6 Best Investments For Beginners – A Complete Guide

Beginner investors want something simple and safe, which is why they should focus on investments that have a proven track record. These investments should also be decently liquid.

A good option for beginners is a robo-advisor that offers automated investing. These apps offer a diversified portfolio for a low management fee.

1. High-yield savings accounts

High-yield savings accounts are a great way to earn more interest than the typical bank account. They also offer more flexibility than investment accounts, which can be useful for beginners who want to build up their savings without taking a large risk.

To find the best high-yield savings account, look for one that offers a competitive APY and minimal fees. Some banks charge recurring monthly service fees, which can significantly reduce your earnings over time. In addition, some banks require a minimum balance to avoid fees. To compare rates, make sure to take into account the minimum deposit requirement and any promotions or bonus programs available.

High-yield savings accounts can be a good place to store your emergency funds, or for saving toward short-term goals like a vacation or a big purchase. However, they aren’t the best choice for long-term goals, such as retirement, because they don’t earn enough interest to keep up with inflation. Instead, you should consider investing in stocks or mutual funds to get a better return on your money over the long term. As the Fed raises interest rates this year, it’s likely that many high-yield savings accounts will increase their APYs as well.

2. Certificates of deposit

Certificates of deposit offer safe and reliable interest rates in exchange for a commitment to leave your funds there for a fixed period of time. They can be beneficial for beginners who don’t want to risk their money in volatile investments like stocks or bonds. Plus, they’re generally insured by the Federal Deposit Insurance Corporation or National Credit Union Association, so your funds are guaranteed up to the maximum amount regulated by law in case of bank failure.

Long-term CD interest rates often beat traditional savings account rates, and they’re a great option for people who have a specific saving goal in mind. Say you’re planning on buying an engagement ring next year, for example—you could deposit the money into a 12-month CD so that it’s ready to go when the time comes.

However, remember that your funds will be illiquid for the duration of the term, and you’ll typically have to pay a penalty to withdraw them early. Because of this, CDs are best for investors who don’t need their money in the near future and who are comfortable leaving it untouchable for a set period of time.

3. 401k or another workplace retirement plan

If you work for a company that offers a 401(k) or another workplace retirement plan, like a 403(b), then this can be an excellent way to save tax-free for your future. Many 401(k) plans offer professional investment advice, and they can also allow you to choose from a wide variety of investments. Make sure you contribute enough to get the full employer match, as this is effectively a guaranteed return on your money. You can also consider investing on your own, through mutual funds, IRAs, U.S. Savings Bonds, real estate and more.

While it’s important to remember that all investments come with risk, beginners in particular should prioritize building a diversified portfolio of stocks and stock funds that are appropriate for their time horizon and risk tolerance. In addition, young investors have one huge ally on their side: time. The longer you invest for your retirement, the more your money can grow. For that reason, it’s a good idea to start early and stick with it. A financial advisor can help you determine your ideal asset allocation and find suitable investments for your 401(k) or other workplace retirement plan, as well as other assets you own.

4. Mutual funds

Mutual funds are the bedrock of many investment accounts, including retirement plans. They provide a relatively hands-off way to invest in stocks, bonds or other assets, with the fund manager (or an index in the case of passively managed funds) doing much of the work.

There are thousands of mutual funds, with a wide range of investment strategies and asset groups. To find the right ones for you, start with your investment goals and time horizon. For example, if you need your money in five years or less, you should avoid aggressive funds that are heavily invested in volatile stocks and opt instead for cash-like investments like government or corporate bonds or money market funds.

If you’re looking for income, consider dividend- or interest-bearing funds that pay out distributions to shareholders quarterly or semi-annually. They’re often a good fit for beginners because they offer a high degree of diversification with the potential for regular income. But, keep in mind that income from these investments will have tax implications, depending on your current tax bracket.

5. ETFs

ETFs are a good option for beginners who want to invest in a diverse basket of assets that will hopefully grow over time. There are plenty of options to choose from, and it’s important to do your research or consult with a financial advisor before making any purchases. You can buy ETFs through brokerage accounts like TD Ameritrade or eToro, or directly through an online broker that offers ETFs.

Some ETFs are passively managed and track an index, such as the SPDR S&P 500 ETF (SPY). Other ETFs are actively managed by fund managers, who attempt to outperform the market. Beginner investors may find it easier to start with passively managed ETFs, which have lower fees than active funds.

ETFs can give you exposure to a broad range of asset classes, including global stock markets, bond markets, commodity markets and alternative strategies. They can also be a good way to express a short-term view on the market or sector. Most ETFs have a relatively modest minimum investment, so they are accessible to beginning investors. However, some ETFs have higher management fees and transaction costs than others. That makes them less attractive to some investors, particularly for long-term investing goals.

6. Individual stocks

Stocks can be an excellent way for beginners to diversify their portfolio, but they are also riskier than other assets. For this reason, beginners should avoid purchasing individual stocks unless they are willing to spend a great deal of time researching and analyzing them. They should also be prepared to pay the higher brokerage fees that come with the territory.

Some investors purchase individual stocks for the thrill and challenge of trying to beat the market. However, studies show that it’s nearly impossible for even professional stock traders to consistently outperform the market. Moreover, if you’re not careful, you could end up buying high and selling low, which will cost you in the long run.

Investing in individual stocks can be rewarding, but it’s important to do your research and understand the risks involved. If you’re interested in getting into individual stocks, consider limiting your purchases to a maximum of 10% of your total assets. This will allow you to enjoy the benefits of investing while still maintaining a sufficient cash reserve in case of emergencies. It will also make it easier to manage the risk associated with a volatile marketplace. And remember, your returns will be much better if you buy and hold instead of trading constantly.

Conclusion

Investing can seem intimidating to beginners, but many companies have made it their mission to make investing accessible to everyone. Online brokerages and robo-advisors with low account fees, investment minimums and mobile apps have reduced the barrier to entry for beginning investors.

One of the best investments for beginners is stocks, which represent small pieces of ownership in a company. Beginners can begin by choosing a stock mutual fund, exchange-traded funds (ETFs) or index fund that covers the market and offers diversification. These investments tend to have lower costs than individual stocks. Keeping in mind that all investments have risk, new investors should consider their own tolerance for volatility.

Another option is blue-chip stocks, which are well-established companies that have brand recognition and a history of growing their dividends. These stocks may provide a steady source of income and can withstand economic downturns. However, their low returns and high levels of volatility may make them less appealing to beginner investors. Lastly, if you’re saving for a short-term goal, it is usually better to save in high-yield savings accounts or money market mutual funds instead of stocks, as those are safer investments. These investments are also a good way to practice and build up knowledge of the investment process before trying your hand at individual stocks or other higher-risk investments.