Where to Start Investing: Effective Money Growth for Beginners

Investing is one of those things that sounds intimidating if you’ve never tried it, but it’s not as hard as you might think. Once you know where to start investing, you’ll find out how simple it can be, even if you start with small dollar amounts. 

If there’s anything I regret financially, it’s that I didn’t start investing immediately when I started my first job out of college. I didn’t learn about it in school and it honestly seemed out of my reach, so I missed out on key early years for my money to grow. 

Thankfully, you don’t have to make the same mistake I did. Find out where to start investing for beginners and start that habit as soon as possible. 

Erika Taught Me

  • Investing causes your money to grow, unlike simple savings accounts that decrease your spending power due to inflation.
  • You don’t need a lot of money to start investing, so get into the habit early and increase the amount as you’re able.
  • Consider your goals and your investment time horizon.
  • The earlier you start investing, the more your money will grow thanks to the magic of compound interest.

. . .

Why Is Investing Important?

You have three choices of what to do with your money: spend, save, or invest. Spending is pretty self-explanatory, but you might question when to save versus when to invest. 

We all need money available for emergencies like when the transmission on your car goes out, and that’s one reason to save. 

“The goal of saving money is not to grow money, but to make it accessible when you need it,” says Erika. 

But the downside of keeping money in savings is that it doesn’t tend to grow or help you build wealth. 

That’s where beginner investments come in. You don’t need to memorize some guide to the markets, but you do need to learn where to stash your money so it will grow. That means buying assets that will increase in value and earn you more money over time. 

Because inflation acts like a thief, decreasing your money’s worth over time, you’ve got to invest. Investing is like paying yourself in the future — and you don’t have to be a stock market expert to earn good returns on the money you invest. 

Best Ways to Start Investing

You've got quite a few options for making your first investment, depending on your goals and where you're most comfortable putting your money.

Ideally, you should try to incorporate a mix of a few or all of these. That way, you diversify your portfolio and minimize your overall risk. You don't want too many eggs in one basket.

Certificates of deposit (CDs)

Beginner investors can stash money in certificates of deposit at a local or online bank. These accounts pay a fixed or variable rate of interest on your deposited funds, only to be withdrawn when the CD matures. 

CDs are excellent if you’re new to investing since there’s no risk if you choose an FDIC-insured institution. These protect your money — up to $250,000 at each bank, per depositor. 

You can find CDS of terms of three months up to five years and be confident you’ll get your initial deposit back plus earned interest. The only real risk is if you end up needing to withdraw the funds before the CD matures, which means you’ll forfeit some of your earnings as a penalty.

READ MORE: Are CDs Worth It?

Robo-advisors

Thanks to the age of the robo-advisor, anyone can invest in a portfolio without a ton of stock market knowledge. Robo-advisors make investing feel accessible to those of us who would never set foot in a financial advisor’s office. 

When signing up with a robo-advisor, you’ll answer questions about your financial situation — risk tolerance, time horizon, goals, and more. Then the robo-advisor will create a portfolio of investments based on your needs and wishes. 

Investing with a robo-advisor comes with lower fees than most traditional financial advisors, but you also don’t have the personalized guidance with a robo-advisor. 

If you’re nervous about where to begin investing and need to simply get started, a robo-advisor may be ideal. It gets you in the habit of investing with very little hands-on effort. That first step in any new venture is always the hardest, but once you get started, it’s often easy to stick with it. 

401(k)s and other workplace retirement accounts

I’ll be forever grateful to my former coworker for dragging me to an investment fair. That’s when I signed up for my 403(b), or the teacher version of a 401(k). I wish I’d done it six years sooner, but better late than never. 

Not everyone has an employer-sponsored retirement account, but if you do, you should take advantage of it. As soon as you start with a new employer, ask human resources about their 401(k) and start putting something (even if the amount is low at first) into it right away. 

Why should you invest in a 401(k)? This type of account offers tax benefits by reducing your taxable income. You can take what are called “elective salary deferrals,” which means your employer takes the amount you designate from your pay and deposits it into your 401(k). 

Let’s not forget the other big perk of 401(k)s: employer matching contributions. Many private-sector employers match your contributions up to a certain percentage. It’s smart to contribute at least enough to your 401(k) to receive the maximum employer match.

Your 401(k) doesn’t accomplish anything if you don’t invest the funds in something. HR should provide guidance on permitted investments, and you’ll consider whether you want a conservative or high-risk portfolio of stocks, bonds, and other securities. 

IRAs and Roth IRAs

If you want to put your money to work for you, you must invest early. That’s why you’ll often hear about the IRA and Roth IRA as a great investment for beginners. 

These retirement investment accounts have certain tax advantages, and they’re especially useful if you don’t have access to a 401(k) or employer-sponsored retirement account. 

  • Traditional IRAs: contributions are tax-deductible
  • Roth IRAs: contributions are not tax-deductible, but qualified distributions are tax-free

You can withdraw funds from an IRA anytime, but typically with an added 10% tax on withdrawals before you reach age 59½. Contributions are limited each year. 

The Roth IRA is a fantastic first investment for younger people since you get taxed on the front end, when you enjoy a lower tax rate, and then your withdrawals are tax-free. 

As with a 401(k), you’ll need to set up how you allocate your contributions. Many people invest in ETFs within their IRA, and you can also choose mutual funds or index funds. 

ETFs

Exchange-traded funds, or ETFs, are another investment option that can be within an account like an IRA or 401(k). The ETF is a security you buy, just like any stock or bond.

ETFs are SEC-registered investment companies. They usually track an index like the S&P 500, giving broad exposure to a range of stocks. 

What’s great about this is you get somewhat instant diversification — which can be ideal for beginner investors who want to spread out their risk.

You will pay annual fees to the fund manager on ETFs — this is called the expense ratio. 

ETFs are good for beginner investors in that you get a bundle of different companies. However, you don’t own any shares of a company outright. As such, you’re not considered a shareholder of Apple or whatever companies are in the ETF.

You can buy ETFs through investment apps like Webull, which is suitable for beginners since it's easy to use and allows you to invest with as little as $5.

READ MORE: Webull Review: How It Compares for Beginner Investors

Index funds

Another excellent example of how to invest in stocks for beginners: index funds. They mimic the performance of the index they track (common ones are the S&P 500, Nasdaq Composite Index®, and the Russell 2000). You can purchase shares of index funds through a broker or mutual fund company. 

An index fund is actually a type of ETF or mutual fund that offers exposure to a large variety of stocks. This diversifies your portfolio (spreads out your risk among a bunch of stocks). 

It’s cost-effective because most people can afford a share of an index fund more easily than a share of each individual stock contained in that fund. 

Index funds tend to have low fees, are convenient to buy and sell, and offer diversification of assets. You also can take a passive investing approach instead of spending time analyzing or tweaking your investments. 

General Tips for Beginner Investors

Consider these four factors as you decide on what beginner investments work best for you:

  • Financial goals: What do you want to accomplish with your money? (Funding retirement is a big one for investments.) Determine the purpose of your investments — if you’ll need access to your money at a certain time, tailor the investment accordingly. In general, the investment types included here are ideal for long-term investing.
  • Time horizon: This it the length of time your money will remain invested. You may need investments you can tap into at different points in the future, and the time horizon impacts your risk.
  • Risk tolerance: How much risk can you handle? In general, someone with a longer time horizon can afford to take more risks, but your individual preference may still be to protect your money. 
  • Values: Your investments can align with your beliefs. You can look into impact investing or values-based investing that focuses on (or away from) certain sectors or practices. 

READ MORE: How To Start Investing

FAQs

At what age should you start investing?

The earlier you start investing, the better. Time is the crucial factor that allows your money to multiply over and over, thanks to compounding interest. So even if you can only invest a small amount like $5 a week or $10 a month, get that account set up now. 

Even children can start investing in a Roth IRA as soon as they begin earning money. 

That said, if you haven’t started to invest and you’re feeling behind, the best thing to do is get started. You may need to play catch-up and take a more cautious investment strategy the closer you are to retirement, though. 

What are the safest investments?

Safe investment options sound appealing but remember: “safe” is a relative term. 

Safe means your money won’t lose value, but if you’re hoping to make money long-term, you don’t want to play it too safe. Because of inflation, a dollar today won’t be worth as much in 20, 30, or 40 years.

That said, the safest “investments” include high-yield savings accounts and CDs that pay a fixed rate on your funds. However, you shouldn’t avoid risk altogether. 

When you invest in the stock market through your 401(k) or IRA or ETFs, your money isn’t guaranteed, but you need to take some risk to experience real growth of your net worth. 

What are the riskiest investments?

The riskiest investments for beginners include things like single-stock investments. You can put money into the stock market as a beginner, but you probably want to start with something like an index fund that gives you a selection of stocks to offer diversification. 

Trying to “time the market” is generally the riskiest move.

Investing in a 401(k) or IRA comes with risk because your funds aren’t guaranteed to maintain their value or grow at a specific rate. However, that’s why investing for the long haul is ideal — you give your money multiple decades to grow so you can ride out any dips in the market.

TL;DR

Knowing the best ways to start investing will help you set up your future self for financial security. Think about your financial goals, time horizon, risk tolerance, and values as you begin investing. 

Instead of trying to magically pick the best stocks, the big rule to learn about investing is simple: invest early, and leave your money invested. Time is the not-so-secret weapon in successful investments, so get started as soon as possible.

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.