How To Start Investing When You Don’t Know Where To Begin!
Are you ready to grow your wealth and level up your finances? If yes, discover 7 investments perfect for beginners!
In today’s article, I recommend the best options, from boosting your skills to setting up an emergency fund. Say goodbye to high-interest debt and hello to a secure financial future by saving for retirement. Learn how to build wealth through IRA accounts, home equity, and savvy stock investments.
Don’t delay. The best time to start investing is today. So, let’s get moving.
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
1. Invest In Yourself
The best investment you can make is in yourself.
Increasing the income from your portfolio of skills is your cash engine. Your abilities and earnings from those skills provide the basis for making other investments.
Understand what you can dominate to make a good living. Find out what you are good at. Put in the time and effort to be great at that skill, whatever it is.
Take advantage of every training opportunity. What options does your employer offer? On-the-job training and formal continuing education are both beneficial.
I remember the words of a mentor during my younger days. After I took a new job, I called to let him know.
What did he say after he offered his congratulations? Well, I will never forget. He said…
“Learn as much as you can.”
The best thing about learning on the job is it’s free So, it is an ideal way to start investing when you have little money. Thus investing tip #1 is: invest in yourself.
Related reading: Best Ways to Become a Lifelong Learner
2. Build An Emergency Fund
Creating an adequate emergency fund is your next investment priority. Why? Because “stuff” happens.
People lose their jobs without notice. Health issues arise, and accidents occur. Cars break down and need costly repairs. These are just a few financial emergencies requiring a readily available cash fund.
One rule of thumb is to save 3-6 months of living expenses. Set this money aside in a risk-free, high-interest savings account.
Thus, a high-interest savings account should be one of your first investments. Then, don’t touch that money unless you have a good reason to do so.
Related reading: 7 SMART Financial Goals for Financial Freedom Faster
3. Payoff High-Interest Debt
My third tip is to invest your money in paying off your high-interest debt. Specifically, credit card debt.
Average interest rates on credit cards exceed 20%. So, paying off your credit card debt is one of the best investments you can make as a beginner.
For example, professional investment managers rarely achieve annual investment returns over 20%. However, you can reach that success by paying off your credit card debt. Plus, the return on your investment is guaranteed.
Related reading: How to Make Your Financial Goals Stick
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Pin4. Employer-Sponsored Retirement Plan
Most employers sponsor qualified retirement accounts. They are also known as 401(k) or 403(b) plans for US investors.
These plans offer several advantages. First, your money can be invested before any taxes are taken out. Second, your money grows without being taxed until you take retirement withdrawals.
Saving or deferring taxes puts more of your money to work each year since you do not pay taxes on your investment gains or dividend income.
Furthermore, most companies contribute money to your retirement account. The contribution is called a company match.
So, my 4th investing tip for beginners is to participate at the minimum level to maximize the company match. The matching contribution is part of your compensation package. Don’t waste it.
I recommend talking to a human resource professional at your company. They can help you get started investing in your company’s retirement plan.
Finally, you may be asking what investments should I purchase?
I recommend sticking with stocks as a beginner. You have the time to withstand the ups and downs of the stock market. Over the long run, stocks have higher investment returns.
What stocks should you buy? Look for a low-cost index fund investing in the S&P 500 or the total US stock market index. These types of funds usually are available in the typical employer-sponsored retirement plan.
5. Individual Retirement Account (IRA)
You have other options for making retirement investments beyond your employer’s retirement plan. For example, you can open and fund an IRA.
There are two types of IRAs to consider.
First, there is a tax-deductible IRA, also known as a traditional IRA. This type of account works similarly to your company’s retirement plan. Specifically, contributions are made pre-tax. You pay tax when you withdraw the money in retirement.
Second, there is a Roth IRA. For Roth accounts, your contributions are made after tax. However, you never have to pay another penny of tax, even when you take withdrawals in retirement. So, investing in a Roth IRA is an excellent option for beginners.
In either type of account, your money grows without being taxed during your pre-retirement years.
Like your employer-sponsored retirement plan, look for a low-cost index fund that invests in the S&P 500 or the total US stock market index.
Related reading: Building Wealth for Retirement in Your 50s
6. Primary Residence
We all need a place to live, and a real estate agent can make investing in your primary residence easy. Studies show that many people’s most significant investment is home equity.
Thus, buying a modest home or condo in an affordable area can be an excellent long-term investment.
First, your down payment becomes equity in your real estate. Second, rather than paying rent, your mortgage payments also increase the equity in your home. Finally, the market value of many homes increases over the long run.
Before we move on, a word of caution. Owning your residence can be expensive. Repairs, renovations, and association fees all add up. And if you want to sell, real estate commissions will take a chunk of your equity.
Related reading: Real Estate Investing Tips for Beginners
7. Stock Market: Dividend Growth Stocks
You might be surprised that the stock market is my last investing tip for beginners. After all, I focus a lot on dividend stocks and the stock market in my articles here at Dividends Diversify because dividend stocks are my favorite investment.
So, if you have made it this far and still have money to invest, you are an investing star. Investing may come easy since you will approach financial security by investing wisely in stocks.
I recommend dividend growth stocks for their income and long-term growth potential. However, if you are not up to picking stocks, go for low-cost exchange-traded funds (ETFs).
Below is a link to my favorite investing course. Check it out. I learned a ton from this course, and you can too.
The Financial Freedom Investing Course
Best Investments For Beginners: Wrap-Up
Investing doesn’t have to be complicated. As a new investor seeking to put an investment plan in place, I recommend starting with the following investment options:
- Investing in your skills
- Creating an emergency fund
- Paying off high-interest debt
- Contributing to your employer’s retirement plan
- Funding an IRA account
- Building home equity
- Investing in dividend growth stocks
The most crucial step is the first step. Get started sooner rather than later. You will be glad you did.
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PinRelated reading: How to Make a Vision Board for Your Financial Goals
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.