First of all, congratulations! Investing your money is the most reliable way to build wealth over time. If you’re a first-time investor, we’re here to help you get started. It’s time to make your money work for you.
Before you put your hard-earned cash into an investment vehicle, you’ll need a basic understanding of how to invest your money the right way. However, there's no one-size-fits-all answer here. The best way to invest your money is whichever way works best for you. To figure that out, you’ll want to consider your investing style, your budget, and your risk tolerance.
1. Your style
How much time do you want to put into investing your money?
The investing world has two major camps when it comes to the ways to invest money: active investing and passive investing. We believe both styles have merit, as long as you focus on the long term and aren't just looking for short-term gains. But your lifestyle, budget, risk tolerance, and interests might give you a preference for one type.
Active investing means taking time to research investments yourself and constructing and maintaining your portfolio on your own. If you plan to buy and sell individual stocks through an online broker, you're planning to be an active investor. To successfully be an active investor, you'll need three things:
- Time: Active investing requires lots of homework. You'll need to research investment opportunities, conduct some basic analysis, and keep up with your investments after you buy them.
- Knowledge: All the time in the world won't help if you don't know how to analyze investments and properly research stocks. You should at least be familiar with some of the basics of how to analyze stocks before you invest in them.
- Desire: Many people simply don't want to spend hours on their investments. And since passive investments have historically produced strong returns, there's absolutely nothing wrong with this approach. Active investing certainly has the potential for superior returns, but you have to want to spend the time to get it right.
On the other hand, passive investing is the equivalent of putting an airplane on autopilot versus flying it manually. You'll still get good results over the long run, and the effort required is far less. In a nutshell, passive investing involves putting your money to work in investment vehicles where someone else is doing the hard work -- mutual fund investing is an example of this strategy. Or you could use a hybrid approach. For example, you could hire a financial or investment advisor -- or use a robo-advisor to construct and implement an investment strategy on your behalf.
More simplicity, more stability, more predictability
- Hands-off approach
- Moderate returns
- Tax advantages
More work, more risk, more potential reward
- You do the investing yourself (or through a portfolio manager)
- Lots of research
- Potential for huge, life-changing returns
Dig deeper: Active vs Passive Investing
2. Your budget
How much money do you have to invest?
You may think you need a large sum of money to start a portfolio, but you can begin investing with $100. We also have great ideas for investing $1,000. The amount of money you're starting with isn't the most important thing -- it's making sure you're financially ready to invest and that you're investing money frequently over time.
One important step to take before investing is to establish an emergency fund. This is cash set aside in a form that makes it available for quick withdrawal. All investments, whether stocks, mutual funds, or real estate, have some level of risk, and you never want to find yourself forced to divest (or sell) these investments in a time of need. The emergency fund is your safety net to avoid this.
Most financial planners suggest an ideal amount for an emergency fund is enough to cover six months' worth of expenses. While this is certainly a good target, you don't need this much set aside before you can invest -- the point is that you just don't want to have to sell your investments every time you get a flat tire or have some other unforeseen expense pop up.
Related: How to Invest $10,000
It's also a smart idea to get rid of any high-interest debt (like credit cards) before starting to invest. Think of it this way -- the stock market has historically produced returns of 9%-10% annually over long periods. If you invest your money at these types of returns and simultaneously pay 16%, 18%, or higher APRs to your creditors, you're putting yourself in a position to lose money over the long run.
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3. Your risk tolerance
How much financial risk are you willing to take?
Not all investments are successful. Each type of investment has its own level of risk -- but this risk is often correlated with returns. It’s important to find a balance between maximizing the returns on your money and finding a risk level you are comfortable with. For example, bonds offer predictable returns with very low risk, but they also yield relatively low returns of around 2-3%. By contrast, stock returns can vary widely depending on the company and time frame, but the whole stock market on average returns almost 10% per year.
If you're investing for the long-term, learn how to weather short-term shifts in the stock market.
Even within the broad categories of stocks and bonds, there can be huge differences in risk. For example, a Treasury bond or AAA-rated corporate bond is a very low -risk investment, but these will likely have relatively low interest rates. Savings accounts represent an even lower risk, but offer a lower reward. On the other hand, a high-yield bond can produce greater income but will come with a greater risk of default. In the world of stocks, the difference in risk between blue-chip stocks like Apple (NASDAQ:AAPL) and penny stocks is enormous.
One good solution for beginners is using a robo-advisor to formulate an investment plan that meets your risk tolerance and financial goals. In a nutshell, a robo-advisor is a service offered by a brokerage that will construct and maintain a portfolio of stock- and bond-based index funds designed to maximize your return potential while keeping your risk level appropriate for your needs.
What should you invest your money in?
Here's the tough question, and unfortunately there isn't a perfect answer. The best type of investment depends on your investment goals. But based on the guidelines discussed above, you should be in a far better position to decide what you should invest in.
For example, if you have a relatively high risk tolerance, as well as the time and desire to research individual stocks (and to learn how to do it right), that could be the best way to go. If you have a low risk tolerance but want higher returns than you'd get from a savings account, bond investments (or bond funds) might be more appropriate.
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If you're like most Americans and don't want to spend hours of your time on your portfolio, putting your money in passive investments like index funds or mutual funds can be the smart choice. And if you really want to take a hands-off approach, a robo-advisor could be right for you.
Related investing topics
The Foolish bottom line
Investing money may seem intimidating, especially if you’ve never done it before. However, if you figure out 1. how you want to invest, 2. how much money you should invest, and 3. your risk tolerance, you'll be well positioned to make smart decisions with your money that will serve you well for decades to come.
Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
Is Motley Fool a good way to invest? ›
The Motley Fool is a well-respected stock picking service with a nearly 30-year track record. According to The Motley Fool website, it has far outpaced the S&P 500. The stock advisor service claims to have beaten that key market index by a factor of four over the last 17 years.Where should a beginner start investing? ›
- 401(k) or employer retirement plan.
- A robo-advisor.
- Target-date mutual fund.
- Index funds.
- Exchange-traded funds (ETFs)
- Investment apps.
- How to Invest $1,000.
- #1: Build a Diversified Portfolio With Fractional Share Investing.
- #2: Build a Micro Real Estate Portfolio.
- #3: Let Dividends Pay Your Monthly Bills.
- #4: Open a Roth IRA.
- #5: Build Up a High-Yield Emergency Fund.
- #6: Build a Portfolio with Low-Cost ETFs.
- Stocks & ETFs. ...
- Use a Robo-Advisor. ...
- Chip Away at High-Interest Debt. ...
- Use Real Estate Crowdfunding Sites. ...
- Invest in U.S. Treasury Securities. ...
- Use a High-Yield Savings Account. ...
- Consider Alternative Assets. ...
- Invest In New Skills.
You'd be surprised just how far $500 can go when it's invested in the stock market. Not only is it enough to start growing wealth in a meaningful way, but investing even a small amount can help you build positive investing habits that will help you to reach your future financial goals.How should I invest $100 dollars? ›
- Start an emergency fund.
- Use a micro-investing app or robo-advisor.
- Invest in a stock index mutual fund or exchange-traded fund.
- Use fractional shares to buy stocks.
- Put it in your 401(k).
- Open an IRA.
Investors with $2,000 have several options: high-yield savings accounts, index funds, actively managed funds, robo-advisors, stocks, and real estate investment trusts.What is the number 1 rule of investing? ›
1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money.What is the smartest way to start investing? ›
- Look into retirement accounts. ...
- Use investment funds to reduce risk. ...
- Understand your investment options. ...
- Balance long-term and short-term investments. ...
- Don't fall for easy mistakes. ...
- Keep learning and saving.
You may think you need a large sum of money to start a portfolio, but you can begin investing with $100.
What are the top 10 stocks to buy right now? ›
- Amazon.com, Inc. (NASDAQ: AMZN)
- The Walt Disney Company (NYSE: DIS)
- Palo Alto Networks, Inc. (NASDAQ: PANW)
- The Boeing Company (NYSE: BA)
- Prologis, Inc. (NYSE: PLD)
- Johnson & Johnson (NYSE: JNJ)
- MercadoLibre, Inc. (NASDAQ: MELI)
- Costco Wholesale Corporation (NASDAQ: COST)
- How to invest $1,000 to make money fast.
- Play the stock market.
- Invest in a money-making course.
- Trade commodities.
- Trade cryptocurrencies.
- Use peer-to-peer lending.
- Trade options.
- Flip real estate contracts.
|Ticker||Total return in 2022|
|Hess Corp.||HES||94.1% 94.1% 94.1%|
|Exxon Mobil Corp.||XOM||87.4% 87.4% 87.4%|
|Marathon Petroleum Corp.||MPC||86.6% 86.6% 86.6%|
|Schlumberger NV||SLB||81.2% 81.2% 81.2%|
- Buy an S&P 500 index fund. ...
- Buy partial shares in 5 stocks. ...
- Put it in an IRA. ...
- Get a match in your 401(k) ...
- Have a robo-advisor invest for you. ...
- Pay down your credit card or other loan. ...
- Go super safe with a high-yield savings account.
Despite recent roadblocks, Apple remains a reliable and resilient stock. The company's shares are still down 24% year over year, making now an excellent time to invest with an exciting year ahead.How to invest in stocks for beginners? ›
- Decide how you want to invest in the stock market. ...
- Choose an investing account. ...
- Learn the difference between investing in stocks and funds. ...
- Set a budget for your stock market investment. ...
- Focus on investing for the long-term. ...
- Manage your stock portfolio.
Thanks to compounding and dividends, you can turn a $50-per-week investment into a nest egg that can help you live comfortably in your retirement years.How much is $500 a month for 20 years? ›
$500 per month invested for 20 years is about $430,000.How much will I have if I invest $500 a month for 30 years? ›
If you simply match the historic stock market returns over the past 90 years -- returns that averaged 10% per year -- investing $500 per month will net you over $1 million in 30 years.How much will I make if I invest $100 a month? ›
Investing $100 per month will grow to more than $160,000 when you are ready to retire in 47 years. At $500 a month, the same 20-year-old would retire with more than $800,000 if they stuck to their saving. If you bump that number up to $1,000 per month, your total will grow to over $1.6 million for retirement.
Is investing $100 a month enough? ›
Investing just $100 a month over a period of years can be a lucrative strategy to grow your wealth over time. Doing so allows for the benefit of compounding returns, where gains build off of previous gains.Is $100 enough to start investing? ›
Most people think that you need thousands of dollars to get started investing, but that's simply not true. In fact, I started investing with just $100 when I started working my first job in high school (yes high school). It's possible to start investing in high school, or in college, or even in your 20s.How do I invest a small amount of money? ›
- Drip-feed your cash into investments. You don't need to have a lump sum to start investing. ...
- Buy an index tracker. ...
- Use a robo-adviser. ...
- Mitigate your risk. ...
- Invest for the long-term. ...
- Open a high-yield savings account.
- Invest in Crowdfunded Real Estate to Grow Your Money.
- Invest in Real Estate Debts.
- Invest in Commercial Real Estate.
- Invest in ETFs, Mutual Funds, and Index Funds.
- Use Real Estate Investment Trusts to Make Money Daily.
- Dividend Investing.
- Invest in Growth Stocks.
- Use a Micro-Investing App.
- Buy Fractional Shares of Stock.
- Open a High-Yield Savings Account.
- Start an Emergency Fund with an MMA.
- Start a Robo-Advisor Account.
- Buy a Portfolio with an ETF.
- Open an IRA.
- Employer-Sponsored 401k.
The greater the potential returns, the higher the level of risk. Make sure you understand the risks and are willing and able to accept them. Different investments have different levels of risk.What time of day should I buy stocks? ›
The opening 9:30 a.m. to 10:30 a.m. Eastern time (ET) period is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.How long will it take for an $1000 investment to double in size when invested at the rate of 8% per year? ›
Answer and Explanation: The answer is: 12 years.What should I do first before investing? ›
- Avoid lifestyle creep. ...
- Start investing — even a little at a time. ...
- Know what you're investing for. ...
- Understand the risk you are taking. ...
- Diversify your investments. ...
- Invest for the long-term. ...
- Watch out for high fees. ...
- Consider how much time you can put into investing.
Some of the best types of investments for 2022 include high-yield savings accounts, government I-bonds and well-diversified ETFs. Investors who can afford more risk may also look into alternative investments like commodities and cryptocurrencies to boost their returns.
What are the 5 Steps to start investing? ›
- Step One: Put-and-Take Account. This is the first savings you should establish when you begin making money. ...
- Step Two: Beginning to Invest. ...
- Step Three: Systematic Investing. ...
- Step Four: Strategic Investing. ...
- Step Five: Speculative Investing.
The sooner you begin investing, the better. However, it's never too late to start — even if you don't think you have enough money to fully commit to putting away $590 per month.Can I start investing with little money? ›
Thanks to investment products like fractional shares and exchange-traded funds, or ETFs, people can enter the market for dollars and cents — and quickly build a diverse portfolio with little money.How many stocks should a beginner buy? ›
Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings.Is 1000 a good start for investing? ›
Although it is not a large sum of money, $1000 is well worth investing. With many of the options we looked at, particularly ETFs, sums as small as $50 or even $20 are worth investing on a regular basis.How much can you earn by investing $1,000? ›
Use this rule of thumb. For every 1000 you could get something that's worth Rs 5L today, 15yrs later or worth Rs 10L today, 20yrs later.What can I invest 1000 dollars in to make passive income? ›
- Real Estate Investment Trusts (REITs) Real estate investment trusts (REITs) are one of the best ways to invest 1,000 dollars, and are beginner-friendly. ...
- Real Estate Crowdfunding. ...
- Real Estate Partnerships. ...
- Real Estate Wholesaling. ...
- Peer-To-Peer Microloans. ...
- Turnkey Rental Real Estate. ...
- Tax Liens. ...
- Hard Money Loans.
A quick calculation shows you need about $279,000 to earn $1000 per month, or $12,000 per year, with a 4.3% yield. But even if you don't have that much money, you can use whatever capital you have to generate a high and relatively safe return.