How To Start Investing

Once you’ve got your monthly expenses covered and have some money to spare (after establishing an emergency fund), it’s time to think about investing so you can get even more wealthy over time.
If you’re a newbie in the world of investment, this guide on how to start investing is here to help you take your first steps on the right track.

1. Know Your Investing Options

Before you can start investing, you should have a better idea of the different investment options available out there. Whether it's a basic investment account, a 401(k) retirement plan (or some other employer-sponsored account), a Roth, or a traditional IRA, you should understand what you're getting into.
Below is a brief explanation of the most common investment instruments for new investors:


First up, there are bonds. To put it simply, a bond is a loan that you give to a government establishment or a company, and in return, the other party pays you back over a specific number of years with interest.
In general, there isn't much of a risk investing in bonds compared to stocks, mainly because you'll know exactly when and how much you're getting paid back.
However, in the long run, bonds make you less money. As such, investing in bonds should only make up a limited portion of your long-term investment account.


This term gets thrown around a lot in the banking and investment world, so you may have an idea of what it means.
Also referred to as equities, stocks are shares of possession in a company. This means that by buying a stock in a company, you're one of its owners.
To purchase stocks, you'll have to pay the share price. Depending on the company, this can vary widely from single digits to a few thousand.
Most experts recommend buying stocks via mutual funds, which we'll talk about next.

Mutual Funds

A mutual fund is when you combine a bunch of different investments in one package. This investment tool saves investors the hassle of choosing individual bonds and stocks.
Instead, mutual funds let you buy diverse collections of investment tools in a single transaction. This characteristic diversity significantly reduces the risk factor of mutual funds compared to individual stocks.
While some types of mutual funds are supervised by professionals, others aren't. For example, index funds are regulated by the index performance of a particular stock market such as the S&P 500. With professional management out of the picture, the cost of investing in index funds is notably reduced.
The majority of 401(k)s include options for mutual or index funds that require no minimum charge. Outside those accounts, however, such funds may require you to invest at least 1,000 dollars or even more.

Exchange-traded Funds (ETFs)

Similar to mutual funds, ETFs consist of multiple individual investments grouped in one bundle. The difference between the two is that you purchase ETFs for a share price and they trade during the day, just like stocks.
What's more, the share price of an ETF is often less than the minimum investment required to buy a mutual fund. So, ETFs are a suitable option for new investors or those with lower budgets.

2. Set a Budget

Next, you should set your investment budget. Many factors can affect this decision, but it mainly depends on the investment goal you're aiming for and when you'd like to accomplish it.
One of the most popular investment purposes is setting yourself up for retirement. As such, if your job is associated with a 401(k) or a similar retirement plan and it matches dollars, then your primary investment goal should be providing the minimum to that account that earns you the full match.
As a rule of thumb, you should invest between 10% to 15% of your total yearly income in your retirement account. Employers' match usually counts toward that.
If you have different investing goals, take into account your time availability and the amount of money you need to contribute. From there, try to divide that sum over weekly or monthly investments.
A common misconception among newbies is that starting an investment portfolio requires a lot of money. But in reality, many platforms allow you to begin investing with only 100 dollars, or even as little as 5 dollars.
While you can start investing with as much money as you want, remember that the initial amount isn't what matters the most. Instead, it's being financially prepared to invest and that the more time passes, the more money you can invest.
Before investing any money, it's crucial that you start an emergency fund, which is cash that you set aside but you can still quickly withdraw when necessary. This way, you won't have to resort to selling or divesting your investments in a time of need.

3. Pick a Style

Finally, you should choose your investment style, mainly based on how much time you can dedicate to investing. Generally, there are 2 styles of investing:
  • Active investing — here, you'll take time out of your day to research investment opportunities, build and maintain your portfolio, as well as sell stocks – all on your own.
  • Passive investing — here, you're pretty much putting your investment into the hands of others who are professionals that'll do the work for you. Think of passive investing as the autopilot mode of investment.
While active investing requires more effort and involves more risk, it also offers a greater potential reward compared to passive investing. Yes, you'll have to do most of the work yourself and do tons of research, but the possibility for a life-changing return is also higher.
On the other, passive investing offers a lot more simplicity and is generally way more stable with a higher level of predictability involved. You can get good results from this hands-off investment approach, but keep in mind that the returns will remain moderate and nothing huge or life-changing is likely to happen.


There you have it, a simple guide on how to start investing. Remember, it’s best to begin investing as early as possible so you receive solid returns on your cash.
Note: This is not investing advice