Investing for Beginners [2024] How to Invest 101 

Stocks. Bonds. Real Estate. Gold. Vintage comic books. Rare Barbie dolls.

There are so many investing options. How do you know where to start? 

In 2023 61% of Americans invested in the stock market, so we’ll mainly focus there. But we’ll give you other popular alternatives that are great for a beginner like yourself, too.

We even have an option called Acorns where you can get started with just $5.

Here’s our friendly guide to investing for beginners!

How to Invest 101 

Decide What Your Goals Are 

Investing for beginners starts with asking, “What are the reasons you’ve decided to start investing?”

The answer to this question will guide your decisions when you’re wondering how to invest.

For example, when investing for a comfortable retirement, you can make relatively safe investing choices that return money to you over many years or even decades. 

But if you’re investing to try to get rich or to retire early, you may need to be more aggressive and take on more risk.

Decide How Much You Can Invest 

Your first step in investing for beginners is to make sure you have an emergency fund. 

An emergency fund is usually 3 to 6 months of expenses just in case you lose your job or main source of income. 

You also want to have enough money to cover unexpected emergencies, such as problems with your health, home, vehicle, and more.

Once you have that money saved, you can move on to the exciting part — deciding how much money you can invest!

Ideally, the money you invest is money you won’t need right away. 

Many of us can start investing right now. That’s because, with today’s technology, you can even invest your spare change with trustworthy financial apps such as Acorns. Acorns is rated 4.7 stars out of 5 in the Google Play Store from over 315,000 reviewers.

The more you invest, the faster you’ll gain the power of compounding interest. 

You know how a little bit of debt can snowball into a huge, oppressive amount that chokes you because of interest rates?

Well, with investing, you make interest work in your favor. Gain money with a fast-moving snowball by investing in stock market index funds or high-yield savings accounts (HYSAs) that give you generous interest rates or returns.

When the credit card company uses the power of compounding against you, you feel the pain. But when you use the power of compounding with investments, you can retire comfortably or even early. 

If you do nothing, you’ll lose money as inflation makes everything more expensive over time.

And that’s why investing for beginners is so important!

Still not sure how much you can invest? Setting up a budget will make it clear exactly how much you can afford to put toward your investments each month without spreading your finances too thin. Check out our Rocket Money review to learn more. 

Choose How You Want to Invest 

There are many different ways you can decide to invest. We’ll cover some of the most popular “investing for beginners” options to give you some ideas to get started.

If you have access to a 401(k) plan or similar at your workplace, you’ve got free money waiting for you if your employer offers a match. Depending on the details of your program, your employer might contribute a dollar for every dollar you invest up to a certain amount.

Not only that, but your retirement plan has tax advantages too. Most working individuals should start by creating a healthy emergency fund and then contributing to their 401(k) or 403(b) plan up to at least the match amount from their employer.

Stocks 

When people think of investing, they often first think about stocks.

When you buy stock in a company, you are becoming a partial owner of that business. As the company experiences financial success, you also share in that success by receiving dividend payments or seeing the value of your stock increase. That means you can sell your stocks for a profit if you choose, although a long-term, “buy and hold” strategy is generally recommended over trying to time the market.

But the opposite is also true. If the company has financial difficulties, the value of your stocks may fall. And if you sell, you might lose part or all of what you invested.

To buy and sell stocks, we recommend the following platforms:

• Acorns 
• Ally
• Public (read our Public review)
• Robinhood 
• Stash 
• Wealthfront (read our Wealthfront Cash Account review)
• Domain Money (read our Domain Money review)

Here’s a warning when considering investing for beginners: Trading stocks can feel exciting. That’s why you should stay focused on your goals. Are you investing to be entertained or to make money? 

A less entertaining way (but a safer way for beginners) to learn how to invest in the stock market is to diversify your stocks. You can accomplish this with mutual funds or ETFs. This brings us to our next topic in our how to invest guide.

Exchange-Traded Funds (ETFs) 

Exchange-traded funds (ETFs) trade throughout the day, so their value changes each trading day like that of a stock. The difference is that an ETF consists of many different companies, spreading your risk around. 

While any one stock can suddenly drop, causing you to lose a large percentage of your investment, it’s less likely (though not impossible) that many companies all drop significantly at the same time.

This reduces your risk. Of course, it also reduces your chances of a huge, quick reward. 

VTI from Vanguard is an example of an ETF. VTI has over 3,000 stocks in its portfolio. 

You can select an ETF that follows entire markets or specific market segments. QQQ follows the Nasdaq 100 of mainly technology stocks. SPY follows the S&P 500, which are 500 very large U.S. companies.

ETFs are very popular when learning about investing for beginners because they’re easy to understand and easy to trade.

To invest in ETFs, we recommend Ally and Magnifi.

Mutual Funds 

Mutual funds are another option for people learning how to invest where you can diversify your risk by including many stocks, bonds, or other investments in one basket.

Mutual funds are administered by professional money managers. These managers make the decisions about which stocks and bonds to buy and when to sell.

Mutual funds may have management fees and charges. When you select a mutual fund, you’re counting on your money manager to outperform index funds that mirror the market and are cheaper to own because they aren’t actively managed.

You can buy mutual funds with platforms like Magnifi. 

Bonds 

Let’s start by answering the question, “What are bonds?”

Simply stated, a bond is a way for you to lend money to a government or company. Why would you do that? Because they promise to pay you back, plus interest! 

As with the other investment options on our list, the safer the investment, the less return you can usually expect. But when your investment is riskier, you can lose a lot more of your investment. 

When you lend money to the U.S. government by purchasing a bond, you know you’re going to get your money back unless the entire U.S. financial system collapses. If you lend money to a company, you might not get your money back if the company goes out of business.

You can buy bonds through the U.S. Treasury Department on the Treasury Direct website. You can also buy all sorts of bonds through platforms like:

• Acorns,
• Public, 
• Ally, and 
• Wealthfront. 

401(k) and Other Employer Retirement Plans

This is one of the easiest decisions to make when thinking about investing for beginners with a goal of retirement income. Start with your 401(k) plan or 403(b) plan at your workplace. In fact, 401(k) plans are so popular that many job seekers only apply to employers who offer this lucrative benefit.

As an employee, you can contribute part of your paycheck to your 401(k). Your employer may offer to match a portion of your contribution, making this free money for you from your employer. That’s a big reason this is seen as such an important benefit.

Your 401(k) plan reduces your tax burden, too. The money is available to you in full once you reach 59.5 years old. However, you can get your money earlier under certain circumstances. You can find details at IRS.gov under “Retirement topics: Exceptions to tax on early distributions.”

High-Yield Savings Accounts (HYSA) 

Your emergency fund doesn’t need to be in paper cash collecting dust in a safe. It also doesn’t need to be in a checking account. You can safely store your emergency fund in a high-yield savings account (HYSA), where it will collect interest.

Remember, any money you have that isn’t collecting interest is actually worth less each year because every year, things get more expensive (inflation). This year, $100 can buy you a certain amount of groceries. In 10 years, that $100 is very unlikely to get you the same amount of groceries.

That’s why you need to be earning interest every chance you get.

With a high-yield savings account, your money is insured by the U.S. government and you can access your money quickly.

We like CIT Bank (read our CIT Bank review) and Upgrade (read our Upgrade bank review) as ways to earn interest on your savings.

This short video from CIT Bank quickly explains what they do:

Certificates of Deposit (CDs) 

A CD, or a certificate of deposit, is a type of savings account you can get from a bank or credit union. With most CDs, you lock in an interest rate in exchange for allowing the institution to hold your money for a certain amount of time, such as 6 months, 12 months, or longer. 

You’ll usually have to pay a penalty if you want access to your funds earlier than the agreed-upon timeframe. 

The main benefits of a CD are that you are protected against drops in interest rates and that your money is insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or by the National Credit Union Administration (NCUA).

A risk of CDs to keep in mind is that if you get a long-term CD in a low interest rate environment, rates could increase significantly over that period and you could miss the opportunity to earn more interest.  

Alternative Investments 

There are many popular alternative investments, such as real estate, fine art, fine wine, collectibles, precious metals, cryptocurrency, buying an existing business, and more.

You may have heard of REITs. These are real estate investment trusts that give you an opportunity to own shares in income-producing real estate without being a landlord or property manager.

There are also platforms that aren’t necessarily REITs that still allow you to participate in crowdfunded real estate investments, many allowing you to get started with as little as $10. We recommend checking out the following real estate crowdfunding opportunities:

• Fundrise (read our Fundrise review),
• Crowdstreet (read our Fundrise vs Crowdstreet comparison), and
• Farmtogether.

You can also easily invest in Gold with Goldco. 

And you can invest in bottles of wine and whiskey without having to store them yourself by investing with Vinovest.

Learn more about alternative investments with our full Fundrise review, Goldco review, and Vinovest review.

Commonly Asked Questions About Investing for Beginners 

Best Investments for Beginners?

The best investments for beginners are relatively safe investments where beginner mistakes won’t hurt you that much compared to riskier investments:

• High-yield savings accounts (HYSAs) that pay you interest. Explore the great deals at CIT Bank (read our CIT Bank review) and Upgrade (read our Upgrade bank review).
• Your 401(k) or 403(b) plan at work to get up to your employer’s maximum matching amount.
• Exchange-traded Funds (ETFs) where you own hundreds or thousands of different stocks to diversify your risk. Invest with Ally or Magnifi.
• Buy bonds through the U.S. Treasury Department.

Learn more about the best way to invest money.

How Should a Beginner Start Investing?

Start investing by putting your money into relatively safe investments so you can avoid beginner mistakes as you learn more. 

• Invest any money you might need back at a moment’s notice into a high-yield savings account that pays interest. We like CIT Bank (read our CIT Bank review) and Upgrade (read our Upgrade bank review).
• If your employer offers a matching amount when you invest part of your paycheck into your 401(k) or 403(b) plan, it’s a no-brainer to start here.
• ETFs are a simple way to buy a bucket of many different stocks. This lowers your risk yet gives you a chance to earn high returns in the stock market. Invest with Ally or Magnifi.
• Buy bonds through the U.S. Treasury Department that pay interest because you’ll be sure to get your money back, unless the entire U.S. financial system completely melts down.
• If you only have $5 to start, try Acorns.

How Much Do I Need To Invest To Make $1000 a Month? 

To make $1000 a month from investments, you’ll need to know how much money you have to invest. And then you’ll need to know how much money you can expect to earn.

For example, if you found a high-yield savings account that pays 5% interest a year, you’d need to invest about $250,000 to earn $1,000 a month. 

If you can find an exchange-traded fund (ETF) that typically returns $10% a year, you’d need to invest about $125,000.  Keep in mind that stocks are not guaranteed to increase in value, so you can lose money.

Investing for Beginners With Little Money? 

Beginner investors with little money should:

• Sign up for Acorns because you only need $5 to get started.
• Invest part of your paycheck into your 401(k) or 403(b) plan at work, especially if your employer matches part of your investment. 
• Open a high-yield savings account (HYSA). If you have money sitting in a checking account that you don’t need to pay your regular bills, earn interest on it by putting it in a high-yield savings account with CIT Bank (read our CIT Bank review) or Upgrade (read our Upgrade bank review). 

Investing for Beginners Stocks?

• Fund your retirement plan by investing in stocks with your 401(k) or 403(b) at work. This saves you on taxes and will compound until retirement.
• Picking individual stocks is risky for beginners. ETFs are an easy way to buy many stocks at the same time. This diversifies risk so no one stock can cause you to lose most of your money. Instead, the risk is spread out amongst hundreds or thousands of different stocks. Invest in an ETF with Ally or Magnifi.
• You can also use Acorns to invest in stocks with as little as $5.

How Much Money Do I Need To Invest To Make $3,000 a Month?

To invest to earn $3,000 a month, you first need to know how much money you have to invest. That’s where a budgeting app like Rocket Money (read our Rocket Money review) comes in handy. Next, you need to know how much money you can expect to earn from your investment.

If you know what rents are in your area, you can explore buying a property and renting it out. See if the rent you can charge per month would be $3,000 more than your mortgage, property taxes, and other expenses.

An easier way to invest in real estate is with Fundrise (read our Fundrise review).

To make $3,000 a month in the stock market, you can look for investments that average 10% a year and then invest $300,000 into it. You can invest in the stock market with Ally. But be aware that stocks are not guaranteed to increase in value. You can lose money.