Investing can seem overwhelming for beginners, but it’s easier than it looks. With a bit of planning and understanding, you can begin growing your money with confidence. Whether you’re interested in stocks, bonds, or mutual funds, it doesn’t take long to realize that the market isn’t such a steep learning curve, after all. Let’s break down the basics and explain, step by step, how to start investing as a beginner!
Understand Why You Want to Invest
Before diving in, take some time to think about your reasons for investing. Are you hoping to grow your savings for retirement? Do you want to generate wealth over the long term? Understanding your goals will help you create a plan that aligns with your financial aspirations. 1
In most cases, investors aim to build wealth over time. Investments like stocks, bonds, and mutual funds can generate returns that outpace inflation. This means that your money can grow faster than it would in a traditional savings account. So, take a moment and ask yourself why you want to invest? Your answer will hopefully sustain you when the markets fluctuate!
Start with a Clear Budget
Setting a clear budget is essential when learning how to start investing as a beginner. Decide how much money you can afford to invest. It’s crucial to only invest money you won’t need for everyday expenses. Emergencies and bills should always take priority.
Begin by creating a budget that separates your necessary spending from what you can save. Once you know how much you can save each month, decide what portion of that can be invested. This ensures that you still have a safety net in case of emergencies.
Explore Different Types of Investments
Once you have a budget, it’s time to explore different types of investments. Beginners often start with stocks, bonds, or mutual funds. Each investment type carries different levels of risk and reward, so it’s important to understand the basics.
Stocks represent shares in a company. When you own stock, you own a piece of that company. Stocks can offer high returns, but they can also be risky since their value can go up and down.
Bonds are loans you give to a company or government. In return, you get regular interest payments and the original loan amount back at the end of a set period. Bonds are generally safer than stocks but offer lower returns.
Mutual funds pool money from many investors to buy a variety of stocks and bonds. This diversification can lower risk because you’re not dependent on the success of a single stock or bond. Mutual funds are often managed by professionals, making them a good option for beginners who prefer a hands-off approach.
Investing Apps For Beginners
There are countless trading apps that can help newbies learn the ropes of investing. 2 Some of the best for beginners include:
Robinhood
Robinhood is one of the most popular investing apps for beginners due to its user-friendly interface and commission-free trading. With Robinhood, you can invest in stocks, ETFs, options, and even cryptocurrencies without paying fees for each trade.
One of its standout features is the ability to start investing with just a few dollars, making it ideal for beginners who want to dip their toes into the market without a significant upfront commitment.
Acorns
Acorns is an excellent choice for beginners who prefer a hands-off approach to investing. The app automatically invests your spare change from everyday purchases by rounding up transactions to the nearest dollar.
Acorns also offers a variety of pre-built portfolios tailored to different risk levels, making it easy for beginners to choose an investment strategy that suits their comfort level.
Wealthsimple
Wealthsimple is a great app for beginners. It’s designed to make investing simple and accessible for those with little to no experience.
Wealthsimple offers robo-advisor services, which automatically create and manage a diversified portfolio based on your risk tolerance and financial goals. This makes it easy for beginners to start investing without having to worry about selecting individual stocks or constantly monitoring the market.
Learn About Risk Tolerance
Understanding your risk tolerance is an important step in deciding how to start investing as a beginner. Risk tolerance refers to how comfortable you are with losing money in the short term for the chance to gain more in the long run. 3
If you’re someone who gets nervous when your money loses value, you might prefer safer investments like bonds. However, if you’re comfortable with the ups and downs of the market, you might lean toward stocks for higher potential returns. The key is to find a balance that suits your comfort level and financial goals.
Keep Learning and Stay Patient
The ongoing challenge of investing is the shifting sands of the market. For this reason, a smart investor embraces continuous learning as part of their guide to success. Start by reading about investment strategies, listening to podcasts, or following financial news. The more you learn, the more confident you’ll become in making investment decisions.
It’s also important to stay patient. Investing is a long-term game, and the market will have ups and downs. Don’t panic when your investments lose value. Instead, stick to your plan and remember why you started investing in the first place.
Learn How To Start Investing As a Beginner
Learning how to start investing as a beginner doesn’t have to be complicated. By understanding your goals, setting a clear budget, and exploring different types of investments, you can begin your journey with confidence. Stay mindful of your risk tolerance and focus on diversifying your portfolio to protect your investments.
As you gain more experience, continue to learn and adapt your strategy. With a few successes under your belt, you might decide to invest in real estate or international stocks — but for now, keep it simple. With time and patience, you can achieve your financial goals and enjoy the rewards of investing.