Investing your money in the stock market can yield great returns, which is why many people choose this path to achieve their long-term financial goals. However, investing can seem daunting, especially for beginners.

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Fortunately, there are several options considered best for beginners, suitable for different goals, budgets, and comfort levels. This guide will cover the most common options, but a financial advisor can help you identify the best choices and provide support as you make your initial investments.

Best Investments to Start With

Are you starting to invest and wondering how to make money with your savings? Here are some ways to get started.

High-Yield Savings Account (HYSA)

If you’re seeking higher returns but are nervous about investments, consider opening a high-yield savings account. An HYSA offers a much higher annual interest rate than a traditional savings account, allowing you to maximize returns without the risk of investing.

When looking for an HYSA, it’s good to research. Different financial institutions, such as CIT Accelerated Savings, will offer different interest rates, but the account with the highest rate is not always the best choice.

Carefully read the terms of each HYSA you’re considering, looking for information on minimum balances or annual fees to find the best option.

401(k)

Many employers in the US offer a 401(k) retirement plan as part of their benefits. With a 401(k), a certain percentage of your salary is withheld as a contribution, whether before or after taxes depends on the type of account.

Contributions to a traditional 401(k) are pre-tax, reducing your taxable income but requiring you to pay taxes when withdrawing funds in retirement. Contributions to a Roth 401(k) are taxed upfront, meaning you won’t owe taxes on your money upon reaching retirement age.

If your employer offers a matching contribution up to a certain percentage of your salary, for example, if you earn $50,000 and your employer offers a 100% match for the first 6% you contribute.

Your employer will contribute $3,000 per year, provided you also contribute at least that amount. The maximum employee contribution limit for the fiscal year 2023 is $22,500. If you are self-employed or your employer doesn’t offer a 401(k), research the following options:

  • Traditional or Roth IRA
  • SEP IRA
  • Simple IRA or Simple 401(k)
  • Solo 401(k)

Short-Term Certificate of Deposit (CD)

A certificate of deposit is a type of savings account that offers a higher interest rate than a traditional savings account. With a CD, you deposit a fixed amount for an agreed-upon period. During the account term, you cannot access the funds without paying a penalty.

Once the CD matures, you can withdraw or deposit the funds into a new CD. Terms range from 6 months to 5 years. Generally, longer-term CDs have a higher interest rate. However, you can find short-term CDs without penalties, such as CIT’s 11-month no-penalty CD.

Federally insured bank CDs are covered up to $250,000 per customer.

Money Market Accounts (MMAs)

Another low-risk option is a money market account, an account similar to a savings account with a higher interest rate than a traditional account. MMAs have additional benefits, such as a debit card or check-writing capability, allowing you to access the money when needed.

U.S. Bank offers a competitive money market account option that provides easy access to your funds through a debit card or check-writing capability while also offering a higher annual interest rate than a traditional savings account for low-risk savings.

Mutual Funds

Instead of placing your money in individual funds, consider investing in a mutual fund. A mutual fund is a group of investments that you buy shares of, and a manager decides where to invest the money.

This helps diversify your investments and avoids putting all your eggs in one basket. When young, you’ll likely have more money in stocks, which are riskier but have considerable long-term earning potential.

As you approach retirement, your mix of investments will shift to mainly bonds, which have lower risk and can ensure a steady income in retirement. Choosing a target-date mutual fund allows you to set your retirement date, so the fund mainly focuses on stocks when you’re younger and transitions to bonds as you approach retirement.

Index Funds

Index funds are similar to mutual funds. However, instead of a manager determining where to invest the funds, an index fund will invest money within a specific market index.

For example, an S&P 500 index fund would buy stocks within this market index, which includes about 500 of the best US companies. Index funds usually have a minimum investment requirement.

However, some well-known brokerage platforms, like J.P. Morgan Self-Directed Investing, typically allow you to invest in an index fund without a minimum (and you can earn up to $700 by opening and funding an account with J.P. Morgan Self-Directed Investing).

Exchange-Traded Funds (ETFs)

Exchange-traded funds, or ETFs, are similar to index funds that track a specific market index, such as the S&P 500. The difference is that ETFs are bought and sold throughout the day, and investors purchase them at a variable stock-like price, similar to individual stocks on a stock exchange.

ETFs are generally cheaper to buy and manage than mutual funds, and some brokerages offer them commission-free.

Individual Stocks

Investing in individual stocks can be risky, but it can be worthwhile in the long run if done correctly. When you buy stocks, you’re essentially buying a share in a business. By buying stocks at the right time (such as when a company is starting and shows great potential), you can increase your wealth along with the company.

If you’ve never bought stocks before, it can seem intimidating; however, you can use trading simulations to practice without real financial risk. Simulations allow you to learn how to invest in stocks without using real money, so when you’re ready to invest, you’ll feel comfortable with the process.

Tools for Beginners

  • Robo-Advisors: Automated advisors like M1 Finance offer investments without the need for direct involvement. Robo-advisors are ideal for beginners seeking a guided approach and have lower fees.
  • Investment Apps: Apps like Acorns and the Tradestation trading platform offer user-friendly options. Acorns rounds up transactions to invest spare change, while Tradestation provides advanced tools with a $0 minimum account requirement.
  • Brokerage: If you prefer human guidance, work with a stockbroker. Be aware of commission costs and profit models.

Important Considerations

When embarking on your investment journey, it’s crucial to consider several factors:

  • Goals: Clearly define your objectives, whether they are short-term, like saving for a specific expense, or long-term, such as planning for retirement.
  • Risk Tolerance: Assess your comfort level with risk. While low-risk options offer guaranteed returns, higher-risk investments can potentially yield significant gains in the long run.
  • Minimum Investment: Take into account the minimum deposit requirements associated with different investment options, ensuring they align with your financial capacity.
  • Diversification: Mitigate risks by diversifying your investments across various assets. Spreading your financial resources can provide a more balanced and resilient portfolio.

Conclusion

Embarking on the journey of investment necessitates a thoughtful consideration of key factors such as financial goals, risk tolerance, minimum investment requirements, and the importance of diversification.

By clearly defining short or long-term objectives, understanding one’s comfort level with risk, and exploring diverse investment options, individuals can create a strategic and balanced portfolio that aligns with their financial aspirations.

The decision-making process should involve learning about available options, consulting professionals for guidance, and, most importantly, making choices based on personal comfort levels. For beginners, navigating the world of investments may raise questions about alternative income sources and low-risk avenues.

Exploring options like High-Yield Savings Accounts (HYSA), Certificates of Deposit (CDs), or Money Market Accounts (MMAs) provides opportunities for financial growth without delving into stock markets.

Moreover, understanding non-financial investment types, such as real estate and precious metals, broadens the horizon for potential returns. Ultimately, a comprehensive approach, coupled with informed decision-making, empowers individuals to take charge of their financial future and work towards achieving their unique investment objectives.