How to Start Investing for Beginners

Name: How to Start Investing for Beginners
Item: How to Start Investing for Beginners
Author: Nathan Paulus

To start investing, identify your goals, determine your risk tolerance and select the right account. Then decide what to invest in, monitor your portfolio and keep learning as you go.

By Nathan Paulus

Edited by Megan Hull

Updated: November 12, 2024

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A couple sits together at a table, smiling while reviewing investment details on a laptop.

Investing can help you achieve financial goals, whether saving for retirement, buying a home or building a safety net. Unlike saving, where your money remains in place, investing allows your money to work for you by accumulating interest. With the right knowledge and strategy, investing offers the potential for returns that outpace inflation and increase your wealth.

Consider your overall strategy before jumping in — know your investment goals, risk tolerance and a general idea of what you want to invest in. Create a clear plan and understand the basics to confidently begin your investment journey.

Key Steps to Start Investing Your Money

Set specific, measurable goals to create a focused investment strategy, ensuring that your choices align with long-term financial objectives.

Determine how much risk you’re comfortable with based on your financial situation and investing timeline, ensuring you pick investments that match your comfort with volatility.

Choose your investment accounts. Tax-advantaged accounts like IRAs are ideal for long-term savings, while taxable brokerage accounts provide flexibility for shorter-term goals.

Decide how involved you want to be in managing your investments — are you more interested in passive strategies, like index funds, or active investing?

1. Identify Your Investment Goals

Are you aiming for long-term wealth accumulation, such as building a retirement fund, or do you have short-term goals, like saving for a down payment on a house? Understanding these objectives will guide your investment choices, strategies and the level of risk you're willing to take. This clarity will also help you stay focused and on track as you progress.

Below are some steps you can take to identify your investment goals:

1
Be specific and define clear milestones
Vague goals like "save for retirement" can make it harder to track your progress. Instead, set specific, measurable milestones such as "accumulate $500,000 in my retirement account by age 50." This gives you a clear target and makes it easier to determine if you're on track to meet your goals.
2
Align with your financial goals
Your investment choices should match your financial objectives. For example, if your priority is stability, you might focus on safer investments, while long-term growth goals could lead you to invest more heavily in stocks.
3
Regularly revisit your goals
Set regular intervals, such as annually or semi-annually, to review and adjust your investment goals. Life circumstances, financial markets and personal priorities can change, so it's important to realign your goals as needed to stay on track.
4
Consider flexibility
Life changes, such as job loss or family growth, can impact your financial goals. Ensure your plan has some flexibility to adjust for unexpected events, allowing you to pivot without jeopardizing your progress.

2. Determine Your Risk Tolerance

Risk tolerance is your ability to handle volatility and uncertainty in your investments. It directly affects the types of assets you invest in and how much risk you're comfortable taking. Those with lower risk tolerance may prefer safer investments, while higher risk tolerance allows for more aggressive strategies, accepting greater volatility in exchange for higher potential returns. Here's how you can figure out your risk tolerance:

1
Assess your financial situation
Review your overall financial health, including your savings, income and financial obligations. Take a close look at your cash flow — how much money you have left after covering your basic expenses. If you have a steady income and manageable debt levels, you may be in a better position to take on more investment risk.
2
Consider your investment horizon
The longer your timeline, the more risk you can typically afford to take. For example, if retirement is 30 years away, you may be more comfortable with a higher-risk portfolio. Shorter timelines generally require more conservative strategies.
3
Evaluate your comfort with market swings
Think about how you react to market volatility. If seeing your investments drop in value would cause significant stress, a more conservative approach may be appropriate.
4
Factor in your investment goals
Determine whether your goals are growth-focused or income-focused. Growth-oriented investors may tolerate more risk, while those seeking steady income may prefer lower-risk investments.
5
Use a risk tolerance questionnaire
Many financial institutions and robo-advisors, such as Vanguard, offer risk assessment questionnaires. These can help you quantify your risk tolerance based on your financial goals and preferences.
6
Reevaluate over time
Risk tolerance isn't static. As you approach major life events, like retirement or buying a home, you may want to adjust your risk tolerance and shift your portfolio toward safer investments.

3. Calculate How Much to Invest

There isn't a one-size-fits-all answer to how much you should invest, but a good rule of thumb is to aim for investing 10–15% of your income, depending on your financial goals. You can also use compound interest calculators to estimate how your investments might grow over time based on your contributions, savings and long-term objectives. Remember, investing doesn't require a large initial sum — what matters is consistency and aligning your contributions with your financial reality. Below are some steps to help you calculate how much you can invest without overstretching your budget:

1
Review your income
Assess how much you earn each month after taxes. Consider how much of this income can be set aside for investing without compromising your ability to cover regular expenses.
2
Establish an emergency savings fund
Before you start investing, ensure you have an emergency fund with at least three to six months of living expenses saved in an easily accessible account. This will help protect you from needing to sell investments in an emergency.
3
Address outstanding debts
If you have high-interest debt, like credit cards, it's usually better to pay these debts off before investing. The interest you're paying likely exceeds what you'd earn through investing.
4
Consider your basic expenses
Outline your essential monthly expenses, such as rent, utilities, groceries and transportation, to understand how much disposable income you have available for investments.
5
Plan for urgent needs
Take into account any upcoming expenses or financial obligations. You don't want to commit too much money to investing if you know you'll need it soon for other important matters.

4. Understand Your Investing Style

Your investing style reflects how actively or passively you want to manage your portfolio and your overall approach to investing. It's based on your preferences, personality and how involved you want to be in decision-making. Some investors prefer a hands-off approach, allowing professionals or automated tools like robo-advisors to manage their portfolios, while others enjoy researching and making their own decisions. Here are three common investing styles to consider:

Active investing

Active investing involves frequent buying and selling of investments to outperform the market. This style is best for individuals who enjoy analyzing stocks, following market trends and making frequent trades. It suits those willing to dedicate time to research and with a higher risk tolerance.

Passive investing

Passive investors take a long-term approach, often using index or exchange-traded funds (ETFs) that track the market. The goal is to match the market's performance rather than beat it. This style is ideal for investors seeking a hands-off strategy focused on long-term growth, with minimal trading and reliance on consistent market-based returns.

Automated or robo-investing

Automated or robo-investing uses algorithms to manage and rebalance portfolios based on an investor's risk profile and goals. Robo-advisors offer a low-cost, hands-off solution perfect for beginner investors or those with limited time who want a simple, cost-effective way to invest without needing deep financial knowledge.

5. Choose an Investment Account

The best investment account for you depends on your financial goals. For retirement savings, accounts like IRAs or 401(k)s offer tax advantages, while a taxable brokerage account may be better for short-term goals or flexible access. Each account has its own features, benefits and drawbacks, so it’s important to choose one that aligns with your needs. Below is a list of common investment accounts and their features to help guide your decision:

Account	Description	Best For
Individual retirement account (IRA)	A tax-advantaged account designed for long-term retirement savings. Contributions may be tax-deductible and growth is tax-deferred.	Individuals saving for retirement outside of an employer-sponsored plan, wanting to lower taxable income.
Roth IRA	Similar to a traditional IRA, but contributions are made with after-tax dollars. This allows for tax-free growth and tax-free withdrawals in retirement.	Younger investors or those expecting to be in a higher tax bracket in the future.
401(k)	An employer-sponsored retirement plan allowing pre-tax income contributions, often with employer matching. Growth is tax-deferred until withdrawal.	Employees with access to an employer-sponsored plan, especially if employer matching is available.
Taxable brokerage account	A flexible investment account where you can buy and sell assets like stocks, bonds and ETFs. No tax advantages, but no withdrawal restrictions.	Individuals with shorter-term goals or those wanting full access to investments without tax limitations.
529 college savings plan	A tax-advantaged savings plan for education expenses. Contributions grow tax-deferred and withdrawals for qualified education expenses are tax-free.	Parents or individuals saving for future education costs.
Health savings account (HSA)	A tax-advantaged account for individuals with high-deductible health plans (HDHP). Contributions are tax-deductible and withdrawals for medical expenses are tax-free.	Individuals looking to save for health care expenses while benefiting from tax advantages. Can also serve as a secondary retirement account.
Robo-advisory account	An automated investment account that uses algorithms to manage and rebalance portfolios based on risk tolerance and goals.	Investors preferring a hands-off, low-cost approach. Useful for beginners or those with limited time.
Solo 401(k)	A retirement account for self-employed individuals or small business owners. Offers higher contribution limits than IRAs.	Self-employed individuals or business owners who want higher contribution limits for retirement savings.

6. Open and Fund Your Investment Account

After selecting the right investment account, the next step is to open it and begin funding it. Today, this process is quick and easy through online platforms and apps that let you set up an account in minutes.

You'll typically provide personal information, choose your investment preferences and link a bank account for funding. You can contribute lump sums or set up automatic contributions to fund your account to stay consistent.

7. Learn Investment Strategies

There are several investment strategies, such as buy and hold, dollar-cost averaging and growth investing. Once your account is funded, take the time to understand these strategies, as your chosen approach will shape your decisions. An investment strategy defines the types of assets you'll invest in, how you allocate your funds and the tactics you'll use to reach your financial goals. Below are some common strategies:

Investing Strategy	Description	Best For
Buy and hold	This long-term investing strategy involves purchasing and holding onto investments through market ups and downs. The goal is to let the assets grow over time, benefiting from compound returns. This approach requires patience and trust in the market's ability to recover from short-term fluctuations.	Investors with long-term goals, like retirement, who prefer a hands-off approach and are comfortable with short-term market volatility.
Dollar-cost averaging (DCA)	Dollar-cost averaging (DCA) means investing a fixed amount of money regularly, no matter what the asset's price is at the time. This approach spreads out your purchases and reduces the impact of market ups and downs, helping to lower the risk of trying to time the market.	Beginner investors or those looking for a steady, consistent investment method that avoids the stress of timing the market.
Growth investing	Growth investing focuses on companies expected to grow significantly, even with low earnings. Investors aim to benefit from the rising stock prices as these companies expand. This strategy is riskier but offers higher potential returns over the long term.	Investors with a high risk tolerance and a long-term outlook looking for significant capital appreciation.
Value investing	Value investing involves finding stocks that are undervalued by the market, with the belief that their true worth will eventually be recognized. This strategy relies on thorough research and patience, as it may take time for the market to reflect the stock's intrinsic value.	Investors who enjoy researching and analyzing stocks, are comfortable with moderate risk and are patient enough to wait for long-term gains.
Income investing	This strategy prioritizes generating a steady income stream through dividends, bonds or other yield-producing assets. Investors focus less on price appreciation and more on creating reliable earnings.	Retirees or those seeking more stability and consistent income, preferring lower-risk investments that offer regular payouts.
Index investing	Index investing aims to replicate the performance of a market index, like the S&P 500, by using passive funds such as ETFs. The strategy offers broad diversification and low costs while seeking to match the overall market's performance.	Investors who want a low-cost, low-maintenance approach focused on long-term growth without needing active management.

8. Decide What to Invest In

After you’ve set your goals, assessed your risk tolerance and put your strategy in place, the next step is deciding what to invest in. For beginners, low-cost index funds or ETFs are great options. These offer diversification, low fees and are easier to manage than individual stocks. Robo-advisors are also a good choice for beginners seeking a hands-off approach.

However, the right mix depends on your goals, timeline and risk comfort. Diversifying across asset classes helps balance risk and reward, allowing your portfolio to grow while minimizing the impact of any single investment's downturn.

Investment Vehicle	Description	Best For
Stocks	Ownership in a company, with potential for higher returns but greater risk.	Investors seeking long-term growth and comfortable with market volatility.
Bonds	Loans to governments or corporations, offering regular interest payments and lower risk.	Investors seeking stable, lower-risk income streams.
Mutual funds	Pooled investments managed by professionals, offering diversification.	Investors wanting professional management and diversification.
Exchange-traded funds (ETFs)	Funds that track an index, offering diversification and flexibility like stocks.	Investors seeking low-cost diversification and ease of trading.
Real estate	Investments in property, offering long-term growth and passive income.	Investors seeking passive income and diversification outside of traditional markets.
Commodities	Physical assets like gold or oil, used to hedge against inflation.	Investors looking to hedge against inflation and diversify their portfolios.
Certificates of deposit (CDs)	Fixed-interest savings accounts with guaranteed returns over a set period.	Conservative investors seeking guaranteed returns over a set period.
Real estate investment trusts (REITs)	Pooled real estate investments, offering dividends and exposure to property markets.	Investors seeking real estate exposure without owning physical property.
Cryptocurrency	Offer speculative growth and significant volatility.	Risk-tolerant investors seeking speculative growth.

9. Monitor and Review Your Portfolio

As you start investing, actively monitor and build your portfolio over time. Monitoring doesn't mean checking your investments daily. As markets fluctuate frequently, periodic reviews ensure your portfolio remains aligned with your goals and risk tolerance. As you monitor your investments, you may find opportunities to build and strengthen your portfolio by adding new assets, rebalancing or reinvesting dividends.

Following these steps can help ensure you're reviewing and adjusting your portfolio as needed:

Set regular review periods

Review your portfolio at least quarterly or biannually. These regular check-ins help you stay informed about performance without reacting to daily market swings.

Rebalance your portfolio

Over time, some investments may outperform others, shifting your asset allocation. Rebalancing ensures you maintain the right mix by selling and buying assets as needed.

Diversify your investments

Continue adding diverse assets across different classes, sectors or regions. Diversification helps reduce risk by spreading your investments.

Reinvest dividends

If you earn dividends, consider reinvesting them to take advantage of compound growth rather than cashing them out.

Stay informed on market trends

Keep up with economic news and market conditions that may affect your investments. Staying informed helps you make smarter adjustments to your portfolio.

Use investing apps

Take advantage of investing apps that offer tools for tracking your portfolio, automating contributions and providing insights into market trends.

FAQ About Investing for Beginners

Here are some answers to frequently asked questions to help you better understand the basics of investing and make informed financial decisions.

What age should I start investing?

It’s best to start investing as early as possible. The earlier you invest, the more time your money has to grow through compound interest. Even small amounts can grow significantly over decades, making a big difference by the time you reach retirement.

How do I invest money wisely?

Investing wisely involves understanding your financial goals, assessing your risk tolerance and diversifying your portfolio across different asset types. Stay informed about the market and review your portfolio regularly to ensure it aligns with your long-term objectives.

How can I diversify my investments?

Diversification involves spreading your investments across different asset types — such as stocks, bonds and real estate — to reduce risk. You can also diversify within asset classes by investing in different industries or regions.

About Nathan Paulus

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

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How to Start Investing for Beginners

Key Steps to Start Investing Your Money

1. Identify Your Investment Goals

Be specific and define clear milestones

Align with your financial goals

Regularly revisit your goals

Consider flexibility

2. Determine Your Risk Tolerance

Assess your financial situation

Consider your investment horizon

Evaluate your comfort with market swings

Factor in your investment goals

Use a risk tolerance questionnaire

Reevaluate over time

3. Calculate How Much to Invest

Review your income

Establish an emergency savings fund

Address outstanding debts

Consider your basic expenses

Plan for urgent needs