Heads Up: The Fed continues to raise rates — up 3% this year — making credit card debt even costlier.
Pay it off today with a low fixed-rate personal loan. View your rate —>

5 Investment Strategies for Beginners

June 07, 2022 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

5 Investment Strategies for Beginners

Investing is a powerful tool that allows you to put your money to work to help you reach future financial goals. But if you’re new to investing, you may be asking yourself what strategies should you pursue?

Here’s a guide to help you get started.

5 Popular Investment Strategies for Beginners

1. Asset Allocation

Once you’ve opened an investment account and you begin to build your portfolio, asset allocation is one of the most important strategies to consider to help you balance risk and return. A typical portfolio might divide its assets among three main asset classes: stocks, bonds and cash. Each asset class has its own risk and return profile, behaving a little bit differently under different market circumstances.

For example, stocks tend to offer the highest gains, but they are also the most volatile, presenting the most potential for losses. Bonds are generally considered to be less risky than stocks, while cash is the most stable. Cash investments in your savings account are insured by the federal government.

The proportion of each asset class you hold will depend on your goals, time horizon and risk tolerance. Your goal tells you how much you need to save. Your time horizon is the length of time you have before reaching your goals. And your risk tolerance is how willing you are to accept losses in the short-term in exchange for potentially greater long-term gains.

Your asset allocation can shift over time. For example, someone in their 30s saving for retirement has a long time horizon and may have a higher risk tolerance. As a result their portfolio may contain mostly stocks. As that person ages and nears retirement, their portfolio may shift to contain more bonds and cash, which are less risk and less likely to lose value in the short-term.

2. Diversification

Another way to manage risk in your portfolio is through diversification, building a portfolio with a broad mix of investments across assets, helping you avoid putting all your eggs in one basket.

Here’s how it works: Imagine you had a portfolio consisting of stock from one company. If that stock does poorly your entire portfolio suffers.

Now imagine a portfolio consisting of many stocks, from companies of all sizes, sectors and parts of the globe. Not only that, it also holds other investments, including bonds. Now, if one stock suffers, it will have a much smaller effect on your overall portfolio, spreading out the risk of holding any one investment.

3. Rebalancing

Your portfolio can change over time, shifting your assets allocation and diversification. For example, if there is a bull market and stocks outperform, you may discover that you now hold a greater portion of your portfolio in stocks than you had intended.

At this point, you may need to rebalance your portfolio to bring it back in line with your goals, time horizon and risk tolerance. In the example above, you may decide to sell some stock or devote new investment funds to buying more bonds.

4. Buy and Hold Strategy for Investing

Market fluctuations are a natural part of the market cycle. However, investors may get nervous and be tempted to sell when prices drop. However, when they do, investors lock in their losses and often miss out on subsequent market rebounds.

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 can boost overall portfolio returns.

When it comes to these taxes, whether a holding is a long-term investment vs. short-term one can make a big difference in terms of how much you pay in taxes.

If you profit from an investment after owning it for at least a year, it’s a long-term capital gain. Less than that is short-term. Capital gains tax rates can change, but generally, longer-term investments are taxed at a lower rate than short-term ones.

5. Dollar-Cost Averaging

Dollar-cost averaging is a strategy that helps individuals invest on a regular basis by making fixed investments on a regular schedule regardless of price.

For example, say an investor wants to invest $1,000 every quarter in an ETF that tracks the S&P 500. Each quarter, the price of that fund will vary—Sometimes it will be up, sometimes it will be down. The amount of money the individual invests remains the same, so they are buying fewer shares when prices are high, and more shares when prices are low.

This strategy can help individuals access a lower average share price, and it can also help them avoid emotional investing.

The Takeaway

Investing is an ongoing and dynamic process. Your life, goals and financial needs will all change as your circumstances do. For example, may you get a raise at work, get married and have a child, or you decide to retire early. Factors like these will change how much money you need to save and how you invest. Monitor your portfolio and make adjustments as needed.

Ready to start investing? Visit SoFi Invest, which allows you to invest however you feel most comfortable, whether through a hands-on approach with active investing or by letting automated investing do the work for you. There are no SoFi management or commission fees, and you can speak to an advisor to help get started.

Learn more about SoFi Invest today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOIN19126

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender