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BEST WAYS FOR BEGINNERS TO INVEST MONEY

By

Brian O'Connell

Paul Curcio
David Tony,

CNN Underscored Money

Updated 4:09 PM EDT, Thu July 18, 2024

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Are you a new investor eager to start investing some of your hard-earned money
and grow your wealth over time? Well, there’s no time like the present.

As legendary investor Warren Buffett once said, “Someone’s sitting in the shade
today because someone planted a tree a long time ago.” In other words, the
sooner you start investing, the better off you’ll be in the long run.

And while there are no hard-and-fast rules about how someone should invest their
money, the good news is that it’s easier than ever to get started.

Here are eight great ways to start investing right now.




1. STOCK MARKET INVESTMENTS

Issued by corporations to fund operations or expansion, stocks are securities
that represent an individual’s ownership interest in a company.


WHY INVEST IN STOCKS?

Historically, investing in stocks is one of the fastest, most efficient and most
effective ways to grow wealth over the long haul.

“If a new investor is able to handle risk and does not need the funds any time
soon, their portfolio should likely be heavily weighted in stocks, (also known
as equities),” said Emily Cozad, portfolio manager and research analyst at
Buckingham Advisors.

The data bear that sentiment out. From the start of the Great Depression in 1930
through 2024, stocks averaged an annual total return of 9.9%%, according to
officialdata.org.


PROS AND CONS

ProsCons
 * Stocks have historically generated strong returns
 * Portfolios can be easily diversified using index funds
 * Some stocks pay dividends that add to total returns

 * Stocks are occasionally volatile and may lose value
 * Individual stocks are subject to earnings and management risk
 * Picking stocks requires significant research


See MoreSee Less

“If you’re a newbie investor, it’s most likely you are in the wealth
accumulation phase of life, rather than wealth preservation,” said James
Beckett, a financial coach and investment analyst at MoneyStocker.com. “If this
is true, you should be 100% in stocks.”

Although stocks are occasionally volatile, they offer greater financial rewards
compared to other investments. “As a new investor, the volatility is less
important as you likely have the time (even decades) to ride out any bumps in
the market,” Beckett noted.


DIVERSIFY YOUR PORTFOLIO

New investors shouldn’t only invest in one asset class, however. Once a new
investor has created an up-and-running investment portfolio, it’s a good idea to
ensure that it is insulated from investment risk.

Diversifying your portfolio can get that job done for you. New investors may
consider investing in an index fund that provides diversification across many
different companies.

“This spreads out the risk to hundreds of holdings and removes the risk of one
company causing dramatic losses in an investment portfolio,” said Aaron Ritsema,
senior portfolio manager at the private wealth management firm LaFleur & Godfrey
in Grand Rapids, Michigan.

If you’re committed to owning individual companies, try a “core & explore”
approach that uses an index fund as the core holding and a defined amount to
“explore” with by buying individual stocks.

“A reasonable place to start is having 80% to 90% of the portfolio in a core
index fund and using 10% to 20% to invest in individual stocks,” Ritsema noted.
“Keep in mind it’s important to do your own research and know what you’re
buying, whether it’s an index fund or an individual stock.”


2. REAL ESTATE INVESTMENTS

Investing in real estate is expensive, but the potential returns are enticing.


BENEFITS OF REAL ESTATE

 1. Home prices tend to rise over time: According to the National Association of
    Realtors, the median existing US home sale reached $419,300 in May 2024.
    That represented a year-over-year increase of 5.8%.
 2. Low barriers to entry: “Investing in real estate can be effective for a
    beginning investor,” said Steve Davis, CEO of Total Wealth Academy, a real
    estate advisory firm in Houston. “The barriers to entry are very low, and
    the returns are much higher than speculating with stocks and such.”
 3. Real estate makes money in multiple ways: Every dollar you have in real
    estate makes you money in four ways: cash flow, equity build-up, equity
    capture and appreciation. “Speculating in the stock market only makes money
    one way, appreciation, and you lose that in a crash,” Davis said. “With real
    estate, you may lose value, but you don’t lose cash flow or equity
    build-up.”


A CONSIDERATION FOR NEW INVESTORS

One caveat with real estate investing is it takes a lot of educational know-how,
which requires time and guidance. “Find a mentor or group of investors and take
whatever classes they have before you ever put one dollar in a real estate
deal,” Davis added.


3. MUTUAL FUNDS AND ETFS

When investing in stocks, the last thing a new investor should do is put all of
their eggs in one basket. That’s where mutual funds and exchange-traded funds
(ETFs) can help.

Mutual funds are investment companies that pool money from investors to purchase
securities, such as stocks or bonds, and are overseen by professional fund
managers. ETFs are also pooled investments, but they are priced and traded on
stock exchanges and typically track index funds or other asset classes.

Such funds enable new investors to spread their money across hundreds of
different securities so they don’t have to rely on the performance of a single
stock to make money. Both types of funds are professionally managed by
experienced fund managers who charge a regular fee for the service.

“New investors, along with having no experience, often have little knowledge
about individual stocks and bonds and/or a smaller portfolio as they are
starting out,” Cozad said. “To spread the risk out, mutual funds or ETFs might
be the best option for a new investor.”


CHOOSING BETWEEN MUTUAL FUNDS AND ETFS

Choosing between mutual funds and ETFs isn’t always easy, but the former may be
more beneficial to starting investors.

Mutual fundsETFs
 * Generally actively managed
 * Traded once a day after market close
 * Sometimes have minimum investments of $2,500 or more
 * Costs may include commissions, 12b fees, loads & operating expenses
 * Relatively low tax-efficiency
 * Holdings are published quarterly or monthly

 * Generally passively managed
 * Traded during market hours
 * Minimum investment is simply the cost of one share
 * Costs may include commissions or operating expenses
 * Relatively high tax-efficiency
 * Holdings are published daily


See MoreSee Less

“If an investor makes small or regular contributions, it might be more
beneficial to invest in mutual funds to invest the entire deposit down to the
dollar. Mutual funds trade by the dollar rather than by the share,” Cozad said.
“Additionally, if an investor is more interested in an actively managed fund, it
may be more beneficial to purchase mutual funds.”

If an investor is looking for a low-cost option to invest in the entire market
or different asset classes, an ETF might make more sense. “If the account is a
typical taxable brokerage account, it might be more beneficial to invest in ETFs
rather than mutual funds,” Cozad adds.


4. BONDS AND FIXED-INCOME INVESTMENTS

Treasury bonds and corporate bonds, also known as fixed-income investments, tend
to be conservative investments that can help curb risk within an investment
portfolio.


BENEFITS AND CONSIDERATIONS

 * Can help stabilize long-term portfolios: Reducing risk is important to all
   investors sooner or later, but that’s especially the case for new investors
   who could use the money-preservation qualities that bonds bring to the table.
 * Come with interest-rate risk: “As they typically pay a fixed payment amount
   over a fixed period of time, bonds are sensitive to interest rates, and rates
   are much higher these days,” said Bradley Thompson, a money manager at
   Stamford, Connecticut-based New Canaan Group. That can make many bonds more
   expensive to own, as demand for fixed-income products rises at a time of high
   interest rates.
 * Easy to own via bond funds: To balance out the risk and keep purchase costs
   low, fledgling investors may buy into a bond fund to help reduce volatility
   levels and save on upfront purchase costs.
 * Generally have lower volatility than stocks: “Historically, bonds have
   averaged less than stocks but with less volatility,” said Ritsema. “Consider
   funds that offer a low-cost way of investing in stocks and bonds and can be
   used as core holdings in an investment portfolio.”


5. HIGH-YIELD SAVINGS ACCOUNTS

Even though newer investors tend to be younger and thus have a longer investment
horizon, they should still have a reliable place to stash cash for short-term
savings needs. That’s where high-yield saving accounts come in handy.


BENEFITS OF HIGH-YIELD SAVINGS ACCOUNTS

 * Offer all the safety benefits of a traditional bank account: All federally
   insured US bank and credit union deposit account funds are insured up to
   $250,000 by the Federal Deposit Insurance Corp. (FDIC) or National Credit
   Union Administration (NCUA).
 * Provide easy access to your money: High-yield savings accounts are easy to
   access, as most banks and credit unions offer them. And since interest rates
   are so high in 2024, high-yield savings accounts are offering historically
   high returns.
 * Pay higher yields than traditional savings accounts: As of July 2024, many
   banks’ high-yield savings account rates stand at 4% or higher. Compare that
   to the 0.45% average annual percentage yield (APY) on traditional bank
   savings accounts.


6. PEER-TO-PEER LENDING

When banks or other financial creditors opt against lending cash to borrowers,
peer-to-peer lenders can step into the breach. Through an online loan platform,
peer-to-peer lenders lend money to borrowers who may otherwise not be able to
land a loan.


HOW PEER-TO-PEER LENDING WORKS

Peer-to-peer loans give new investors a way to provide a loan to those borrowers
with an agreed-upon interest rate paid to the lender. That gives the borrower
the cash they need via a personal loan and gives peer-to-peer lenders a way to
generate solid investment returns without having to actively manage the
investment.

Peer-to-peer loans can provide new investors with decent income. The average
annual percentage rate on a 24-month peer-to-peer loan was 12.5% as of February
2024.

As a new investor, it’s advisable to work with an established online
peer-to-peer lender that works to keep both borrowers and lenders satisfied with
their peer-to-peer loan experience.


7. START A BUSINESS OR INVEST IN EXISTING ONES

The Small Business Administration estimates that 99.9% of active US businesses
are small businesses. Additionally, approximately half of all US workers are
employed by a small business, according to the SBA.

With an employment market that large, it may make sense for new investors with a
great business idea and the commitment to follow through on that idea to invest
in an existing business or start a new company.


CONSIDERATIONS FOR INVESTING IN BUSINESSES

Advancements in technology have made it much easier to open and run a small
business and earn a robust profit doing so. But you’ll still need to research
your market and your competitors, hire good people, develop and operate a good
business plan and raise the upfront funds needed to launch your new company.

Opening or investing in a small business isn’t for the faint of heart, but being
your own boss has its advantages — and its financial rewards. However, be warned
that about one in five new businesses fail within the first year and nearly half
fail by their fifth year, according to data from the Bureau of Labor Statistics.


8. INVESTING IN PRECIOUS METALS

Every starter portfolio should have a “hedge” asset that protects them and
provides some much-needed portfolio versatility when market conditions decline.

That’s where investing in precious metals, especially gold, can help balance out
a new investment portfolio.


BENEFITS OF INVESTING IN GOLD

Gold offers multiple benefits to investors when markets are roiling and world
economies are unstable, including:

 * May act as a safe-haven investment: Gold can act as a hedge against inflation
   or a declining dollar and is often a haven in times of geopolitical and
   financial market instability.
 * Offers both safety and growth characteristics: Since gold is continually in
   demand and has a limited global supply, it can provide both safety and growth
   to a starter portfolio. When economic conditions turn downward, precious
   metals can provide a “safe haven” for investors. For example, between October
   2007 and June 2009, the price of gold rose nearly 24% while stocks lost half
   their value during the Great Recession.
 * Provides diversification to an investment portfolio: Gold can also act as a
   store of value and thus a hedge against runaway inflation. It can also
   provide portfolio diversification and protect against catastrophic economic
   events.
 * Limited supply: The yellow metal also possesses attractive features that make
   it a unique investment. Most importantly, it’s rare because it’s difficult
   and expensive to mine. Output rarely exceeds 2% annually, and all of the gold
   ever dug up plus what we know is still in the ground would fit into a cube
   that’s about 23 meters wide on every side and weighing about 244,000 metric
   tons — about the size of an Olympic swimming pool and seven stories high.
 * Used as an industrial resource: Additionally, it’s virtually indestructible.
   Gold won’t ever diminish in quality or decay structurally. It’s malleable,
   meaning it can easily be worked into various shapes and sizes, thus
   increasing its value in the consumer marketplace.

Given these characteristics, gold prices increased through mid-2024 as the US
economy grew more volatile and inflation continued to chew into household
budgets. At the start of 2023, gold sold for about $1,830 per ounce. By July
2024, gold prices were up to about $2,380 per ounce.

In a recessionary environment, precious metals could be a valuable defensive
addition to a beginner’s portfolio.


EXPERT TIPS FOR BEGINNER INVESTORS

The best path forward for new investors is one that includes a sharp plan to
maximize their stock- and fund-picking experience. Market experts advise taking
these tips to the table when formulating that plan.


SPREAD THE WEALTH

Stashing all your investment cash in one basket can be risky. Your new portfolio
is in big trouble if its lone stock doesn’t deliver or collapses entirely.
That’s where portfolio diversification can help.

“Diversification is a technique of investing in different asset classes, such as
technology, energy, oil or Fortune 500 companies, to spread out the risk of a
potential downtrend in one or two areas of the market,” said Kris Whipple,
partner and financial advisor at Kristopher Curtis Financial in Nashville,
Tennessee. “This allows your portfolio to have a balanced approach versus
putting all your chips on red.”


IT’S OK TO THINK SMALL

Many aspiring investors have trouble getting started at all because they feel
like they can’t afford to invest a significant sum of money. That’s not the
case.

“It doesn’t feel like it’s worth the effort, but saving $50 or $100 every month
without fail can be a big difference maker,” said Matt Hylland, a financial
planner at Arnold and Mote Wealth Management in Cedar Rapids, Iowa. “That’s
especially the case for young investors who have potentially decades of growth
ahead. In that scenario, compounding interest will grow even modest amounts of
money significantly over time.”

Let’s say a beginning investor saves $100 per month for 40 years with a growth
rate of 8% annually. That sum will grow to about $310,000.

“But saving that same amount for ‘only’ 38 years will result in your final total
being just about $264,000,” Hylland noted. “Those two years of added savings of
just $100 per month result in nearly $50,000 more at retirement. So don’t be
afraid to start today, even with a small amount of money.”


BUILD AN EMERGENCY FUND

Having a financial cushion when starting out as an investor is no luxury — it’s
a necessity. That’s why it’s vital to build a household emergency fund to fall
back on if things go awry in the financial markets. Aim for three to six months
of living expenses, and be careful where you safeguard the money.

“Emergency fund cash should be held in a high-yield savings or money market,”
said Trevor Mann, an investment advisor at Consolidated Planning in Glen Allen,
Virginia. “With an emergency fund, you’re defusing the underlying risk here of
being forced to sell your stock market positions at inopportune times in case
you need the cash for an emergency or opportunity.”


THINK LONG-TERM

One big error new investors make is trying to time the market versus
prioritizing time in the market.

“Beginner investors often try to over-analyze the market in short-term time
horizons and select when to enter and exit their investments,” Mann said. “This
is because roughly only eight of the best trading days in the market result in
90% of an average stock index’s return for the year.”

A more resilient investment behavior is dollar-cost averaging into the market
each month. That means investing a fixed dollar amount every month (or every
week, if you can swing it), no matter the share price. Doing so builds regular
investment discipline and allows you to take advantage of compound interest over
a long period.


FOLLOW FIVE FUNDAMENTAL INVESTMENT PRINCIPLES

“Way too many people mistakenly think that being a successful investor is simply
about ‘buying low and selling high’,” said Lynnette Khalfani-Cox, a personal
finance expert and author of “Bounce Back: The Ultimate Guide to Financial
Resilience.” “In reality, there are five phases to the investing process.”

According to Khalfani-Cox, these fundamental investment tenets include:

 1. Strategizing to buy suitable investments that fit your goals, risk tolerance
    and time horizon
 2. Buying the right mix of stocks, bonds, mutual funds or other assets
 3. Holding/monitoring the assets you own to make sure nothing gets out of
    balance and to avoid duplicating investments
 4. Selling various investments at the right time, for the right reason, and in
    a tax-efficient way
 5. Dealing with financial intermediaries, such as stock brokers, investment
    advisors or money managers, so you get competent, quality advice

“If you fail to consider any of these five parts of the investment phases, you
can get burned in the financial markets,” Khalfani-Cox added.

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FREQUENTLY ASKED QUESTIONS (FAQS)

What are some common mistakes beginner investors should avoid?

One common mistake beginning investors should avoid is not having a plan or, if
they have one, not following it.

“Being swept into a hype purchase by the ‘fear of missing out’ or just following
the crowd can lead to potentially catastrophic volatility with your portfolio,”
Whipple said.

Having a comprehensive, long-term investment plan, ideally built with a trusted
financial advisor, can keep you steady and grounded. “Emotions can get the best
of us, even for professionals, and buying or selling due to making a reaction
versus responding can be devastating,” Whipple added.

Are there any recommended investment apps for beginners?

For beginners, Robinhood, Acorns and Betterment are excellent investment apps.

“Robinhood offers commission-free trades, making stock, ETF and other security
investments more accessible,” said Liam Hunt, director at
SophisticatedInvestor.com, a free personal finance education resource. “Acorns’
‘round-up’ feature automatically invests your spare change, ideal for beginner
investors looking to set aside small amounts.”

Hunt’s also a big fan of Betterment, a robo-advisor that tailors portfolio
management to your risk tolerance and goals. “That’s just about perfect for a
hands-off investment approach,” he said.

Are there tax implications to consider when investing as a beginner?

While myriad tax code provisions, including capital gains tax implications,
impact stock market investing, the best way to mitigate them is through your
employer, especially if you’re just starting.

“In today’s political climate and high potential of America raising taxes,
beginning investors, and all investors the like, should invest in and max out a
Roth IRA or 401(k),” Whipple said. “Investing into these accounts is done with
after-tax dollars, meaning you’ve already paid tax on these funds, and they’re
allowed to grow tax-free.”

Investors can’t touch the funds until age 59 1/2 to avoid penalties, but
creating a source of tax-free money for retirement is crucial for long-term
investing success.

Editorial Disclaimer: Opinions expressed here are the author's alone, not those
of any bank, credit card issuer, airlines, hotel chain, or other commercial
entity and have not been reviewed, approved or otherwise endorsed by any of such
entities.

This content is for educational purposes only and is not intended and should not
be understood to constitute financial, investment, insurance or legal advice.
All individuals are encouraged to seek advice from a qualified financial
professional before making any financial, insurance or investment decisions.

Note: While the offers mentioned above are accurate at the time of publication,
they're subject to change at any time and may have changed or may no longer be
available.


What is in this guide?
 * 1. Stock market investments
 * 2. Real estate investments
 * 3. Mutual funds and ETFs
 * 4. Bonds and fixed-income investments
 * 5. High-yield savings accounts
 * 6. Peer-to-peer lending
 * 7. Start a business or invest in existing ones
 * 8. Investing in precious metals
 * Expert tips for beginner investors
 * Frequently asked questions (FAQs)

--------------------------------------------------------------------------------


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