Investing can seem intimidating if you haven’t dabbled in it before. You may assume the art of investing is reserved for the wealthy but there are many low-risk investments that don’t require a lot of capital, making them perfect for beginner investors. There are many benefits to diving into the world of investments, including helping to save for retirement, benefiting from tax breaks, and creating more wealth.
When you invest your money, you’re more likely to reach your financial goals faster and eventually achieve financial freedom. Learning about the different types of investments that cater to beginner investors will help you feel comfortable as you begin to develop your own investment strategy.
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If your employer offers a 401(k) as an employee benefit, it’s a good place to begin investing. A 401(k) is a retirement account that allows you to contribute pre-tax money that’s guaranteed to be there when you’re ready to retire.
In most cases, you can set a recurring amount to go directly from your paycheck into your 401(k) retirement fund. Your employer may even offer contribution matching, which means the company will deposit a contribution that matches yours into your account, up to a certain amount.
There usually isn’t a minimum you’re required to invest in your 401(k) but there are maximum contribution limits. You can’t contribute more than $19,500 if you’re younger than 50 and $26,000 if you’re 50 or older. Sign up for a 401(k) account directly through your employer and set a recurring deposit that takes advantage of your employer’s contribution match.
A robo-advisor is an automated service that uses computer algorithms to manage your investments in real-time. A robo-advisor takes the guesswork out of when and where to move your investments so you can experience the biggest gains.
Since robo-advisors don’t require human interaction, fees are usually between 0.00% to 0.75% of your investment, which is much lower than average financial advisor fees. Most robo-advisors don’t require a minimum investment to start.
When you set a financial goal, such as saving for retirement, the robo-advisor keeps that goal in mind and maintains a diversified investment portfolio for you. While the investment work is done for you, it’s important to continue monitoring your investments to ensure you’re still on track to reach your goals.
Target-Date Mutual Funds
Similar to robo-advisors, target-date mutual funds automatically invest your money based on when you want to retire. Mutual funds are one investment vehicle that includes a variety of different investments, including stocks and investment bonds. As your target retirement date approaches, the investments included in the target-date mutual fund slowly shift more towards bonds and farther away from stocks to prepare for your retirement.
Target-date mutual funds are managed through financial advisors. There may not be a minimum investment but the closer you are to retirement age, the more money you’re encouraged to invest.
Index funds track a market index to decide where to invest the money within a portfolio. These funds don’t use a financial advisor but a selection of investments that represent a snapshot of the entire market, such as the S&P 500 index fund.
Index funds are similar to mutual funds because they also combine several types of investments into one vehicle. However, these funds are usually associated with lower fees since they employ a less aggressive investment strategy. There isn’t as much risk involved with index funds because they follow the market trends to decide when and how to make investment moves.
To begin investing in index funds, you must contact a brokerage or financial advisor. Each brokerage or advisor sets its own standards regarding index funds and depending on the brokerage you choose, you may be required to provide a minimum investment to get started.
Exchange-traded funds (ETFs) are similar to index funds because they also use a market index to determine what to invest in and when. ETFs are also associated with lower fees because they don’t require the assistance of a portfolio manager. ETFs vary from index funds because their share prices (the cost to buy them) can fluctuate throughout the day. They’re traded on the market, similar to stocks, which can raise and lower their value consistently.
Since the share prices for ETFs are constantly fluctuating, the minimum investment for these funds also changes. You can begin investing in ETFs through a brokerage, which may charge commissions for every trade you make. It’s important to review the fees associated with these trades, especially if you plan to regularly buy and sell ETFs in the market.
As a beginner investor, you may benefit from investment apps as you’re getting started. There are many user-friendly smartphone apps that cater to beginner investors and you can use them to help determine how to invest your money. Many of these apps can also assist you in managing your investments.
If you’re finding it hard to save money to contribute to investments, Acorns is an app that helps you build the capital to begin. When you install this app on your smartphone and link your bank accounts, it rounds up the purchases you make using your debit or credit cards to the nearest dollar and invests this spare change into ETFs. You can also choose to make lump sum deposits into your account to increase the amount that’s invested.
The E-trade investment app allows you to hone in on your investment strategy by providing tools to analyze and research the market. Use the app to review the stock market and investment advice from professionals and create your own diversified portfolio.
When choosing which investment apps to use, it’s important to review the terms and fees associated with opening an account. Some apps require minimum monthly deposits or account balances to participate. When you trade or move your investments, you may also be responsible for paying fees. Other investment apps charge regular fees no matter how many times you move your money.
If you plan to start investing, don’t feel intimidated by the stock market and complicated investment vehicles. There are many resources and low-risk, low-minimum investment options you can get involved with to make your money start working for you.
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