How to Invest Money: A Beginner’s Guide 2024

Investing your money in the stock market can result in an excellent return, which is why so many people choose this route to reach their long-term financial goals. But investing can seem scary and intimidating, especially to first-time investors. Luckily, there are several options considered the best investments for beginners that suit a range of goals, budgets, and comfort levels. This guide will cover the most common options, but a financial advisor can help you identify your best options and provide support while you navigate your first investments.

Best investments to get started

Just getting started with investing 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 but are nervous about investing, consider opening a high-yield savings account. An HYSA offers a much higher APY than a traditional savings account, which allows you to maximize your return on your money without the risk of investing it.

While you are shopping around to find the best HYSA, keep in mind that other factors should be considered in addition to the APY offered. Read the terms of each HYSA you’re considering carefully, looking for information about minimum balances or annual fees to help you 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), you will have a certain percentage of your pay held back as a contribution—it can be pre-tax or post-tax, depending on the type of account. A traditional 401(k) contribution is pre-tax, which will decrease your taxable income but means you’ll pay taxes when withdrawing funds at retirement. Contributions for a Roth 401(k) are taxed upfront, which means you won’t owe taxes on your money when you reach retirement age.

Your employer may offer a matching contribution up to a certain percentage of your salary—for example, if you make $50,000 and your employer offers a 100 percent match for the first 6 percent you contribute, your employer will contribute $3,000 per year, provided you also contribute at least that amount. The maximum employee contribution amount for the 2023 tax year is $22,500.

If you are self-employed or your employer doesn’t offer a 401(k), look into the following options:

• Traditional or Roth IRA
• SEP IRA
• Simple IRA or Simple 401(k)
• Solo 401(k)

3. Short-term certificates of deposit (CD)

A certificate of deposit is a type of savings account that offers a higher APY than a traditional savings account. With a CD, you deposit a lump sum of cash for an agreed-upon time frame. During the account term, you cannot access the funds without paying a penalty. Once the CD reaches maturity, you can withdraw or deposit the funds into a new one.

The best CD rates usually offer APYs starting from 4.50%. CD terms range between 6 months and 5 years. Longer-term CDs usually have a higher APY. CDs from federally insured banks are covered up to $250,000 per customer. Discover’s bank currently offer CDs Up to 4.70%.

4. Money market accounts (MMA)

Another low-risk option is a money market account – another type of savings account with a higher APY than a traditional one. The best money market accounts have additional benefits, such as a debit card or check-writing capabilities, which means you can access the money when needed. Quontic Bank offers a competitive money market account option that allows for easy access to your funds through a debit card or check-writing capabilities, while also earning a higher Annual Percentage Yield (APY) than a traditional savings account for low-risk saving.

5. Mutual funds

Rather than putting your money into individual funds, consider investing in a mutual fund. A mutual fund is a group of investments you buy a share of, and a manager determines where to invest the money. This helps you diversify your investments and avoid putting all your eggs in one basket. When you’re young, you’ll likely have more money in stocks, which are higher risk but have a more considerable long-term earning potential. As you near retirement age, your investment mix will change to mostly bonds, which are lower risk and can help guarantee you’ll have a steady income at retirement. Choosing a target-date mutual fund allows you to determine your retirement date so that the fund will focus mainly on stocks when you’re younger and move toward bonds as you creep closer to retirement.

6. Index funds

Index funds are similar to mutual funds. However, rather than a manager determining where to invest the funds, an index fund will invest money within a specific market index. For example, an S&P 500 index fund would purchase stocks within this market index, which includes around 500 of the best-performing index funds in the U.S. Index funds often have a minimum investment requirement. However, some well-known brokerage platforms, such as J.P. Morgan Self Directed Investing*, generally allow you to invest money in an index fund without a minimum (and you can earn up to $700 when an account is opened and funded with a J.P. Morgan Self-Directed Investing).

7. Exchange-traded funds (ETFs)

Exchange-traded funds, or ETFs, are similar to index funds that track a specific market index like the S&P 500. The difference is that ETFs are bought and sold throughout the day, and investors buy them for a fluctuating share price—just like individual stocks on a stock exchange. ETFs are typically cheaper to purchase and manage than mutual funds; some brokerage firms offer them at $0 commission.

8. Stocks

Investing in individual stocks can be risky—but it can pay off in the long run if you do it right. When you buy stocks, you’re essentially buying an ownership stake in a business. By purchasing stock at the right time (such as when a business is just starting out and shows a lot of potential), you can grow your wealth alongside the company. If you’ve never purchased stock before, it can seem intimidating; however, you can use paper trades to practice investing in stocks. Paper trades allow you to learn how to invest in stocks risk-free since you don’t actually use any money, so by the time you’re ready to invest you’ll be comfortable with the process.

As you’re starting out, you may want to try some of the electronic tools that let you test out the market at a low cost.

Robo-advisors

A robo-advisor is an algorithmically powered advisor that invests money on your behalf based on your goals. This option lets you be hands-off with your investing, making them ideal for first-time investors. Robo-advisors charge a lower commission than a traditional advisor or broker, making them ideal for beginners. For example, M1 Finance automates your wealth in one place that’s accessible via website or app. You will identify your goals and make your own financial decisions, and M1 Finance will automate your strategy to help you reach those goals. M1 doesn’t charge any monthly fees, but it does have a minimum balance fee of $50 and will charge for paper copies of tax documents, statements, and other documents. You’ll also pay regulatory expenses, which are typically just a few pennies when you sell a stock or an ETF.

Investment apps

Another good option for beginners are investment apps. Using these apps, you can deposit money by scheduling recurring transfers or linking your debit or credit card and rounding up. Here are a few recommendations.

Acorns allows you to connect your card and automatically round up transactions to the nearest dollar, depositing the change in your account. Once you reach $5, the app acts as a robo-advisor and invests your money in ETFs. It’s a hands-off approach that works well if you’re looking to dip your toes in and try out investing without committing a large sum of money.

Tradestation Trading Platform, which is renowned for its comprehensive suite of advanced trading tools, comes at a $0 account minimum requirement, and $0 per trade up to 10,000 shares.

For those interested in investing in art, Masterworks provides a well designed and easy to use platform with good investment research on artworks and the contemporary art market at no minimum investment and a 1.5% annual management fee (plus 20% of any profits). Although beginners need to bare in mind that fine art is a high-risk investment compared to other forms of investments, with no recurring income, and a significant waiting period to see any return, there is a potential for high returns, it enables portfolio diversification, in addition to being a tax-advantaged investment.

Brokerage firm

If you don’t like the idea of using an app or a robo-advisor, consider working with a stockbroker through a brokerage firm. While an investment website can only offer limited options, a live broker can help you determine the best places to invest based on your goals. They can also advise you on the best types of investments for you, and then keep track of those investments and advise you about buying or selling stocks. This service comes at a price, though; stockbrokers typically make commission on their clients’ transactions. Ask about a brokerage firm’s profit model and commission percentage before hiring them so you can estimate how much you’ll pay.

Key considerations for beginners

Knowing your options is one thing, but you might still wonder how to start investing your money. Before beginning your investing journey, take the time to consider your short- and long-term financial goals, your risk tolerance, and the amount of money you have to invest.

Determine your goals

What do you want to achieve with your investments? Are you saving for retirement or a significant expense, such as a down payment on a home or a new car? Determining your goals and whether they are short-term or long-term will help point you in the right direction. For example, if you want to maximize your long-term earnings to ensure a comfortable retirement, consider looking into mutual funds or IRAs. But if you have a short-term goal, such as a dream vacation you’re planning in two years, stashing your money in a CD could be a better option.

If you’re unsure of your goals, a financial advisor can help point you in the right direction. Ask friends or family members for recommendations, or use a tool such as WiserAdvisor to find the right financial advisors to help you identify and reach your goals.

Consider your risk tolerance

When you first start investing, you might be nervous that you’ll lose a chunk of money if you invest in the wrong stocks. That’s why it’s essential to consider your risk tolerance. Low-risk investments like HYSEs, CDs, or MMAs are good options because they give you a guaranteed return on investment. However, if you stick with these low-risk options, you stand to make much less money over time than if you invested in the stock market. A financial advisor can help guide you toward investments that match your risk tolerance level.

Consider minimum amounts

The minimum investment amount will depend on your choice of investment vehicle. Luckily, you can start investing in stocks with a relatively small amount of money—possibly as little as $10 with some brokerages. Ask about minimum investment amounts as part of your research to ensure the option you choose doesn’t require you to deposit more money than you’re comfortable with.

Diversify your investments

When you invest your money, it’s essential to cast your net wide. Throwing all your money into one company’s stock might seem like a good move, but if that company’s stock prices fall, your investment will quickly lose its value. Investing in index funds, or ETFs, allows you to diversify your investments, which is a much safer bet in the long run.

Picking the right diversification strategy can be tough for beginners, but YieldStreet offers tools and educational content to guide you. Another excellent platform to use if you are retiring and want diversify your assets is Rocket Dollar, or Masterworks if you are interested in investing in fine arts.

How to pick the best investment vehicle as a beginner

Deciding on the best investment vehicle can be tricky, even if you think you understand your options. Once you’ve identified your goals and risk tolerance, consider consulting financial advisors to point you in the right direction. They can use their experience and knowledge of the stock market to help you identify the best options for your money.

Make your move

The best investment options will be different for everyone. That’s why it’s important to learn about your options and consider the ones that will help you meet your financial goals. Speaking to a professional can help guide your decision, but you must make the final call based on your comfort level.

Frequently asked questions (FAQs)

You probably have many questions if you’re looking into the best investments for beginners. The following are a few common questions about investing that can help you understand how to make the best financial decisions.

How can I make money without investing in stocks?

If you don’t want to invest your money in the stock market, you have several options to get a return on your money. The lowest-risk options include a high-yield savings account, certificate of deposit, or money market account. You can also look into purchasing real estate as an investment, buying into a franchise, or even investing in precious metals like gold or silver. However, these options require a substantial sum of money before investing, whereas you can open an HYSE, CD, or MMA with a smaller cash deposit.

What are non-financial investment types?

When considering the best place to invest your money, you might come across the term “non-financial assets.” This term refers to an asset, such as land or real estate, that isn’t traded on the stock market. Other examples include investing in natural resources or patents.

What are the best low-risk investments?

The best low-risk investments are not technically investments at all. Putting your money into a high-yield savings account, certificate of deposit, or money market account will get you a better return on your money than a traditional savings account. However, you won’t get as high a return on your investment by stashing your money into one of these options as you would be likely to get by investing it. Speaking to a financial advisor can help you decide which option will get you the most for your money while giving you peace of mind that you won’t lose everything if the market crashes.

*INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE