum balances or annual fees to find the best option for you.
2. 401(k)
Many U.S. employers offer a 401(k) retirement plan as part of their benefits package. With a 401(k), a percentage of your pay is deducted as a contribution, either pre-tax or post-tax, depending on the type of account. Your employer may also offer a matching contribution up to a certain percentage of your salary. If your employer doesn’t offer a 401(k), there are other options like Traditional or Roth IRAs, SEP IRAs, Simple IRAs, or Solo 401(k)s for self-employed individuals.
3. Short-term certificates of deposit (CD)
Certificates of deposit offer a higher APY than traditional savings accounts. With a CD, you deposit a lump sum of cash for a specific time frame. During this period, you cannot access the funds without paying a penalty. CD terms range from 6 months to 5 years, and longer-term CDs usually offer higher APYs. Look for CDs from federally insured banks, which are covered up to $250,000 per customer.
4. Money market accounts (MMA)
Money market accounts are another low-risk option with a higher APY than traditional savings accounts. MMAs offer additional benefits such as a debit card or check-writing capabilities, allowing easy access to your funds when needed.
5. Mutual funds
Consider investing in mutual funds, a diversified group of investments managed by professionals. Mutual funds help you spread your investments across different assets, reducing risk. As you approach retirement age, your investment mix can shift towards bonds for steady income.
6. Index funds
Similar to mutual funds, index funds invest money in a specific market index, such as the S&P 500. Index funds often have a lower-cost structure and can be a good option for beginners.
7. Exchange-traded funds (ETFs)
ETFs are bought and sold throughout the day like individual stocks, but they track specific market indexes. ETFs are typically cheaper to purchase and manage than mutual funds.
8. Stocks
Investing in individual stocks can be risky but potentially rewarding in the long run. By purchasing stocks, you become an owner of a business, and if the company performs well, your investment grows. However, it’s essential to research and practice before investing in stocks. Online tools and paper trades can help you get comfortable with the process.
Robo-advisors
Robo-advisors are algorithmically powered platforms that automate your investments based on your goals and risk tolerance. They charge lower fees compared to traditional advisors or brokers, making them ideal for beginners.
Investment apps
Investment apps provide an easy and accessible way to start investing. Apps like Acorns, Tradestation Trading Platform, and Masterworks allow you to invest small amounts and automate your investments.
Brokerage firm
Consider working with a stockbroker through a brokerage firm for personalized investment advice. Stockbrokers can guide you on the best investment options based on your goals, but it’s important to understand their commission structure beforehand.
Key Considerations for Beginners
Before beginning your investing journey, consider these key factors:
Determine your goals
Identify your short- and long-term financial goals to guide your investment choices. Whether it’s retirement savings or saving for a significant expense, aligning your investments with your goals is crucial.
Consider your risk tolerance
Assess your comfort level with risk and choose investments accordingly. Low-risk options like HYSEs, CDs, or MMAs offer a guaranteed return on investment, while higher-risk options like stocks can provide higher returns over time.
Consider minimum amounts
Different investment vehicles have varying minimum investment amounts. Research and choose options that align with your budget and investment capacity.
Diversify your investments
Diversification is key to managing risk. Spread your investments across different assets to minimize the impact of a single investment’s performance on your overall portfolio.
How to Pick the Best Investment Vehicle as a Beginner
Identifying the best investment vehicle can be challenging, especially for beginners. After considering your goals and risk tolerance, seek advice from financial advisors to guide your decision. Their expertise and market knowledge can help you make informed choices.
Make Your Move
The best investment options vary for each individual. Educate yourself about the available options and choose investments that align with your financial goals and comfort level. While professional guidance is valuable, the final decision rests with you.
Frequently Asked Questions (FAQs)
If you have questions about investing, here are a few common ones:
How can I make money without investing in stocks?
Apart from stocks, there are other options like high-yield savings accounts, certificates of deposit, money market accounts, real estate, franchises, and precious metals that can provide returns on your money. Each option has its own risk and return profile.
What are non-financial investment types?
Non-financial investments refer to assets like real estate, natural resources, or patents that are not traded on the stock market. These investments offer alternative ways to grow your wealth.
What are the best low-risk investments?
Low-risk investments include high-yield savings accounts, certificates of deposit, and money market accounts. They offer a guaranteed return on investment, but with potentially lower returns compared to riskier investments.
Remember, investment and insurance products come with their own risks. It is always important to conduct thorough research and seek professional advice before making any investment decisions.
So, if you are a beginner looking to enter the world of investing, consider these options and start building your financial future with confidence!