Home Investing 9 Best Investment Options for Beginners: guide for the broke
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9 Best Investment Options for Beginners: guide for the broke

Best investment options for beginners

It seems you are ready to join the race for money, and probably scared since you’re a “beginner” looking to join the wealth wagon. But this guide says “drop the scare” since it compiles the best investment options for beginners. Investments are a way to make your money grow and set yourself up for a solid financial future. But let’s be real, it can feel overwhelming if you’re a beginner. Even with so many options out there, the wrong choice can make you lose the hard-earned money.

That’s why you need the basic potentially wealthy options to dive and make good returns. Again, this article has it all.

Best investment options for beginners

Best investment options for beginners

For beginners looking to make smart investments, there are several options worth considering. That being said, here is a list of the best investment options for beginners:

1. High-yield savings account

If you’re just getting started with investing and want an easy option, putting your money into a high-yield savings account is a straightforward choice. These accounts pay you for depositing your money. You make money just by keeping your funds in the account.

The downside is that the national average interest rate on a traditional savings account is only about 0.25%, claims Bankrate LLC. It isn’t exactly a huge return. If you do rely on this kind of account for your investments, you’ll end up losing money over time due to inflation.

The cost of goods and services tends to increase by around 3.8% each year, which means that your money won’t go as far if it’s just sitting in a low-yield account.

However, high-yield savings accounts can be a game changer. Some of these accounts offer up to 18 times more interest than traditional ones, with an annual percentage yield (APY) of around four percent. While this return may not be massive, it will at least keep pace with inflation and is risk-free. For beginner investors, it’s a good deal and the closest thing to free money you’ll find out there.

2. Mutual funds

A mutual fund is a good investment option that lets people pool their money together. A qualified money manager takes care of the pooled money and invests it in assets that match the fund’s specific objective. Depending on the objective, the investments can be super diverse or laser-focused on a particular asset class like stocks, bonds, or real estate.

The value of a mutual fund depends on all of the investments it holds. So even though investors aren’t directly investing in those assets, they’re investing in the value of the fund. And because of this unique setup, the price of a mutual fund is called the net asset value (NAV). This is calculated by dividing the total value of the fund’s investments by the number of outstanding shares, and it’s updated every weekday at the end of the market day.

Now, the return you’ll get on your investment depends on the fund’s performance and how much you invest. But in exchange for managing your money, mutual funds will charge you a fee. The fee can vary depending on whether the fund is actively managed or passive, and it usually ranges from 0.5% to about 1.5%.

3. Real estate

Real estate, the big player in the financial world is a massive market, with estimations putting its global value at around $326.5 trillion in 2020, according to Savills research. It is indeed one of the best investment options for beginners and a well-established industry. There’s already a playbook on how to invest successfully. No need to reinvent the wheel or come up with some new strategy.

Investing in real estate these days is even easier thanks to technology and improved access to funds. It is becoming more democratic, so you don’t have to be a big shot to get involved. Of course, that doesn’t mean every investor will instantly become a millionaire. But the odds are definitely in favor of beginners who do their homework, take calculated risks, and stay diligent.

Even in slower markets, there’s money to be made.  In 2022, the average return on investment (ROI) for house flipping was 26.9%, and gross profit was $67,900, according to Attom.

Despite the current efforts by the Federal Reserve to slow down the housing market, the return on investment for flipping properties was an impressive 29.0% compared to the original purchase price. Sure, future interest rate hikes might affect profit margins, but there will always be a way for beginner investors to find a profitable exit strategy.

4. Short-term certificates of deposit

This type of investment option for a beginner is like a special savings account that can give you a higher APY compared to a regular savings account. Here’s how it works: You put in a lump sum of money for a set amount of time, and during that time, you can’t touch the money without facing a penalty. It’s like a commitment. But once that time is up and the CD matures, you can either take out the money or put it into a new CD.

The terms for these CDs can go anywhere from 6 months to 5 years. The longer you’re willing to wait, the better the interest rate (that’s the APY) tends to be. Also, if you go for a CD from a federally insured bank, your money is covered up to $250,000 per customer.

5. Index funds

Index funds are similar to mutual funds but with a twist. Instead of relying on a manager to figure out where to put your money, an index fund just follows a specific market index. Let’s say you go for an S&P 500 index fund. That means your money gets invested in stocks from around 500 of the top-performing companies in the US.

Now, index funds usually have this annoying minimum investment requirement. But some brokerage firms like J.P. Morgan Self-Directed Investing let you jump in without worrying about that minimum. So, you can put your money in an index fund without breaking the bank.

6. Money Market accounts (MMA)

Money market accounts (MMA) are another good option if you’re looking for something low-risk. They’re like savings accounts, but with a higher APY (that’s the annual percentage yield, by the way). The good thing about MMAs is that they come with some extra perks. You get a debit card and the ability to write checks, so you can easily access your money whenever you need it.

If you’re interested, you should check out US Bank. They offer a competitive money market account option. With their MMA, you not only get the convenience of a debit card and check-writing capabilities, but you also earn a higher APY compared to a regular savings account. It’s a great way to save money with low risk.

7. Exchange-traded funds (ETFs)

Exchange-traded funds or ETFs are kind of like index funds, and one of the best investment options for beginners that follow a specific market index, such as the S&P 500. But the good thing about ETFs is that you can buy and sell them at any time during the day, just like individual stocks on a stock exchange. The price of an ETF fluctuates throughout the day, which makes them exciting to invest in.

ETFs are also usually more affordable to buy and manage than mutual funds. Some brokerages even offer ETFs without any commission fees, which is of good advantage to investors.

8. Robo-Advisors

You know, sometimes it’s just easier to welcome another party to handle or automate your investments, especially when you’re new to the whole investing game. That’s where these robo-advisors come into play. They’re like your personal financial advisor, but automated and tech-savvy. These robo-advisors use complex algorithms, technical analysis, and math to pick the best stocks for folks who either don’t want to make those decisions themselves or simply don’t have the time.

The way they work is cool. First, they’ll ask you a bunch of questions to understand your financial situation, how much risk you’re comfortable with, and what your future goals are. These surveys are designed to gather all the info they need to choose stocks that align with your preferences. Once they have all that data, the robo-advisor will create a portfolio of stocks that match your goals. So, if you’re not really into spending hours researching investments, these robo-advisors have got your back.

Now, different robo-advisors use different algorithms, but many of them aim to mimic the performance of major stock market indices. Of course, the results will vary, but they should generally stay in line with how the respective index is doing.

So, if you’re a beginner looking to dip your toes into the investing world without getting overwhelmed, these robo-advisors can be a good option. They’ll handle the nitty-gritty for you while you sit back and watch your investments grow.

9. Investment apps

Let’s say you’re just starting out and want to dip your toes into investing without shelling out a ton of money, there are some good investment apps you should check out. Acorns, Betterment, M1 Finance, and Robinhood are all worth considering. These apps make it easy to invest your money. You can set up recurring transfers or link your debit or credit card to deposit funds.

One nifty feature is the round-up option. For instance, with Acorns, you can connect your card and it’ll automatically round up your transactions to the nearest dollar, putting the spare change into your investment account.

Once you hit the $5 mark, the app acts like a robo-advisor and invests your money in ETFs. It’s a hands-off approach that’s perfect for beginners who want to give investing a shot without going all-in.

Key considerations for beginners

Before you jump into the world of investments, there are a few key considerations you should keep in mind. Let’s break them down in a casual and easy-to-understand way.

1. Your financial goals

First things first, take a moment to think about your financial goals. What are you aiming to achieve with your investments? Are you saving up for retirement or planning for a big expense like buying a house or a car? Understanding your goals, whether they are short-term or long-term, will help you determine the right path to follow.

For example, if you want to ensure a comfortable retirement and maximize your long-term earnings, it’s worth looking into options like mutual funds or IRAs. On the other hand, if you have a short-term goal like a dream vacation in two years, putting your money in a CD (Certificate of Deposit) might be a better choice.

2. Reach out to a financial advisor

If you’re unsure about your goals or need some guidance, don’t hesitate to reach out to a financial advisor. They can provide expert advice tailored to your situation. You can ask for recommendations from friends or family, or you can use helpful tools like WiserAdvisor or SmartAsset to find the right financial advisor for you.

Also, if you’re nearing retirement, services like Retirable can offer comprehensive planning assistance for your retirement, including income and healthcare considerations.

3. Risk tolerance

Another important factor to consider when picking from the best investment options for beginners is your risk tolerance. Starting off as a beginner, you might worry about losing a significant portion of your investment if you make the wrong choices. It’s completely normal to feel that way. To manage this, think about your comfort level with risk. If you prefer lower-risk investments that guarantee returns, options like HYSEs (High-Yield Savings Accounts), CDs, or MMAs (Money Market Accounts) can be a good fit.

However, keep in mind that these options usually yield lower returns compared to the stock market. To find the right balance, a financial advisor can help you choose investments that align with your risk tolerance.

4. Minimum amounts required

The minimum investment can vary depending on the investment you choose.

Fortunately, some brokerages allow you to start investing in stocks with relatively small amounts, even as low as $10. When researching investment options, make sure to inquire about the minimum investment amounts. It’s important to find an option that doesn’t require you to deposit more money than you’re comfortable with.

5. Investment diversity

When it comes to investing, diversification is key. Instead of putting all your money into a single company’s stock, it’s crucial to spread your investments across different assets. This way, if one investment performs poorly, others may compensate and help balance out your overall returns.

Investing in index funds or ETFs (Exchange-Traded Funds) can be a smart move for diversification, as they represent a collection of stocks from various companies. This approach provides a safer bet in the long run.

While diversifying can be challenging for beginners, resources like Empower offer tools and educational content to guide you. Additionally, they offer access to human advisors at higher membership levels. If you’re looking for more diverse alternatives, you can explore investment opportunities in fine art through platforms like Masterworks, consider real estate investments with REITs (Real Estate Investment Trusts), or even venture into the world of fine wine for oenophiles.

Remember, take it one step at a time, and don’t hesitate to seek advice from professionals along the way.

What are the best low-risk investments?

When it comes to low-risk investments, some great options can help you grow your money without losing sleep over market volatility. Let’s dive into a few of them!

a. High-yield savings accounts

First off, we have high-yield savings accounts. These accounts offer better interest rates compared to traditional savings accounts, so you can earn a little extra on your money while keeping it easily accessible. It’s like putting your money to work without taking on much risk. Plus, the added benefit of liquidity ensures you can access your funds whenever you need them.

b. Certificate of deposit (CD)

Another low-risk option is a certificate of deposit (CD). With a CD, you agree to lock your money away for a specific time, ranging from a few months to several years. In return, you receive a fixed interest rate that is typically higher than what you’d get with a savings account. It’s like making a commitment to your money and being rewarded for it. Just keep in mind that early withdrawal penalties may apply if you need to access your funds before the CD matures.

c. Money market accounts

Lastly, we have money market accounts. These accounts combine the best of both worlds by offering a higher interest rate than regular savings accounts while maintaining the stability of a traditional bank account. Money market accounts invest in low-risk assets like government securities and high-quality short-term debt, making them the best investment options for beginners seeking safety and a modest return.

Remember, investing is a personal journey, and finding the right balance between risk and reward is key. So take the time to explore your options, ask questions, and make informed decisions that align with your financial objectives.

Why you should start investing

Investing your money in the stock market can be a smart way to make it grow over time. By putting your hard-earned money into things like stocks and bonds, you’re giving yourself the opportunity to build up some serious wealth that might not be possible otherwise.

Here’s the best part: you don’t need to have a ton of money to get started. Even if you only invest a small amount consistently, you can still see some awesome returns thanks to something called compound interest.

Compound interest means that instead of just earning interest on your original investment every year as you would with a regular savings account, you’re also earning interest on the money you’ve already earned through investing. This can add up over time and make a huge difference in your overall financial situation.

Investing isn’t just for older folks either. If you’re a teenager or young adult with a bit of extra cash to spare each month, you can start thinking about your future financial goals by investing in the stock market.

There are lots of other reasons why investing early is a good idea, but the bottom line is this: the earlier you start, the better. Compound interest and those sweet compounding returns can make a big impact on your financial future, so don’t wait around to get started.

Read alsoBeginner investment podcast revisited

Conclusion

In a nutshell, when it comes to the best investment options for beginners, consider factors like the ones mentioned above.

Ultimately, education and understanding your financial situation are key to making informed investment decisions and embarking on a successful journey toward long-term wealth accumulation.

Read alsoSaving $2K is easy a month

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Written by
Jim Marous

Jim Marous is a Top 5 Retail Banking Influencer, Global Speaker, Podcast Host and Co-Publisher at The Financial Brand. I am a co-author here at Blueopes Finance, writing on a lot of topics regarding payments, banking software, cards, and investing.

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