If you’re completely new to investing, worry no more. We have a quick guide on easy investments for beginners.
We go over some the simplest investments for beginners that anyone can learn about. It’s a great way to get your toes wet in the world of personal finance.
Investments For Beginners
1. A 401(k) or other employer-sponsored retirement plans
If you have a 401(k) or another retirement plan at work, it’s a great place to start – especially since your company may be matching some of your contributions. The free contribution and guaranteed return on investment make it a great decision and one of the best investments for beginners.
The 2019 401(k) contribution limit is $19,000. If you’re 50 or older, you can contribute up to $26,000. But whether your company offers a 401(k) isn’t the only determinant of how much you will have to invest within it.
You can start contributing as little as 1% of your paycheck, though it’s best to aim for at least matching your employer’s contribution. A common arrangement is 50% of the first 6% you contribute. To get the same benefits in that scenario, you would actually need to contribute 6% of your yearly income. But if you want to build up that amount over time it is possible
When you decide to contribute to your 401(k), the money will be automatically deducted from your paycheck and deposited directly into the account. It’s important to know that most 401(k) contributions are made before-tax. After you sign up for your 401(k), you can choose to put your money into a target date fund or pick other investment options. Target date funds are the easiest option, but there are also other choices. Here’s what they’re and how to invest in them.
To sign up for your 401(k) or get more information on it, get in touch with your HR department.
This is one of the easiest investments for beginners because a lot of the time, employers automatically auto-enroll employees.
2. A robo-advisor
You either want to bury your head in the sand or you’re looking for a tried & tested investment opportunity. Either way, it can be an unsettling experience.
If you are looking for good news, there’s some for you! Robo Advisors can manage your investments using sophisticated computer algorithms. Yet they are easy to set up and maintain with little to no overhead. Consequently, they usually charge low fees — typically between 0.25% and 0.50% — and many don’t require a minimum account balance, for example.
It’s a great way to get started investing because they require very little money and do most of the work for you. That’s not to say you should completely ignore your account, because it is your money after all. But robo-advisors can do the heavy lifting for you.
One of the difficulties in starting to invest is picking up all the terminology and making the right decisions so as not to shoot yourself in the foot. Robo-advisors can help because you just need to answer a few questions, and that’s it – they take over from there. It’s useful to see how they construct portfolios and what investments are used. They also offer educational content and tools, and most allow some degree of customization if you want to experiment a bit.
This is on the list for investments for beginners because it’s mostly a hands-off experience after you initially get started.
3. Target-date mutual funds
These have been around for a while, but there’s a lot of time and research put into the algorithms–they’re still being widely used and are overwhelmingly popular with employers. They’re especially useful in employer retirement plans, making them great investments for beginners.
A mutual fund is a basket of investments. You can buy into different funds to get exposure to all kinds of businesses/markets with one transaction, but each share has its own cost.
A professional investment manager will choose how the funds are allocated and invest according to certain general themes. For instance, a US equity fund invests in stocks from the US, while a Japanese equity fund invests in Japanese stocks.
A target-date fund is often a mix of stocks and bonds that change over time to meet your target retirement. A 30-year retirement might specify a 2050 fund for example. Given your retirement date is far away, the fund will start off with mostly stocks. Stocks tend to produce higher returns over the long-term so it should possess a stronger balance in future years.
Over time, it will adjust your investment profile bit by bit, taking into account the fact that you should take less risk as you get closer to retirement.
4. Index funds
Index funds offer a managed portfolio that requires much less work than a traditionally managed fund. The index is built and maintained by professionals, and only the funding-based expenses are paid to the trader.
A market index is a way of tracking an assortment of different investments. For example, the S&P 500 is a market index that holds 500 large companies in the U.S. An S&P 500 index fund would aim to mirror the performance of that index, buying shares in it.
Index funds are not designed for frequent trading. They are optimized for lower fees, which make them better tools to build wealth over long periods of time. But like mutual funds, investors in index funds are buying a pre-determined amount of the aggregate market share at one time.
Index funds can have trade minimums, but some brokerages now offer index funds for less than $50. The easy entrance means you can begin investing in an index fund with just $100
5. Exchange-traded funds (ETFs)
ETFs operate very similarly to index funds, but have a few key differences. Unlike mutual funds, ETFs don’t have a manager actively choosing investments, which can lead to fees being lower. Some people prefer ETFs over mutual funds because of the broader opportunities they offer members of the public.
ETFs and index mutual funds are designed as investment products for small-scale investors. ETFs can be traded on an open market, as their share prices fluctuate throughout the day, whereas index funds require a minimum investment, with price determined at time of purchase. ETFs have a share price which signifies the minimum investment you need to make in order to hold the ETF. Depending on the fund, this can range from as little as $100-$300 or more.
ETFs are similar to stocks, so brokers would usually charge commission fees to buy or sell them. Thankfully, prices have dropped and it’s now possible to buy and sell ETFs without paying any commission. Plans to invest regularly in an ETF? You should choose a commission-free ETF so you don’t have to pay a commission each time.
6. Investment apps
There are plenty of apps that anyone can use to learn about investing.
One of our favorite apps for investing is Acorns. It works a bit differently from a robo-advisor because it just handles the investment itself, rather than giving you leaves on what to invest in. In this sense, it’s more like a rounder. Acorns becomes your financial manager, in a way. Whatever you’ve got in terms of finances, Acorns has the account that suits you best. All in all, it’s an efficient service that can handle all your investing needs.
This is one of our favorite investments for beginners because it’s incredibly easy to get started. You set it up and then forget about it and watch your investments grow.
Another way to invest is Stash, which offers a learning experience on investing in different ways with various ETFs and instruments. They also offer portfolios that are managed by experts.
Conclusion On Investments For Beginners
We hope this guide on investments for beginners made you more comfortable with investing. A lot of these can easily be started online and only take 5 minutes to sign-up.
One things to always remember when you’re looking into investments for beginners is that these are not get rich tactics. These are financial investments that take time to grow.
Make sure to learn how to also avoid these investment mistakes.