Investing for Beginners 101: A Simple Guide to Getting Started 📈
Updated: Sep 15
When you think of investing, do you picture Wall Street? Do you think of huge, unimaginable sums of money? Are you under the assumption it’s only for “some people”?
The truth is, investing is for everyone — regardless of age, gender, profession, net worth, or any other factor.
Investing is often an efficient way for anyone to build wealth. Even the most diligent savers might struggle to save enough for retirement, not to mention the fact that savings won’t keep pace with inflation. Investing is a way to make your money work for you.
The key factor in investing is time - the longer you invest, the better. This means there’s no better time than the present to get started, so read on to learn about investing for beginners 101.
What to Consider Before Investing
You may not ever feel totally ready to invest, but that shouldn’t keep you from starting. Like many other things in life, you’ll learn by doing.
However, there are a few things — like your goals, risk tolerance, and time horizon — you’ll want to consider before you start investing.
Just like with many other financial strategies, investing works best when you start with your goals. To invest wisely, you need to understand what you’re working toward.
Have you considered both short and long-term investing goals?
At what age would you like to retire? The traditional 65 or do you want to work toward early retirement at age 40?
What kind of life do you want to live when you retire?
Do you want to buy a house, and if so, when?
Knowing what your goals allow you to invest appropriately for the future you want.
Risk tolerance is just what it sounds like — the level of risk you’re willing to take. When it comes to investing, some asset classes are riskier than others. Usually, where there’s a bigger risk, there’s a bigger return.
Investing is inherently risky, but how you invest should correspond to how much risk you’re willing to take. It’s important to choose an investment allocation that aligns with your risk tolerance.
Your time horizon is the amount of time you have before you need the money from your investment. Your goals and your age usually determine your various time horizons.
Your time horizons will influence the types of investments you buy. The longer your time horizon, the more risk you can afford to take in your investments.
Types of Investments
There are seemingly endless ways to invest. You can invest in your workplace retirement plan, open a 529 college savings plan, invest in a brokerage account, and buy real estate — and these are just the tip of the iceberg.
Below is an introduction to some of the most popular types of investments:
Stocks are one of the most popular asset classes. Stock, also known as equity, is a share of a company. When you buy a share, you’re essentially buying ownership in that company. Depending on the company’s performance, your share in the company will either go up or down in value. Stocks are generally one of the riskier investment classes, but they can provide generous returns.
A bond is another common type of investment. It can be thought of as a loan — from an investor to a borrower — that’s paid back when the bond reaches maturity. Governments and corporations often use bonds to fund large, expensive projects.
Bonds typically deliver smaller returns than stocks, but they’re considered a less risky investment. That’s because as a bondholder, you’re promised you’ll receive the money you loaned, plus any interest.
A mutual fund is a pooled investment vehicle that invests money from various shareholders in things like stocks, bonds, and other assets. In other words, a mutual fund allows individual shareholders to pool their assets to invest in a diversified portfolio.
A mutual fund is managed by a professional fund manager, who determines the fund’s asset allocation. Mutual funds have higher fees than similar investments because they’re professionally managed.
Exchange-Traded Fund (ETF)
ETFs are similar to mutual funds in that they’re another pooled investment that can include stocks, bonds, and other investments. There are a few key differences, however: ETFs, unlike mutual funds, can be traded on a stock exchange. ETFs don’t require a fund manager, so they’re typically less expensive than mutual funds. Like mutual funds, ETFs allow investors too easily diversify their portfolios.
Cryptocurrency is still a relatively new type of investment. It’s a digital asset that you can use over the internet in several ways — to buy goods and services, to invest, and to trade.
A cryptocurrency is a decentralized form of money, meaning a central government or authority does not control it. Instead, it uses a technology known as blockchain to make secure transactions without the need for a third party, like a bank. In general, cryptocurrency is a risky and highly volatile investment.
Investing for Beginners 101
As I mentioned before, your investment strategy will depend on things like your goals, risk tolerance, and time horizon. But that’s not to say there aren’t some general rules that many experts agree serve everyone well.
Investing tips for beginners
Don’t invest in what you don’t understand: It’s impossible to weigh the risks of an investment if you don’t understand what it is or how it works. You can always research to learn more about an investment, but you should always do this before investing.
Consider investment fees: There are several types of fees associated with investing, including broker fees, expense ratios, and trading fees. Keep these fees in mind, and try to avoid investments with high fees to get the most from your investments.
Remember investing is a long-term strategy: It’s hard to stay calm when the market suddenly drops. But keep in mind that investing is a long-term strategy, and the best thing you can do is stay the course.
Investing resources for beginners
With all this new information, where do you begin? First things first, get the resources you need to feel comfortable investing.
Start online. Learn about specific investment vehicles and asset classes on websites like Investopedia.com or Nerdwallet.com. There’s a lot of free information out there for you to educate yourself on all things investing.
Sometimes, though, you need a professional to help you feel comfortable. A financial coach (like myself) or financial advisor can help you get started.
If you’re just getting started investing and want to learn more about the basics, a financial coach is probably a better fit. On the other hand, if you have a lot of assets and want help making specific investment decisions, think about hiring an advisor.
Work With a Financial Coach to Get Started
Investing can seem intimidating before you get started, but it’s nothing to be scared of. With a little knowledge, guidance, and willingness to get started, you can start building wealth through investing.
At Wealthly, I help individuals and couples build healthy money habits that help them achieve their goals. To see if we can help you get started investing, email me at firstname.lastname@example.org or schedule your 1:1 session here. We’ll be in touch soon!
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.