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If you’re curious about investing but have yet to start, you’re not alone. Taking the plunge may be the hardest part.

The world of investing is broad, and at times, it can feel complicated. As much as you may read and research, it’s natural to end up with unanswered questions about investing.

For answers, you can scour the internet for articles, but it can be hard to know where to go and whom to trust. That’s where a trusted financial advisor comes in.

Getting Started With Investing

To begin your investment journey, you need to understand basic information about the process. That can help you feel secure and comfortable enough to take the first concrete step.

For instance, you’re probably wondering about such things as, how much money do I need to invest? And what basic investments are right for me?” Read on to learn the answers to these investing questions and more.

6 Investing Questions to Ask Yourself

As you begin your investment journey, the following 6 questions to ask about investing can help you figure out how much to invest as well as investment options you may want to look into.

1. What’s a Good Amount of Money to Start Investing?

Great news: Investing in your future is no longer an activity reserved for the wealthy. You can get started easily with active investing, even without much in your pocket.

When you’re an investor starting with a small amount, say $10 or $100, it may be a good idea to look for banks or online stock trading platforms that offer free accounts, no account and investment minimums, and no trading costs. SoFi Invest® is one such option.

By starting early, and choosing certain types of investment or savings accounts, such as money market accounts, high-yield savings accounts, and CDs, you may be able to take advantage of the power of compounding. Compound interest is the phenomenon of earning interest on your interest. Essentially, the way it works is that the interest you earn is added to the principal balance in your account, and the new higher amount earns even more.

So, if you invested $1,000 in a money market account and earned $20 in interest, your principal balance becomes $1,020, and that new higher amount earns even more interest. Compound interest may help your money grow.

That said, it may be worth setting up a secure emergency fund before you start investing. An emergency fund is often held in cash separate from your checking account, preferably in an accessible, FDIC-insured savings account.

It’s recommended to save between three to six month’s worth of expenses before investing. (One exception? Take advantage of your company’s 401(k) match, if you have one.)

2. I Only have $30 In My Bank Account — Can I Invest?

First, do you have an emergency fund?

Falling within $30 of a zero-dollar bank account at the end of the month may mean there’s not enough extra for unexpected emergencies and incidentals.

What happens if you get hit with an unforeseen medical bill? Or your car breaks down? It’s helpful to have a cash cushion to weather any storms — and avoid going into credit card debt to cover unexpected costs.

You might consider spending some time building up your cash reserves. As mentioned above, three months of expenses is a good start. But you may want to increase this amount to six months or more.

And once you’ve secured a minimum of three months’ expenses in an emergency fund, it may be time to consider your next money moves.

A great next step is to determine if your employer offers a 401(k) match. Even if you’re only able to invest 1% of your salary, your employer may match with an additional 1% — an immediate 100% return on your investment.

Don’t have a 401(k)? In that case, it may be wise to avoid wasting precious resources on the fees and costs of investing when you’re starting with small amounts, like $30. Instead, work on that emergency fund.

3. What Are My Investment Options With $10,000?

With that amount of money, it can be wise to consider a diversified investment strategy.

Diversification is the practice of allocating money to many different investment types. Big picture, this means investing in multiple different asset classes like stocks, bonds, cash, and real estate. Next, an investor might consider diversifying within each category. With stocks, investors might consider companies within different industries and countries of origin.

One way to diversify is with a portfolio of low-cost index funds, whether index mutual funds or exchange-traded funds (ETFs). For example, you could buy an S&P 500 index fund that invests in 500 leading companies in the United States across many industries. This way, you may eliminate the risk of investing in only one company or in one industry.

Once you’ve established a diversified strategy with the majority of your funds, you might consider buying a few individual stocks. Bear in mind that stock-picking is hard work and requires hours of research — and a ton of luck. Therefore, you may not want to use more than $500 (5% of your $10,000) on individual stocks.

4. Are ETFs or Mutual Funds Better For Beginner Investors?

ETFs vs. mutual funds are similar in that they each bundle together some other type of investment, such as stocks are bonds.

They also have some important differences. ETFs trade throughout the day, like a stock. Mutual funds trade once per day.

Here’s an important question: What is the strategy being used to invest within the fund? Funds, both mutual funds and ETFs, come in two varieties: actively managed and index. (Currently, many ETFs are index, though there are actively-managed ETFs.)

An actively-managed fund typically has higher costs, while an index fund aims to invest in the market using a passive strategy, usually at a low cost. (Not sure of the cost? Look for a fund’s annual fee, called an expense ratio.)

They’re called index funds because they track an index that aims to measure market performance. For example, the S&P 500 is an index designed for the sole purpose of tracking U.S. stock market performance.

But, it is possible to buy an index fund that mimics the S&P 500 — and this can be done via either an ETF or an index mutual fund.

Considering that it’s possible to buy ETFs and index mutual funds that accomplish the same exact thing, you may want to consider the following: 1) Which do you have access to and 2) Which option is lower-cost?

For example, if you only have access to index mutual funds in your 401(k), that may be the direction to go in.

5. Should I Open a Traditional IRA or a 401(k)?

If your employer offers a 401(k) and contributes matching funds, it likely makes sense to join the plan. A 401(k) allows you to make contributions that may reduce your taxable income. You can have the contributions automatically deducted from your paycheck, which makes it easy. And if you leave your job, you can roll over the IRA to another plan.

In addition to your 401(k), you can absolutely consider opening another investment account like a traditional IRA.

However, as an active participant in your 401(k), your ability to contribute to a traditional, tax-deductible IRA depends on your income level. If you are already covered by a workplace retirement plan, the IRS allows you to deduct the full amount ($6,500) only if you earn less than $73,000 as a single person and $116,000 if you file taxes jointly.

You might have better luck with a Roth IRA, which has different taxation and rules for use than a Traditional IRA. Unlike a 401(k) and Traditional IRA, Roth IRA contributions are not tax-deductible.

Although you don’t get a tax break now, you won’t pay taxes on it when you pull the money out in retirement. You can contribute the full amount to a Roth IRA if you earn less than $138,000 as a single filer or $218,000 for joint filers.

If neither of these options work, you can always open up a brokerage account with an online trading platform. Just because these accounts do not have “special” tax treatment like retirement-specific accounts does not mean that they cannot be used to save and invest for the long term. You’ve got lots of options.

💡 Quick Tip: Did you know that you must choose the investments in your IRA? Once you open a new IRA and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

6. Do I Need a Financial Advisor?

A financial advisor can help you create a financial plan for your future while also meeting your current obligations, like your mortgage and bills. If you’re worried about making a mistake with your money, and you think using a financial advisor would make you feel more confident about investing, getting financial advice may be worth it for you.

Financial advisors do charge fees. They may charge you a flat fee, or they may make commissions on investments they suggest to you. It’s important to find out what their fees are and how the fee process is structured.

If you decide to enlist the help of a financial advisor, proceed carefully to make sure you find the right professional to work with.

Automated Investing

Another option you may want to consider is a robo advisor or automated investing. This is an algorithm-driven digital platform that provides basic financial guidance and portfolio options based on such factors as your goals and risk tolerance.

Because most automated portfolios are built with low-cost index or exchange-traded funds (ETFs), these services are considered efficient and low cost compared with using a human advisor.

Robo portfolios often involve an annual fee, perhaps 0.25% to 1% of the account balance.

Financial Planning With SoFi

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What are good questions to ask about investing?

As a beginning investor, it’s important to ask some good basic questions, including: How much can I afford to invest, how much risk am I comfortable taking, and what types of investments are right for me? You’ll also want to consider your goals (for instance, are you investing for retirement), your age, and how long you plan to invest your money.

What are the benefits of investing?

Investing can help you put your money to work for you and potentially make it grow so you can reach your financial goals. Investing can be a way to save for retirement, build wealth, and outpace inflation. In addition, some investments, like 401(k)s and IRAs, can also help you save on taxes.

How do beginners learn to invest?

One good way for beginners to learn to invest is to open a 401(k) if their employer offers one, especially if the employer matches a portion of their contributions. With a 401(k), you’ll choose investment options based on what your employer offers. This can help you learn the basics, such as figuring out your risk tolerance and what types of funds are right for you, and diversifying your investments so that you have a mix of different assets, such as stocks and bonds.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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