10 investing tips for beginners

Investing can be a powerful tool for your financial growth, but getting started can seem daunting. If you’ve never ventured into the world of trading on the stock market, buying bonds, or investing in funds, it can be tough to know where to even begin. But never fear: even beginners can successfully navigate the world of investing. And once you start, you’ll continue learning and growing your confidence. These 10 tips for beginner investors can help you start your journey.   

10 beginner investment tips:

• Review your budget
• Build an emergency fund
• Define your investing goals
• Choose the right investment accounts
• Determine your risk tolerance
• Understand asset classes
• Diversify your portfolio
• Think long term
• Revisit your strategy regularly
• Seek ongoing education and advice

Investing tip #1: Review your budget

Before you figure out how to start investing, you’ll want to determine how much money you can afford to invest. Take a look at your budget: once all your core expenses are covered each month, how much is left over that you could invest? You don’t need lots of money to start investing, and continuing to invest regularly, even a small amount, can make a big difference. Build investing into your monthly budget so you can increase your portfolio steadily over time.

Also, take a look at any debt you’re carrying. If you have high-interest debt like credit card balances, you may want to prioritize paying it off before devoting money to investments. When your debt is accumulating a lot of interest, the costs can quickly mount, undermining your efforts at growing your money long-term. Plus, paying off debt will free up resources that can be directed into your investments.    

Investing tip #2: Build an emergency fund

An emergency fund acts as a financial safety net, helping you manage unforeseen expenses without going into debt or dipping into your investment accounts. By maintaining a healthy emergency savings, you can avoid derailing your investment strategy or, even worse, having to sell securities at a loss when you need cash in a hurry. You’ll want easy access to your emergency fund in case you need it, so consider stashing that money in a high-yield savings account that earns interest. 

Investing tip #3: Define your investing goals

Investing can help you achieve a variety of outcomes, and understanding your goals will guide your decisions and overall investment strategy. You might invest for a mid-term goal like buying a house or a long-term goal like building a comfortable nest egg in retirement beyond social security. Other goals may include things that bolster your overall financial wellness, like generating passive income, reducing tax liabilities, or combating inflation to maintain your purchasing power. 

It’s common to have multiple investment goals, and you’ll want to consider the timeline for each when deciding how to invest your money. For instance, if you’re multiple decades away from retirement, your investments have more time to recover from potential losses, so you may be willing to take on more risk. On the flip side, you might prioritize more stable investment choices if you’re trying to build up the cash for a downpayment on a house in five years. 

Investing tip #4: Choose the right investment accounts for your goals

There are multiple types of investment accounts, also called investment vehicles, and the right one for you depends on why you’re investing. Each investment vehicle comes with different benefits, restrictions, and tax implications, making it essential to align your choice with your specific goals and time frame. 

• Brokerage accounts: A brokerage account is what many people think of when they consider investing. It’s a versatile investment account that enables you to buy and sell a wide range of securities, including individual stocks, bonds, and exchange-traded funds (ETFs). You can invest as much as you want at any time, and you’ll need to pay taxes on your earnings. 
• IRAs: Traditional IRAs and Roth IRAs are tax-advantaged retirement accounts. They offer tax-deferred or tax-free growth, but they also come with restrictions on how much you can invest each year and when you can make withdrawals. 
• 401(k)s: Another type of retirement account that comes with tax advantages is a 401(k). These plans are offered by employers and offer tax-deferred growth; many employers also match a portion of your contributions. They’re also subject to limitations on contributions and when you can withdraw funds. 
• Custodial accounts: Designed for minors, custodial accounts are managed by a guardian until the child reaches adulthood. These accounts can be used to invest in stocks, bonds, and other assets, offering a way to save and grow funds for the child’s future, such as for education or other significant expenses. 

Just like you can have many different financial goals, you could open multiple investment accounts to take advantage of the various investment opportunities they present. For instance, you could work toward your retirement savings goal by investing in an IRA and/or a 401(k) to reap the tax advantages, while also investing through a brokerage account to grow your money for other mid-term or long-term goals. 

Investing tip #5: Determine your risk tolerance

All investing involves risk, but not everyone has the same level of comfort with uncertainty. Your risk profile describes how much tolerance you have for the potential for financial loss in your investments. Risk tolerance isn’t just a personality characteristic, though it’s certainly important to gauge your emotional reaction to taking risks. Determining your risk tolerance involves practical considerations about how potential losses could impact your financial well-being. 

Three key aspects of your risk tolerance are your age, your income, and your investment objectives. If you’re young and investing for goals that are decades in the future, you might have more tolerance for short-term losses because you have time to recover from them. If retirement is in just a few years, however, you might be more conservative when it comes to taking risks. Similarly, people on a tight budget might have lower risk tolerance than those who have a large amount of discretionary income. 

Because different types of investments come with varying degrees of risk, knowing your personal risk tolerance can guide your investment decisions. Remember, what’s right for someone else isn’t necessarily right for you. 

Investing tip #6: Understand asset classes

There are many types of investments, or asset classes, you can choose for your portfolio, and they all come with particular risks and potential rewards. Here are five of the most common asset classes you might want to consider:

• Stocks: When you buy stock, you’re purchasing a small share of ownership in a company. You can make money when you sell your shares at a profit or receive dividend payments if the company pays them. Because stock prices can be volatile, they’re considered on the riskier side, but they also may produce higher returns.
• Bonds: A bond is essentially a loan you make to the government or a corporation. After a set amount of time, they pay you back your principal investment plus interest at a specified interest rate. They’re generally less risky than stocks, but also tend to produce lower returns. 
• Mutual funds: A mutual fund is a basket of multiple securities; when you invest in the fund, you invest in the fund’s entire portfolio. This makes funds a bit less risky than stocks because there’s built-in diversification, but keep in mind that the level of diversification varies widely among different mutual funds, and they often come with high fees.
• ETFs: ETFs function very similarly to mutual funds; you buy a stake in the pool of securities the fund holds, which provides some inherent diversity. ETFs are more likely than mutual funds to be passively managed, which leads to lower fees. 
• Index funds: These passively-managed funds aim to match the performance of a particular market index, which is considered a lower-risk approach, though returns may also be lower. 

The asset classes that make sense for you depend on your investing goals and risk profile. For example, an index fund that mirrors the S&P 500 might align well for investors who have long-term goals, want lower risk, and prefer a hands-off investing style. People who are focused on short-term gains and are willing to take the risk of bigger losses might put more of their money into growth stocks that are more volatile but offer the potential for a high return.

Investing tip #7: Diversify your portfolio

When you’re deciding how to invest, you’ll want to consider all asset classes in order to create a diversified portfolio to reduce risk. By spreading your investments across various asset classes, as well as different sectors of the stock market, you reduce the impact of volatility in any one area; if one type of investment loses money, that may be balanced by others that hold steady or increase in value. Some investors rely on the 5% rule of investing, which is a general philosophy that suggests you should allocate no more than 5% of your portfolio to any single security. 

Investments like ETFs and mutual funds are often inherently diversified, as they hold a range of assets within a single fund, which can be a simple way for those new to investing to gain exposure to a wide variety of securities. And you don’t have to limit yourself to stocks, bonds, and funds. Investors can diversify their holdings with all kinds of investment options, including things like real estate, commodities, and even Treasury Inflation-Protected Securities (TIPS). 

Determining the specific asset allocation that’s right for your diversified portfolio is all about striking a balance of investments that aligns with your financial goals and risk tolerance. By not putting all your eggs in one basket, you stand a better chance of weathering market ups and downs. 

Investing tip #8: Think long term

Long-term investing capitalizes on the power of compounding, where even small, consistent investments can grow significantly over time. This approach often yields higher returns compared to short-term trading. For example, if you invest $100 monthly with an average annual return of 7%, it could grow to more than $100,000 over 30 years. Meanwhile, if you opt for short-term investments with higher volatility, the same amount might not achieve this level of growth due to market fluctuations and the lack of compounding effect over a longer period. Long-term investing also helps smooth out short-term market volatility, giving your investments a better chance to recover and grow over time. 

Investing regularly over the long term also allows you to take advantage of dollar cost averaging (DCA), which enables you to spread out your stock purchases over time so that market swings have less impact on the average cost you pay per share. 

Investing tip #9: Revisit your strategy regularly 

As you move through life, your goals and circumstances will evolve, and so should your investing strategy. Changes in your income and lifestyle can significantly influence your financial needs and aspirations, so plan to check in with yourself every year to ensure your strategy remains aligned with your current situation and future objectives. 

This check-in is also a good time to rebalance your portfolio, if needed. When you first create your portfolio, you’ll choose an asset allocation that aligns with your goals and risk tolerance. But that balance can shift over time as you add to your investments. Rebalancing is the process of adjusting your asset allocation to return your portfolio to your target allocation mix. 

Investing tip #10: Seek ongoing education and advice

While there’s a lot to know about investing, you don’t have to learn everything all at once or do it all on your own. Get familiar with key stock market terminology, and dig deeper into important concepts as you encounter them. Try out some podcasts or publications about investing to find one you enjoy and put it in your regular rotation. Adding financial education into your media can make investing feel more accessible, and even fun. 

And don’t hesitate to seek out investment advice to guide you now or in the future. You can talk to a financial advisor if you’d benefit from personalized counsel about your investment decisions. If you use an online brokerage, you may have access to a robo-advisor that can assign investing strategies and portfolios based on your goals, preferences, and risk tolerance. 

Your investing journey is just starting; by making ongoing education part of it, you can help ensure it’s a long and fruitful endeavor in which your confidence grows along with your portfolio.

Bonus investing tip: Start where you are

As you venture into the world of investing, remember that you don’t need an encyclopedic knowledge of the entire world of finance or a lot of money to get started. Whether you have $1,000 to invest right now or want to dip your toe in with just a few bucks, you have options. And if you use a brokerage that offers fractional shares, like Stash, you can even buy a portion of a single share of stock.  

Your investment strategy should be a reflection of your individual goals, risk tolerance, and financial circumstances, evolving as these factors change over time. Wherever you are in your financial journey at the moment, you can start investing today for a brighter tomorrow. 

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