How to Start Investing: A Beginner’s Guide

To start investing, learn the basics, set clear goals, and choose a strategy that fits your timeline and risk tolerance. Even small, consistent investments can help build wealth over time.

Investing can help you work towards your financial goals for the future, but it can also feel like an intimidating minefield for the uninitiated. Fortunately, modern technology has made it easier to start an investment portfolio. You could get started today if you have an internet connection and a brokerage account.

But it’s important to understand both the potential risks and benefits before you put your money into the financial markets. You’ll want to learn the basics of investing, from the different types of investments to the various strategies you can use to try to build your wealth. With this knowledge, you can start to identify which investments may be right for you, and how to get started.

How to Start Investing

If you are ready to start investing and want to build a portfolio on your own, you can follow these steps to get started. Just remember that it’s important to do your homework first to identify whether an investment may be a good fit for your goals and tolerance for risk.

1. Determine Your Investment Goals

You’ll want to do your best to establish your financial goals before you start investing. Since investments offer the potential for growth over time, many people use portfolio gains to fund future financial goals, like purchasing a home or retirement. Figuring out which investment strategy is right for you starts by assessing and understanding your goals and time horizon, because they’re not the same for everyone.

2. Choose an Investment Account

You will also need to open a brokerage account and deposit money into it. Once your account is funded, you can buy and sell stocks, exchange traded funds (ETFs), mutual funds, and other securities.

You may also use an employer-sponsored retirement plan, like a 401(k), or an individual retirement account (IRA) – such as a Roth IRA – to make your investments. One benefit of some retirement investment accounts is that they are tax-advantaged, meaning your investments may grow tax-free or tax-deferred within the accounts.

It’s worth remembering that you may need to pay taxes when withdrawing money. A tax professional can help advise you on what options may be best for your personal circumstances. To get started, here’s a guide on how to open a brokerage account.

3. Know Your Investment Options

There are numerous types of investments that you can explore and choose from. Here are some examples:

1. Stocks

When you think of investing, you probably think of the stock market. A stock gives an investor fractional ownership of a publicly traded company in units known as shares. Investing in stocks as a beginner — which may involve investing in and monitoring a small number of relatively low-risk companies — can be a good way to learn about the markets.

Stocks may generate returns for investors through capital appreciation, dividends, or both. Capital appreciation occurs when you buy a stock at one price, then sell it for a higher price in the future. The company may also pay dividends if it distributes part of its profits to shareholders.

Note, however, that it’s possible for investors to lose some of their initial investment if a company’s share price falls below their purchase price or all of that investment if the stock hits zero, making the stock worthless, which can happen. Investing in stocks carries some significant risks, and investors should be aware of those risks.

2. Bonds

Bonds are loans you make to a company or a government — federal or municipal — for a fixed period. In return for loaning them money, they promise to pay you, the investor, periodic interest and, eventually, your principal at the end of the period of the loan.

Bonds are often considered less risky investments than stocks. Bonds may be backed by the full faith and credit of the U.S. government, as is the case with U.S. Treasurys, or by state or local governments. They also may be backed by large companies.

However, the risk varies, and bonds are rated for quality and creditworthiness. Because the U.S. government is less likely to go bankrupt than an individual company, Treasury bonds are considered some of the least risky investments. However, they also tend to have lower returns. To start investing in bonds, a good first step is to learn about the options for buying bonds and the different types available..

3. Mutual Funds and ETFs

A mutual fund is a portfolio of assets either managed by a professional, or set up to track an index, such as the S&P 500. Funds typically focus on an asset class, industry, or region, and investors pay fees to the fund manager to buy and sell investments.

Exchange-traded funds (ETFs) are similar to mutual funds, though ETFs are traded on a stock exchange, giving investors the flexibility to buy and sell throughout the day. ETFs may also charge lower management fees than comparable mutual funds.

Mutual funds and ETFs can allow investors to diversify their holdings with a single investment vehicle. However, investors often invest in multiple funds for broader portfolio diversification.

4. Real Estate

Real estate is another type of investment which many people invest in by purchasing a home or a rental property.

If owning a home or becoming a landlord is out of reach for you, you can also invest in a real estate investment trust (REIT), or a company that operates in the real estate business. You can trade shares of a publicly listed REIT on a stock exchange like you would a stock. With a REIT, an investor buys a share of a real estate company that typically earns income through different types of property.

5. Robo Investing

For beginners who would be more comfortable with a hands-off approach, robo-investing uses automated, algorithm-driven technology to build and manage a diversified portfolio based on your financial goals and risk tolerance. These services typically have lower investment minimums and management fees compared to traditional human financial advisors, making them an accessible option for those just starting out. Some also offer varying degrees of human support for questions you may have about your investments.

To choose a robo advisor, investors may consider factors such as the range of investment products and portfolios offered, the types of investment accounts it supports (such as brokerage, retirement, and college saving accounts), how it handles portfolio rebalancing, and the level of support offered.

4. Decide Your Investment Style

Each individual investor will have different goals and concerns as it relates to their portfolio. You may want to work with a financial professional to help you zero in on what type of investments and overall portfolio may give you the best chance at reaching your goals.

With that in mind, you’ll want to think about your time frame, or time horizon — that is, how long you have to invest, and how long you might want to wait before selling your investments to see potential profits — assuming your investments accrued value.

Also think about your risk tolerance, or how much risk you’re willing to take with your money. Riskier investments may generate larger returns over time, but they can also lead to significant losses. This is something to consider when figuring out your specific investment style.

You’ll also want to think about how you allocate your investments, or the degree to which you diversify your portfolio. That means looking at the specific mix of investment types in your portfolio, and getting a sense of the risks and potential returns that each brings to the fold.

Quick Tips for Investing Beginners

An investment strategy is a plan for how you will invest your money. An investing strategy should consider your financial goals, risk tolerance, and time horizon. Here are three recommended tips and strategies for beginner investors.

•   Consider a buy-and-hold approach: Investors practicing buy-and-hold strategies tend to buy investments and hang on to them over the long term, regardless of short-term movements in the market. Doing so can help curb the tendency to panic sell, and it can also help minimize fees associated with trading, which may boost overall portfolio returns.

•   Utilize dollar-cost averaging: Dollar-cost averaging is a strategy that helps individuals regularly invest by making fixed investments on a regular schedule regardless of price. A dollar-cost averaging strategy can help individuals access a lower average share price and help them avoid emotional investing. On the flip side, dollar cost averaging may offer lower returns compared to lump sum investing in a rising market (and there is never a guarantee of seeing returns in investing).

•   Stay stoic: Remember to keep your emotions in check when investing. You may feel panicked every time the market dips, the economy slows, or a friend tells you that you need to shift your portfolio. But it may be wise to stick to your strategy and keep your goals in mind. There are no guarantees in investing, so don’t let the whims of the market give you whiplash.

Remember the Risks

It bears repeating that investing involves risk. There are all sorts of risks that investors assume when they put their money in the markets, and each individual investment may come with different types of associated risks. Some investment types are significantly riskier than others, too.

It’s important for beginner investors to keep in mind that there are no guarantees when investing. There’s a chance they could see negative returns, or lose all of their initial investment.

The Takeaway

For beginners, investing can seem complicated and intimidating — in many ways, it is. But if you take some simple initial steps to familiarize yourself with the markets, investing tools, and types of investments — and pair them with a sound strategy – you should set yourself up to be more confident and comfortable when you start investing.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest®. You can trade stocks, ETFs, or options through self-directed investing with SoFi Securities, or simply automate your investments with a robo advisor from SoFi Wealth. You'll gain access to alternative investments and upcoming IPOs, and can plan for retirement with a tax-advantaged IRA. With SoFi, you can manage all your investments, all in one place.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

How much money do you need to start investing?

It’s possible to start investing with very little money. Some brokerages allow investors to open accounts with as little as $0 to $5. At the same time, some investments may require a substantial minimum investment. Remember, however, that money is always needed in the account to purchase investments, such as stocks or funds.

What are the most popular investment options for beginners?

Some popular beginner investments include stocks, mutual funds, and exchange-traded funds (ETFs).

What are some simple investment strategies for beginners?

Some common investment strategies for beginners include buy and hold and dollar-cost averaging. Many beginners may also employ an index investing strategy, buying ETFs and mutual funds that track a benchmark index, like the S&P 500.

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Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.
Mutual Funds (MFs): Investors should read and carefully consider the information contained in the prospectus, which contains the Mutual Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or SoFi's customer service at: 1.855.456.7634. Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risks. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may have tax implications.
Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.
Dollar Cost Averaging (DCA): Dollar Cost Averaging (DCA) is an investment strategy where you regularly invest a fixed amount of money regardless of market conditions. This approach aims to reduce the impact of market volatility and lower your average cost per share over time. DCA does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals and risk tolerance before using this strategy, understanding that past performance is not indicative of future results. Consult with a financial advisor to determine if DCA is appropriate for your individual circumstances.
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