Investing can be a great way to secure your financial future, but it can also feel like an intimidating minefield for the uninitiated. Fortunately, modern technology has made it easier to start an investment portfolio. You could get started today if you have an internet connection and a bank account.
But it’s important to understand what you’re doing before you put your money into the nebulous financial markets. You’ll want to know the basics of investing, from the different types of investments to the various strategies you can use to try to build your wealth. With this knowledge, you should have a good idea of what sorts of investments are right for you, and how to get started.
Key Points
• Investing early can help you take advantage of compound returns, which may lead to financial growth over time.
• Having a diverse investment portfolio may help mitigate volatility and risk when certain companies or sectors aren’t performing well.
• Typically, your long-term financial goals, time horizon, and tolerance for risk help guide investment choices and portfolio asset allocations.
• Regular investments, even in small amounts, may help build wealth over time.
• Two common investment strategies for beginners include dollar-cost averaging and buy and hold.
• Investing involves significant risk, and investors should research their investments to be better prepared for potential losses.
How to Start Investing
If you are ready to start investing and want to build a portfolio on your own, you can follow these steps to get up and running — just remember to do your homework first!
1. Determine Your Investment Goals
You’ll want to do your best to establish your financial goals before you start investing. Since investments have such strong growth potential over time, many people use their portfolio’s gains to fund future financial goals, like purchasing a home or retirement. Figuring out which investment strategy is right for you starts by assessing and understanding your goals, because they’re not the same for everyone.
2. Choose an Investment Account
You will also need to open a brokerage account and deposit money into it. Once your account is funded, you can buy and sell stocks, mutual funds, and other securities.
You can also utilize an employer-sponsored retirement plan, like a 401(k), or an individual retirement account (IRA) – such as a Roth IRA – to make your investments. One benefit of some retirement investment accounts is that they are tax-advantaged, meaning your investments can grow tax-free within the accounts. However, you may need to pay taxes when withdrawing money from the account.
💡 Need more help? Follow our guide on how to open a brokerage account.
Get up to $1,000 in stock when you fund a new Active Invest account.*
Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.
3. Know Your Investment Options
There are numerous types of investment that you can explore and choose from. Here are some examples:
1. Stocks
When you think of investing, you probably think of the stock market. A stock gives an investor fractional ownership of a publicly-traded company in units known as shares. Investing in stocks as a beginner — which may involve investing in and monitoring a small number of stable, low-risk companies — can be a good way to learn about the markets.
Investors might generate returns by investing in stocks through capital appreciation, dividends, or both. Capital appreciation occurs when you buy a stock at one price, then sell it for a higher price in the future. The company may also pay dividends if it distributes part of its profits to its shareholders.
Note, however, that it’s possible that investors could lose their initial investment if a company’s share price hits zero. Investing in stocks carries some significant risks, and investors should be aware of those risks.
Recommended: How to Invest in Stocks: A Beginner’s Guide
2. Bonds
Bonds are loans you make to a company or a government — federal or local — for a fixed period. In return for loaning them money, they promise to pay you, the investor, periodic interest and, eventually, your principal at the end of the period.
Bonds are typically backed by the full faith and credit of the government or large companies. They’re often considered less risky investments than stocks.
However, the risk varies, and bonds are rated for quality and creditworthiness. Because the U.S. government is less likely to go bankrupt than an individual company, Treasury bonds are considered some of the least risky investments. However, they also tend to have lower returns.
Recommended: How to Buy Bonds: A Guide for Beginners
3. Mutual Funds and ETFs
A mutual fund is an investment managed by a professional. Funds typically focus on an asset class, industry, or region, and investors pay fees to the fund manager to choose investments and buy and sell them at favorable prices.
Exchange-traded funds (ETFs) are similar to mutual funds, but the main difference is that ETFs are traded on a stock exchange, giving investors the flexibility to buy and sell throughout the day.
Mutual funds and ETFs allow investors to diversify their holdings in one investment vehicle.
4. Real Estate
Real estate may be another type of investment, and many people initially invest in real estate by purchasing a home or a rental property.
If owning a home is out of reach for you, you can also invest in a real estate investment trust (REIT), or a company that operates in the real estate business. You can trade shares of a REIT on a stock exchange like you would a stock. With a REIT, an investor buys into a piece of a real estate venture, not the whole thing. If opting to invest in a REIT, there may be less responsibility and pressure on the shareholder when compared to purchasing an investment property.
4. Decide Your Investment Style
Each individual investor will have different goals and concerns as it relates to their portfolio. You may want to work with a financial professional to help you zero in on what type of investments and overall portfolio may give you the best shot at reaching your goals.
With that in mind, you’ll want to think about your style and investing habits, too. Consider your time frame, or time horizon – that is, how long you have to invest, and how long you might want to wait before selling your investments and reaping potential profits – assuming your investments accrued value.
Also think about your risk tolerance, or how much risk you’re willing to take with your portfolio. Riskier investments may generate larger returns over shorter periods of time, but they can also lead to significant losses. Again, this is something to think about when figuring out your specific investment style.
You’ll also want to think about how you allocate your investments, or the degree to which you diversify your portfolio. That means looking at the specific mix of investment types in your portfolio, and getting a sense of the risks and potential returns each brings to the fold.
Quick Tips for Investing Beginners
An investment strategy is a plan that outlines how you will invest your money. As noted, an ideal strategy should consider your financial goals, risk tolerance, and time horizon. Here are three recommended tips and strategies for beginner investors.
• Consider a buy-and-hold approach: Investors practicing buy and hold strategies tend to buy investments and hang on to them over the long term, regardless of short-term movements in the market. Doing so can help curb the tendency to panic sell, and it can also help minimize fees associated with trading, which may boost overall portfolio returns.
• Utilize dollar-cost averaging: Dollar-cost averaging is a strategy that helps individuals regularly invest by making fixed investments on a regular schedule regardless of price. A dollar-cost average strategy can help individuals access a lower average share price and help them avoid emotional investing.
• Stay stoic: Remember to keep your emotions in check when investing. You may feel panicked every time the market dips, the economy slows, or a friend tells you that you need to shift your portfolio — it may be wise to stick to your strategy, keep your goals in mind, and let the chips fall where they may. There are no guarantees in investing, but don’t let the whims of the market give you whiplash.
Remember the Risks
It bears repeating: Investing involves risk. There are all sorts of risks that investors assume when they put their money in the markets, and each individual investment may have different types of associated risks. Some investment types are significantly riskier than others, too.
The important thing for beginner investors to keep in mind is that there are no guarantees when investing, and that there’s a chance they could see negative returns, or lose all of their initial investment.
The Takeaway
For beginners, investing can seem complicated and intimidating — in many ways, it is. But if you take some simple initial steps to familiarize yourself with the markets, investing tools, and types of investments — and pair them with a sound strategy – you should set yourself up to be more confident and comfortable when you start investing.
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
How much money do you need to start investing?
It’s possible to start investing with very little money. Some brokerages allow investors to open accounts with as little as $5, in some cases, depending on what types of investments you’re interested in buying. In some cases, all you need is $5 to start investing, but generally, the more you have, the better.
What are the most popular investment options for beginners?
Some popular beginner investments include stocks, mutual funds, and exchange-traded funds (ETFs).
What are some simple investment strategies for beginners?
Some common investment strategies for beginners include buy and hold and dollar-cost averaging. Many beginners may also employ an index investing strategy, buying ETFs and mutual funds that track a benchmark index, like the S&P 500.
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN-Q324-041