Investments for Beginners.
Learn about investments for beginners to kick-start your investment portfolio and build a solid financial management foundation.
If you have any questions or want to invest as an expat or high-net-worth individual, you can email me (advice@adamfayed.com) or use these contact options.
Investments for Beginners
Let us say that you have heard about something regarding investments, which would make you a lot of money.
Again, let us imagine that you also want to make money just like the people whom you’ve seen on the internet.
I hate to burst your bubble, but investments don’t work in such a way.
I mean it doesn’t work like you just put in some money so that you can earn a lot of money.
The process of investing is very complex and requires a lot of time and expertise to make money.
Never trust someone who says that they made money through trading or investing and became millionaires in just a few hours or a few days.
Social media is very far from reality, and it extremely applies to investments.
Even professionals make mistakes while they are investing, and you are no different.
Although this might seem disappointing, this is the fact, and let nobody say any different.
However, there is a general assumption on which way to invest for beginners to get started.
I am not saying that I will make you millionaires if you follow me or invest with me.
I am just writing this article to provide general information regarding investments so that you can learn the process of investing.
That being said, I wanted to shed some light on the investments that are deemed best for beginner-level investors.
Tips Before Getting Started
First of all, it is important for you to understand that investment should be used as a tool for growing your wealth.
It should increase your chances of improving your financial situation rather than imposing more difficulties.
You should pay attention to the basic yet advantageous aspects such as compounding or reinvesting.
Start small and opt for low-risk investment opportunities before going for something complex.
This will allow you to make it into a habit before you can actually get immersed into a complex investment schedule.
Even though such aspects may seem small, they are known to make people more successful.
Before getting into investments, it is essential to assess your investment goals as well as your financial situation.
Only after doing so, you will be able to invest in a successful manner and achieve the best possible returns.
Another major aspect to be taken into consideration is the diversification of an investment portfolio.
With the successful diversification of an investment portfolio, an individual can achieve the best returns.
Such advantageous returns can be obtained even when there are factors influencing the investment portfolio such as:
— Market conditions
— Market sentiments
— Sector-specific conditions
— Asset-specific conditions
— Geography-specific conditions
Diversification of a portfolio is also important so that you can experience each and every investment asset.
By doing so, you can remove your capital from one investment asset and get involved in something better, as it helps in evaluation.
That being said, let us now get into our topic for today, i.e., best investments for beginners.
Best Investments for Beginners
Remember that the investment opportunities provided in this article are just generally good for beginners.
However, an experienced financial advisor or investment manager can assess your situation and suggest better options.
Let us begin.
High-Yield Savings Accounts
If you wish to have better returns on your savings but feel hesitant about investments, a high-yield savings account (HYSA) is the best.
With a HYSA, you can enjoy a significantly higher Annual Percentage Yield (APY) on par with a regular savings account.
These types of accounts allow you to maximize your earnings without taking investment risks.
When shopping for a HYSA, it’s essential to compare different financial institutions available to you.
Anyhow, it’s crucial to note that the accounts offering the highest APY might not always be the best choice.
Carefully read the terms of each HYSA you’re selecting and pay attention to details such as minimum balances or annual fees.
This will help you select the best HYSA for your financial goals.
Let us know the various advantages of HYSAs and how they are advantageous to beginner-level investors.
- Less Risky
High-yield savings accounts come under low-risk investment options. Insured by government agencies, They provide a certain level of safety for your money.
- Easily Accessible
Opening a high-yield savings account is a straightforward process and easier than one might think.
This makes them easily accessible to beginner-level investors who may not have experience in complex investments.
- No Necessity for Investment Knowledge
Unlike other mainstream investment vehicles like stocks or bonds, high-yield savings accounts do not require any investment knowledge.
You don’t have to be an investment expert to make money with a HYSA.
- Higher Returns
High-yield savings accounts offer better interest allowing your money to grow at a faster rate.
This means it is better to go ahead with a HYSA to get higher returns rather than a traditional savings account.
- Liquidity
The money in high-yield savings accounts is liquid and can be withdrawn without penalties.
Thus, HYSAs are a good investment while providing flexibility in managing your finances.
- Automatic Savings
With some high-yield savings accounts, you get access to automatic deposits.
This makes it easy for beginners to develop a disciplined saving habit that’ll prove to be helpful throughout one’s life.
- Emergency Savings
High-yield savings accounts are a great option for building an emergency fund.
They provide a financial safety net (nest egg) for unexpected expenses.
- No Lock-In Period
Unlike some investments, there is no lock-in period for HYSAs, and therefore, you can access your funds whenever need them.
What do I think?
High-yield savings accounts offer a secure and easy way for beginner investors to start saving and earning higher returns.
All of this can be done without taking on significant risk or requiring in-depth investment knowledge.
Certificates of Deposit (CDs)
A certificate of deposit (CD) is another type of savings account variant that provides a higher APY than a savings account.
If you opt for a CD, you deposit a lump sum amount for a specified period, which is agreed upon beforehand.
Throughout the term of a CD, you cannot withdraw the funds without incurring a penalty.
Upon reaching the maturity date, you have the option to withdraw the funds or reinvest them into a new CD or do anything else.
Certificates of Deposit (CDs) can be a suitable investment option for beginner investors.
Here are some aspects:
- Low Risk
CDs come under the category of low-risk investments as they are mostly offered by banks and credit unions.
At the same time, they are insured by the government (up to certain limits) in most countries.
This means your principal is under protection, and you are guaranteed to receive your initial investment back at the end of the CD term.
- Predictable Returns
CDs provide fixed interest rates for a particular period, so you can be clear on how much interest you will earn.
This sense of predictability can be attractive to those who prefer safe and consistent returns.
- Short-Term or Long-Term flexibility
CDs come with various term lengths, ranging from a few months (short-term) to several years (long-term).
For beginner-level investors who may not want to commit to long-term investments, shorter-term CDs are better.
They offer an opportunity to earn higher interest rates without locking in funds for an extended period.
Otherwise, you can just go ahead with long-term CDs that may prove to be beneficial based on your specific goals.
- Limited Liquidity
One downside of CDs is their limited liquidity as you cannot easily access them without paying an early withdrawal penalty.
For beginner-level investors who need an emergency fund or don’t have specific financial needs, this lack of flexibility can be a downturn.
- Lower Returns
Even though CDs offer stable returns, the trade-off is that the interest rates are generally lower.
Especially, when compared to other investment options like stocks or mutual funds.
For investors seeking higher returns or to mitigate inflation, CDs are not the most suitable choice.
What do I think?
Finally, CDs can be a good investment for beginner investors who prioritize safety and predictability.
They are a low-risk option to preserve capital and earn some interest, especially for short-term financial goals.
Nonetheless, for long-term growth and higher returns, beginner investors may consider diversifying their portfolios.
This diversification should be done with other investment vehicles that offer greater potential for capital appreciation.
It’s important to assess individual financial goals, risk tolerance, and time horizon before deciding on any investment strategy.
Getting in touch with a financial advisor can provide personalized guidance based on specific circumstances.
Retirement Accounts
If you have an employer-sponsored retirement plan, it should be your top priority for investing your money.
This is particularly beneficial if your company offers a matching contribution.
The matching contribution can be said to be free money and provides a guaranteed return on your investment.
Retirement accounts, such as Individual Retirement Accounts (IRAs) and 401(k)s, offer significant tax benefits in the U.S.
In the UK, you can get access to workplace pensions or Self-Invested Pension Plans (SIPPs).
In Canada, we have a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA).
In Australia, Superannuation and Self-Managed Super Funds (SMSF)
are the retirement accounts for individuals.
In Germany, there are Riester-Rente and Betriebliche Altersvorsorge (BAV).
In Japan, the retirement accounts are Employees’ Pension Insurance (Kosei Nenkin) and National Pension (Kokumin Nenkin).
Like this, each country has its very own retirement accounts that are the best option to begin investing.
Now let us have a look at the important aspects of retirement accounts and how they are beneficial for beginners.
- Tax Advantages
Retirement accounts offer tax-deferred growth, meaning you won’t pay taxes on the contributions and earnings until you withdraw.
Something like Roth retirement accounts, on the other hand, allow for tax-free withdrawals in retirement.
This is because the contributions are made with after-tax money from the employees.
- Automatic Contributions
In general, Retirement accounts allow automatic contributions.
This aspect can help beginner-level investors develop consistent saving and investing habits.
Regular contributions can add up over time and benefit from compound interest, even if they are insignificant now.
- Diversification
Retirement accounts typically offer a wide range of investment opportunities for investors, which include:
— Funds
— Index Funds
— Exchange-Traded Funds (ETFs)
— Other securities
Such diversification can assist in mitigating the risk involved and provide exposure to various asset classes.
- Long-Term Horizon
Retirement accounts are designed in such a way that they are beneficial if used for long-term investing.
This helps them to stay in line with the investment strategy of buying and holding assets for extended periods.
Beginner-level investors can benefit from this long-term approach as it allows investments more time to grow.
Furthermore, long-term investment strategies allow investment assets to recover from market fluctuations.
- Employer Contributions
If you have access to something like a 401(k) account offered by your employer, they may offer matching contributions.
This is typically free money added to your retirement savings, which would be extremely advantageous.
If you take advantage of employer matching your contributions, then it can significantly boost your retirement savings.
Nonetheless, it’s important for beginner investors to understand investing basics like risk tolerance and asset allocation.
What do I think?
Even though retirement accounts come with great benefits, they are meant to be used for long-term goals.
Because of that reason, they generally have penalties for early withdrawals before reaching retirement age.
Just like any other investment, it’s crucial to consider your financial goals and consult with a financial advisor if necessary.
Money Market Accounts
A money market account (MMA) is another low-risk alternative, which is similar to a savings account
But money market accounts are known to come with a higher APY.
It provides added advantages, including the ability to access funds using a debit card or checks when required.
A good bank may offer a competitive money market account option with easy accessibility through a debit card or check-writing.
They may also come with a potential for earning a higher APY compared to a regular savings account.
This makes a money market account a secure choice for saving with the potential for better returns.
Let us have a look at some of the important aspects of money market accounts.
- Low Risk
Money Market Accounts (MMAs) also come under the category of low-risk investments.
This makes them suitable for those who want to preserve their capital and avoid significant fluctuations in their account balance.
Generally, they are backed by stable financial institutions and offer insurance (up to a certain limit).
This makes money market accounts come with an added layer of security for the investors
- Higher APY
Compared to savings accounts, MMAs come with higher APYs, which means your money can grow faster over time.
Therefore, MMAs can be a good option for beginner-level investors while providing better returns on your savings.
- Accessibility
MMAs allow easy access to your funds when needed, which is a great aspect that is not offered with many types of investments.
Many accounts offer features such as check-writing and debit cards, which is not common with most other investments.
This provides you with the flexibility to withdraw money for emergencies or other purposes without facing penalties.
- Liquidity
While MMAs have some restrictions on withdrawals, they are still more liquid than long-term investments.
Especially compared to investments such as certificates of deposit (CDs) or fixed deposits (FDs).
This means you can access your funds in a faster way without locking them up for extended periods.
Diversification
For beginner-level investors, diversification is crucial as I mentioned in the tips earlier.
By adding a money market account to your investment portfolio, you can balance risk and diversify your holdings.
However, alongside other investments like stocks or bonds the diversification of the portfolio works well.
- Easy to Open
In general, MMAs are generally simple to open, and many financial institutions offer them with low or no minimum balance requirements.
This accessibility makes it easier for beginners to start saving and investing.
What do I think?
However, it’s essential to be aware that MMAs may have limitations on the number of transactions per month.
At the same time, the interest rates offered with MMAs can be subject to change based on market conditions.
As with any investment, it’s crucial to carefully review the terms and conditions, fees, and potential restrictions.
By doing so before choosing a specific money market account, you can aim for getting higher returns.
Somewhat risky investments for beginners
Until now, I have discussed some of the low-risk investments available for beginner-level investors.
Now, let us have a look at somewhat risky investments available for beginners.
Mutual Funds
Instead of allocating your funds to individual investments, consider opting for a mutual fund.
A mutual fund pools money from various investors to purchase a diversified portfolio of assets.
These pooled funds are managed by a professional fund manager, which is a professional in these aspects.
This approach allows you to spread your investments across various assets, reducing the risk associated with lesser diversification.
In your younger years, the mutual fund should have a higher allocation towards stocks, which are more volatile.
Even though they are volatile, they offer greater long-term growth potential based on your risk tolerance.
As you approach retirement, the fund’s investment mix should shift towards a higher proportion of bonds, which are less risky.
Even though they provide less returns, they provide a stable income during retirement.
Target-date mutual funds are particularly useful in this context, as they are designed to align with your retirement date.
They will emphasize stocks while you’re young and gradually transition to bonds as you approach your retirement age.
Index Funds
Index funds work in a way that is similar to mutual funds, with a notable difference in their investment strategy.
Rather than a fund manager making decisions on where to invest, an index fund follows a specific market index and invests accordingly.
For instance, an S&P 500 index fund would invest in the stocks listed in this market index.
This would be comprising approximately 500 top-performing U.S. companies.
Some index funds may have a minimum investment requirement, which is great for starting your investment career.
However, certain well-known brokerage platforms like J.P. Morgan Self-Directed Investing typically require a lot higher minimum requirements.
Adding to that, opening and funding an account with J.P. Morgan Self-Directed Investing can earn you up to $700.
Exchange-Traded Funds
Exchange-traded funds, also known as ETFs, are similar to index funds as they follow specific market indices like the S&P 500.
Anyhow, the key difference lies in the way ETFs are bought and sold, similar to individual stocks on a stock exchange.
Investors can purchase ETFs at fluctuating share prices throughout the day.
On par with mutual funds, ETFs are usually more cost-effective both in terms of purchase and management fees.
With some brokerage firms, you may even get access to ETFs with $0 commission.
Stocks
Investing in individual stocks comes with certain risks, but if done correctly, it can yield significant long-term benefits.
When you invest in stocks, you essentially acquire a share of ownership in a company.
Timing is crucial, and purchasing stocks at the right moment, such as during a promising business’s early stages.
This can lead to substantial wealth growth alongside the company’s success.
If you find the idea of buying stocks intimidating, you can practice with paper trades.
Paper trades allow you to simulate stock investments without using real money, offering a risk-free way to learn the process.
By the time you are ready to invest real funds, you’ll feel more confident and familiar with the process.
Bottom Line
As a beginner-level investor, it is wise to start with investments that involve a lower level of risk.
Only then, it is suggested to go for investments that carry potentially higher risks.
Nevertheless, the specific assets that best suit your needs can only be determined through a thorough evaluation of your individual situation.
In such circumstances, it is advisable to seek the guidance of a financial expert who can cater to your investment requirements.
Over the years, I have helped numerous individuals achieve financial independence by addressing their unique investment needs.
If you are looking for a wealth manager but are uncertain about finding the right person, you have come to the right place.
Feel free to reach out to me to discover if you can benefit from the exceptional solutions I offer.
With that said, I believe the information provided in this article has been valuable to you.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
