How to start investing

Investing is the process of buying assets that you expect to increase in value over time, but how do you get started? Where do you go to buy these assets? Which assets can you invest in? Importantly, what do you need to watch out for?

Find out how to start investing so you can put your money to work and get on the road to building wealth.

Get your finances ready

Investing is one facet of your overall financial picture and it’s generally a good idea to prepare and consider your other financial priorities before diving into the market. A few things to consider before you start investing:

Build an emergency fund. Experts recommend saving at least three to six months of essential living expenses in case you lose your job or primary source of income so that you don’t have to turn to credit cards or high-interest loans to stay afloat. A high-yield savings account is one of the best places to keep this money because you can easily access and withdraw the money if you need it and you’ll earn a respectable interest rate as it stands at the ready.

Pay off high-interest debt. If you have credit card debt with an interest rate in the double digits, you’ll save more money by eliminating that debt than you’d gain with a lot of investments over the short term.

Invest enough in your 401(k) to get any company match. If your employer matches any portion of your 401(k) contributions, invest at least enough to get the matching contributions. This is free money that you should not pass up.

Decide what kind of investor you’ll be

Your strategy will likely change over time, but these are the most common types of investors:

Type of investor	How active	Ideal type of broker	Possible investment choices
Passive	Hands-off	Brokers that offer a robo-advisor or other investment advisory services, such as SoFi, JP Morgan Personal Advisors and M1 Finance	Stocks, ETFs
Active	Multiple trades monthly	Brokers such as Webull, Interactive Brokers and Robinhood, which offer charting, research tools and educational content	Stocks, ETFs, mutual funds, options, futures, cryptocurrency, alternative assets
Day trader	Multiple trades daily	Brokers such as tastytrade and TradeStation, which offer advanced trading platforms and research tools and fast trade execution	Buying and shorting stocks, over-the-counter (OTC) stocks, ETFs, options, futures

Pick the right accounts

There are several types of investment accounts. Individual brokerage accounts are taxable. Meaning, you pay taxes each year on investment income or when you sell an asset for a gain. But you may be able to deduct your losses, and individual brokerage accounts don’t have deposit limits or withdrawal restrictions.

Retirement-minded investors should consider an individual retirement account (IRA). IRAs differ from individual brokerage accounts in several aspects:

• Contributions can be tax-deductible or you can withdraw money in retirement tax-free
• Annual contribution limits apply
• You can withdraw money without penalties after you reach 59 and a half years of age

A 401(k) is another type of retirement account that’s offered by most employers. If you have a 401(k) with a company match, contribute at least enough to get the full match. Because most 401(k)s only offer mutual funds, many people will contribute enough to get any company match and then focus on maxing out an IRA, since these accounts let you invest in most assets.

Pick the right broker

Most brokers won’t offer all the features or investment options you’re looking for, so there’s nothing wrong with using multiple brokers for your investing.

Here’s what to look for when choosing a broker:

• Fees. Most brokers don’t charge commission on stock and ETF purchases, but also pay attention to inactivity fees, account transfer fees and annual fees.
• Level of complexity. Beginners typically need a simple platform to place buy and sell orders and start investing. SoFi, Robinhood and Public.com are examples of simple, beginner-friendly investing platforms that offer uncomplicated access to the markets. As you learn and grow as an investor, big brokers such as Charles Schwab offer diverse lineups of investment options and advanced charting and research features.
• Activity. Active and passive investors have different needs. Active investors typically require advanced charting features and research and they execute the orders themselves. Passive investors often either buy and hold long-term or use automated trading systems to manage their portfolios.

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Pick your investments

An investment can be anything you think will increase in value over time, but most people start with stocks or ETFs.

Individual stocks

In any given year, countless stocks outperform the market average. Tesla grew by nearly 700% just in 2020. Netflix went up 3,900% in the last decade. No question, it’s fun to own the right hot stocks.

But in investing, winning big generally means bigger risks. So while many investors start with individual stocks, it’s best to keep stock-picking to a portion of your account dedicated to riskier investments. Keep the bulk of your funds in safer places, such as large blue-chip stocks.

ETFs

Most financial advisors would point novice investors to exchange-traded funds before buying a lot of individual stocks. That’s because ETFs give you a diversified portfolio across companies and across sectors, which is how you get that steady growth over the long term.

In general, ETFs track indexes, matching their performance at an average low cost of around 1% of invested funds each year. Over time, you may want to add other types of ETFs, such as sector funds, commodity funds and other classes as you become more comfortable targeting your investments and have more money to work with.

Bonds and bond funds

When stocks go down, bonds usually go up, though the returns are generally lower. As a result, buying bonds is the traditional hedge for a diversified portfolio focused on stocks.

The old rule used to be to hold your age in bonds – at 30, 30% bonds, at 60, 60% bonds. But bond returns have been so much lower for so long that new rules have emerged. One says subtract your age from 110 and put the remainder in stocks. So at 30, you’d be 80% stocks, 20% bonds. Investing sage Warren Buffett has talked about a 90/10 mix for even retirees, with the bulk in a broad market index fund.

You can buy bond funds, actual bonds and junk bonds, and build ladders of bonds reaching maturity at different times.

Real estate, gold and other alternative assets

Stocks and bonds are readily accessible, but almost anything you expect to rise in value can be part of your investment portfolio.

One popular alternative is real estate investing. This can include buying physical properties that you flip or rent out, real estate ETFs, real estate investment trusts (REITs) or crowdfunded real estate through platforms such as Yieldstreet or RealtyMogul.

Investing in metals, and particularly investing in gold, has always been viewed as a safe haven when stocks crash. Most commodities in fact can be invested in via the futures markets, or through ETFs, though that might not be as satisfying as dropping a gold coin in your pocket.

Other assets that have grown in popularity in recent years include cryptocurrency and collectibles. Cryptos such as Bitcoin (BTC) and Ethereum (ETH) were originally viewed as uncorrelated to stocks, but their correlation has grown in recent years. Meanwhile, anything from collectible cars to art to antiques can further diversify your portfolio.

Investing myths

Myth	Reality
You need a lot of money to start	Fractional shares let you invest with as little as $1
The stock market is too risky	While more risks can mean bigger returns, and losses, the broad market goes up reliably over time, and stocks are largely viewed as offering one of the greatest potentials for building wealth long-term
You have to pick stocks to succeed	The market as a whole outperforms a lot of expert stock pickers, making index funds an ideal investment for most
You need to actively trade	Buy and hold is one of the most profitable investment strategies
You need to do a lot of research	Safely pick large and popular companies and hold them long-term, or stick with index funds
You are too old to start investing	Invest at any age, but the longer you give your investments to grow, the better

Pros and cons

When assessing risk, consider your age as a key factor. Younger investors can take more risk because they have time to make up for losses. Those nearing retirement are usually told to dial back risk.

Are any investments guaranteed?

No. But a few protections are in place for specific vehicles and situations:

• The Federal Deposit Insurance Corporation (FDIC) insures savings accounts, money market accounts and CDs. The FDIC insures up to $250,000 of your deposits in each insured bank. The catch? FDIC-insured accounts earn a lower interest rate.
• The National Credit Union Administration insures credit union members’ deposits. Backed by the US government, it also insures up to a maximum of $250,000 of your money.
• The securities you own aren’t insured against a loss in value. But the Securities Investors Protection Corporation is a non-government entity that replaces missing stocks and securities in customer accounts held by a SIPC member firm if the firm fails. The limit is $500,000, including up to $250,000 in cash.

Not sure where to put your money?

Do you think it's a good time to invest in any of the following?

If you’re looking to start investing but need some help deciding where to put your money, 51% of investors say it’s a good time to put money in stocks.

Bottom line

Successful investors have a plan and understand the assets they’re investing in. If you can handle the volatility of investing and work to minimize the risks, there’s the opportunity to grow your money. Evaluate your options, learn what fits you best and compare the products and services that will help you achieve your goals, starting with online trading platforms.

Frequently asked questions about investing

• How should a beginner start investing?

  A beginner should start investing by choosing a beginner-friendly broker that offers individual brokerage accounts and IRAs and makes it easy to buy and sell stocks and ETFs.

• Is $100 good to start investing?

  With fractional shares, $100 is more than enough to start investing. Brokers that offer fractional share trading let you invest in stocks and ETFs with as a little as $1, which means you can spread your $100 across numerous investments.

• How do I start investing with little money?

  If you have a 401(k) and company match, contribute enough to get the matching funds, as this is free money. From there, find a broker that offers IRAs and fractional shares. Investing through an IRA will give you tax benefits, and fractional shares let you invest in stocks and ETFs with as little as $1 in many cases.

• How to start investing $100 a month?

  Consider investing ETFs to build the foundation of your portfolio. ETFs offer instant diversification and many brokers let you buy fractional shares of ETFs.

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Finder is not an advisor or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.