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Remember the old proverb, “the early bird catches the worm?” You might recall your dad uttering these words on a Saturday morning while trying to wake you up to mow the lawn, but the concept also applies to investing. 

Investors who start early might be more likely to catch that proverbial worm, and grow their earnings enough to lead a comfortable lifestyle.

If you’re ready to invest, the good news is that getting started is simpler and less expensive than ever. And with the right guidance, you could be well on your way to catching that worm.

Why should you invest?

While people choose to invest for different reasons, growing their wealth is a common goal. Nobody invests money with the intention of losing it, whether you’re investing for retirement, college, or another purpose. But even when the market is down, investing remains one of the best ways to build wealth over time. 

Returns are generally much higher than what you’d get by keeping your money in a traditional savings account, which currently offers an average return of just 0.24% monthly. That means if you have $10,000 in a savings account, it will only grow $24 in a month. Of course, your returns will vary depending on market conditions, your investment decisions, and the assets you have in your portfolio.   

To offer some insight into potential growth, here’s how an investment in common asset types could’ve performed over a 35-year time horizon. This data is provided by Brent Weiss, co-founder of Facet Wealth, and Bloomberg Terminal. It includes both “nominal” (not adjusted for inflation) and “real” (adjusted for inflation) returns on a $2,000 investment (as of July 2022), held from 1987 to 2022.

Investment type
Nominal return
Nominal dollars
Real return
Real dollars
U.S Stocks
9.04%
$41,356
6.10%
$15,893
International Stocks
4.72%
$10,048
1.90%
$3,861
Treasury (government) Bonds
5.30%
$12,191
2.46%
$4,685
Corporate Bonds
6.30%
$16,970
3.43%
$6,522
Gold
4.07%
$8,080
1.26%
$3,105
Savings (held in Treasury Bills)
2.95%
$5,533
0.18%
$2,126

How do investments work?

Investing your money involves purchasing a particular asset in the hopes that the value of that asset will increase over time. If an asset’s value increases and the investor opts to sell that asset, the resulting gain is called a capital gain. 

But assets don’t always increase in value; sometimes they decrease too. Increases and decreases can depend on market conditions at the time you invest or sell an asset, company performance, and other factors. In general, investments that are considered higher risk offer the potential for higher returns, while lower risk investments typically provide lower returns.

Different types of investments

Before you start investing, understanding the different investment types is important. This will help you determine which assets might make sense for your portfolio. Several investment types exist, including the following.

Stocks

When you buy stocks, or equities, you’re purchasing shares of ownership in a particular company. Companies issue stocks, which are traded on a stock exchange, to help raise money for projects and future growth. Some stocks pay dividends — or a portion of the company’s earnings — to shareholders monthly, quarterly, or annually. 

Depending on which platform you use, you may also be able to purchase fractional shares of stock. As the name implies, fractional shares offer a fraction of the ownership of a full share. They also sell at a fraction of the price, making them more affordable.

There are two common types of stock: common and preferred. Public companies generally offer common stock, though some may issue preferred stock as well. There are key differences between the two types. For instance, while dividend payments (payments given to shareholders) aren’t always offered with common stock, they’re generally offered with preferred stock.

More: Latest articles on stock investing

Mutual funds

Mutual funds are a basket of different assets hand-picked by fund managers and bought directly through an investment firm or brokerage account. These funds use pooled investor money to purchase stocks, bonds, and other assets. 

Investing in mutual funds helps you diversify your portfolio, since you’re purchasing small portions of many assets. Diversifying your portfolio is the investor’s equivalent of not putting all your eggs in one basket. It means investing in multiple asset classes to help reduce your risk of loss during a market downturn. And many mutual funds are also actively managed, making them suitable for those who prefer to be more hands-off with their investments.

But mutual funds often require a fairly large minimum investment and charge high fees. Funds also typically charge a percentage of earnings in order to manage your investments. The percentage is usually referred to as an expense ratio. Expense ratios for actively-managed funds average around 0.71%. Meanwhile load fees, or sales charges, can be as high as 5%.

Exchange-traded funds (ETFs)

ETFs are similar to mutual funds in that you’re investing in a basket of assets. But unlike mutual funds, ETFs only trade on exchanges and can’t be purchased directly from investment firms. Think of them as part mutual fund and part stock. 

ETFs can be a good choice for investors who want to diversify but also avoid the high minimum investments and high fees of a mutual fund. Unlike mutual funds, ETFs don’t have sales charges. But investors will likely need to pay an annual expense ratio, around 0.16% on average as of March 2022.

Index funds

Index funds are a type of ETF or mutual fund that are designed to mimic a familiar stock market index, like the S&P 500 or the Dow Jones Industrial Average. That means that the index fund’s investments align with investments in the index it tracks. Since index funds aren’t handpicked by financial experts, they are also cheaper.

Like mutual funds and ETFs, index funds can be a good way to diversify. And because they automatically track a particular index and aren’t actively managed, they’re a fairly simple and low-cost investment. 

Bonds

Companies and governments issue bonds when they need to raise money. These investments act as a loan to the issuer, which is the company or government offering the bond. Bonds are often issued to fund specific projects or finance operating costs. 

In return, the issuer agrees to pay you the face value of the bond — your principal investment — plus interest. Bonds generally come with a set interest rate, and investors typically receive interest payments twice a year.

Bonds are considered a relatively safe investment, offering guaranteed returns for investors as long as the issuer can afford to repay their debts.   

Certificates of deposit (CDs)

CDs are a type of savings product that offer a relatively high return. But there’s a catch: In order to earn that high return, you need to leave money in your CD account for a specific time period. CD terms commonly range from three months to 60 years. While traditional savings accounts offer an average rate of just 0.21%, a 60-month CD could earn 0.93% on average. 

CDs are a low-risk product offering higher returns than traditional savings accounts, but lower potential returns than other investment types. 

Retirement plans

Retirement plans aren’t a type of investment, but they are a popular vehicle for investing money. Common types of retirement plans include 401(k)s, Roth IRAs, and traditional IRAs. Specialized plans also exist for self-employed professionals and those who work in certain sectors, like education. 

More: Latest articles on retirement investing

Options

Options are a type of contract where the value is derived from an underlying asset, like stocks, bonds, or funds. Investors who purchase an options contract have the right to buy or sell an asset for a set price within a certain timeframe. 

“Put” and “call” options are the most common types of options. An investor might buy a put option if they think the price of an underlying asset will increase, or a call option if they think it will decrease. 

Options are speculative and can be complicated. They’re generally a better bet for more experienced investors. 

Annuities

Annuities differ from traditional investments and are contracts sold by insurance companies. This investment method is usually sought during retirement. 

In exchange for purchasing an annuity with a lump sum or making monthly payments over time, you receive an “income.” The income can be  deposited at regular intervals, such as three months, six months or a year. The payments are a combination of interest, capital gains and a transfer of capital from annuity holders who died earlier than expected.

Annuities can be expensive, often charging sales fees, annual fees, and withdrawal penalties. The amount of your returns is partly based on how much you invest, but is also affected by insurance information such as your age and health. They’re generally best for those with concerns about outliving their savings, and some come with the option to pay the annuity to a beneficiary after you pass away. 

Cryptocurrencies

Cryptocurrencies are digital currencies that exist on a specific network, or blockchain. Rather than a bank acting as a middle-man, investors can exchange cryptocurrency directly over the internet. 

While popular cryptocurrencies like Bitcoin saw record-high values in 2021, cryptocurrency remains a largely speculative investment. The crypto market is also volatile and investors face regulatory uncertainties and security concerns. There was also the notable recent bankruptcy of a major cryptocurrency company, FTX. It’s best to do your research before you invest.

More: Latest articles on cryptocurrencies

Commodities

Commodities are raw materials such as wheat, coffee beans, sugar, livestock, gasoline, crude oil, lumber. They can also be precious metals like gold. 

Investors can choose to purchase commodities directly. Or they can invest through a commodities-focused ETF or mutual fund, or a more complicated tool like a futures contract. Buying commodities can be a useful way for experienced investors to diversify, as commodity values aren’t tied to the stock or bonds market.

Metals

Precious metals, like gold, are a popular commodity among many investors. If you’d like to invest in gold or another precious metal, you can opt to do so by purchasing shares of a precious metals ETF or fund. You can also buy gold bullion or other precious metals from a reputable online dealer like American Precious Metals Exchange (APMEX) or a trusted local dealer.

More: Latest articles on alternative investments

Real estate

Real estate is another option if you’re looking to diversify. You can opt to invest in real estate the traditional way, by purchasing properties. But if you don’t have several thousand dollars lying around, you can also invest in real estate investment trusts (REITs). Similar to fractional stocks, a REIT allows you to own a smaller piece of an investment. In this case you can own a piece of a property — and pay for just a piece — instead of the whole thing.

Shares of public REITS may be available on stock exchanges, or you could opt to invest in a REIT mutual fund or ETF. Private REITs are also available, but you may need to be an accredited investor or meet certain requirements to invest in one. 

Farmland

Farmland is another option for those looking to diversify their portfolio. You could invest in farmland as an alternative to real estate or in addition to it, and you don’t need to purchase and manage a farm to do so. 

Platforms like AcreTrader and FarmTogether let you invest in farmland online in a matter of minutes, and you won’t bear the burden of managing a farm. Specialized farmland ETFs and funds also exist, so you could opt to invest in these as well.   

More: Latest articles on real estate

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Know the risks

Before we share how to start investing, we’ve got some bad news for you. No matter what you choose to invest in, your invested money is subject to risk. And certain investments, like cryptocurrency, may be riskier than others. The recent news of FTX’s bankruptcy has complicated crypto investing further. You could gain or lose money, depending on the current market, your investment choices, and other factors. 

One thing to note is that market ebbs and flows are normal. In a bear market, the stock market   decreases 20% or more from recent highs. In this environment, your stocks might make less profit and that may lead to more caution with other buys.

During a bull market, when the stock market is rising, your picks will likely be more profitable and you may be more eager to select new ones.

While you could mitigate some of your risks by diversifying your portfolio, you’ll never be able to eliminate them completely, unless you put your money in a savings account instead. 

Despite the risks, investing remains one of the best ways to grow your wealth. The potential returns are much higher than you’d get with a savings account. And starting as early as possible gives you a long time horizon to maximize potential growth. 

More: Latest news on investing

DIY ways to invest

Although you can try to invest via a specific institution or a financial advisor, you can also dip your foot in with other options, such as investment apps.

To figure out which option is best, determine your goals, what you want to invest in, your investing timeline, and your budget. 

This will help guide your decisions as you search for the right DIY investment method. Some common low-cost options include robo-advisors and online brokers. 

Robo-advisors

Robo-advisors are specialized platforms that rely on technology and algorithms to help automate your investments. They’re generally a cheaper option than an actively-managed, full-service portfolio. Certain platforms even charge no management fees.

But with that low cost comes little to no human interaction. Those seeking personalized service and investing advice from a person might not find what they’re looking for with a robo-advisor. 

Popular robo-advisors include Betterment, Wealthfront, and Sofi Automated Investing.

More: 10 best robo-advisors of 2023

Online brokers

Online brokers are another low-cost alternative to full-service brokerages. They often have low account minimums and minimal or no fees, and accounts are typically self-managed. This helps keep costs low. 

While you may be able to get advice from a human financial advisor with an online brokerage account, this isn’t always the case. If you’d like to get investment guidance from a human, make sure the online broker you choose offers it. 

Popular online brokers offering self-managed accounts include Fidelity, TD Ameritrade, Charles Schwab, and Interactive Brokers. Other low-cost options include Acorns, Robinhood, and Public.

Investing apps

Apps can put all the investing power in the palm of your hand. However, there are a lot of options out there and it may be difficult to pick one.

When deciding, go back to your investing checklist.

  • Determine your goals
  • What do you want to invest in?
  • What is your ideal timeline for getting returns?
  • What is your budget?

Not sure which app to choose, or where to start? We've named our favorite investing apps for different types of investors.

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How to get started

If you’d like to start investing, it’s a good idea to take the following steps first.

More: Latest articles on investing basics

1. What are your investment goals?

Are you planning to invest for college, retirement, or another large expense? Think about the reasons you’re investing and what you’d like to accomplish with your portfolio. Keeping these goals in mind will help you stay on track, even during market downturns.

2. Decide how much you want to invest

You could opt to invest a lump sum or a certain amount regularly. But first you need to decide how much you can afford to invest. Look at your budget and savings, and determine which amount makes the most sense for your financial situation.

If you want to invest monthly, make sure you include those amounts in your monthly budget. You could also opt to invest windfalls like tax returns or gifts to set aside more money each year. 

3. Determine your risk tolerance

Are you comfortable with uncertainty and a high risk of loss in exchange for higher potential gains? Or do you prefer a more reliable, lower-risk approach to investing? Determining your risk tolerance is key and can help inform your investing decisions.

4. Identify your investing style

Some investors prefer to trade actively, buying and selling assets multiple times each day. Others prefer a more passive approach, investing in index funds, mutual funds, or ETFs, and simply letting their money stay put. Active traders may need different tools and investing apps than passive investors. 

Learn to diversify your portfolio and reduce risk

While it might be tempting to invest most of your money into a company that’s done well lately, this is rarely a good strategy. Gaining exposure to different asset classes can help reduce your risk of loss. 

In addition to stocks, you could invest in bonds, ETFs, mutual funds, or alternative assets like commodities. That way, your risk is distributed, so if one asset you own loses money, that loss isn’t devastating.

How much does it cost to invest?

It’s also essential to research costs before you start investing so you aren’t surprised by any added expenses. Things to look at include account minimums, or minimum investments. Pay particular attention to these costs if you’d like to invest in mutual funds.

Cost to invest in stocks

Certain stocks can be very pricey if you’re purchasing full shares, so that’s something to be aware of. For instance, full shares of big tech companies can cost thousands of dollars. If you don’t have a ton of money to invest, you might consider a brokerage that lets you purchase fractional shares of stock instead. That way, you can buy small portions of blue-chip stocks — stocks in large, reputable companies — without breaking your budget.

Any fees and commissions

Fees and commissions can also be an added cost. Common fees include expense ratios and brokerage fees, and you may see these with ETFs, mutual funds, index funds, and other types of investments. These fees can vary and may be charged as a flat-rate or a percentage of your portfolio. Be sure to thoroughly research fees before you invest.

Mutual funds

While some mutual funds don’t require a minimum investment, many do. Investment minimums can range from $500 to $3,000, depending on which company you choose to invest with. Also pay attention to mutual fund loads, or sales charges, which can be up to 5% of your total investment.

How to get started

Once you’ve figured out your goals, budget, style, and risk tolerance, it’s time to start investing. But how? Different types of investments require that you invest in different ways. While you can buy certain ones through a brokerage account, others are more tricky to purchase. Here’s how to invest in common assets. 

How to invest in stocks

The simplest way to buy stocks is to open a brokerage account. You can opt to do this yourself with a robo-advisor, online broker, or full-service broker. 

Before you choose an account, research the fees and commissions you’ll be obligated to pay. Common fees include account management fees and trading commissions. Certain platforms may also have minimum deposit requirements. 

Popular apps for investing in stocks include Fidelity, TD Ameritrade, E*Trade, and others.

How to invest in mutual funds

You can invest in mutual funds through large firms like Vanguard and Fidelity. Going this route could help you save on account fees and commissions. But you can also invest through an online brokerage, which will generally give you more mutual funds to choose from. Consider the underlying assets before you invest in a specific fund. 

Keep in mind that certain mutual funds may come with investment minimums. You may also need to pay load fees and expense ratios on top of a minimum investment. 

How to invest in ETFs

The process for investing in ETFs is similar to the process for investing in stocks. You can buy and sell ETFs through your brokerage account, which will likely offer many options to choose from. 

Before you invest, research the underlying assets in the fund, expense ratios, and any other fees you might be required to pay. 

How to buy S&P 500 index funds

Index funds can either be mutual funds or ETFs that track a key stock market index, like the S&P 500. These funds aim to match the market performance of a particular index, and the process for investing in them is similar to the process you’ll follow when you invest in another fund type. 

You’ll generally need a brokerage account to buy and sell index funds, and you’ll want to research fund performance, assets, and any fees you’ll need to pay after investing.

How to invest in options

Options are a complex investment best suited for experienced investors. While many online brokers offer options trading, you typically need a margin account — or an account that lets you borrow from a broker to buy securities — to start. Depending on the platform, you may also need to get approved before you can begin buying or selling options.

Options have the potential for high returns, but they’re not beginner-friendly, and buying and selling them can be confusing. Spend some time learning about how they work before you invest. Popular platforms for options include Merrill Edge, Fidelity, Webull, and Interactive Brokers.   

How to start investing in farmland

Another unique investment to help diversify your portfolio is farmland. And the good news is that you don’t need to buy and manage a farm to reap the benefits of this investment. 

Instead, you can invest in this stable, non-correlated asset through a platform like FarmTogether. FarmTogether lets you earn profits from crop sales, capital appreciation, and rental payments from farmers leasing the land. 

How to invest in cryptocurrency

The simplest way to invest in crypto is to create an account on a cryptocurrency exchange. These exchanges allow you to buy and sell different coins and cryptocurrencies with ease. 

But it’s essential to do your due diligence before you open an account with a crypto exchange. Make sure the exchange you choose is reputable and abides by the regulations in your state. Security can be a top concern, as these platforms are often a target for hackers. Consider storing your crypto in a third-party online “wallet.”

Major exchanges include Coinbase, Gemini, and Kraken. Plan to start small if you want to invest in cryptocurrency, as this asset can be volatile.

How to invest in gold

If you’d like to invest in gold, there are a few approaches you can take. Those who want physical gold can purchase gold coins or gold bullion through a local dealer or online through sites like the American Precious Metals Exchange (AMPEX) and JM Bullion.

You can also invest in gold ETFs or mutual funds through your brokerage account. Popular options include SPDR Gold Shares (GLD), SPDR Gold Minishares (GLDM), and the iShares Gold Trust (IAU). 

Investing FAQ

  • What is the difference between saving and investing?

    +

    Stashing cash in a savings account is different than investing it. Generally, the cash you put in a savings account is there in case you need it in the short term, while investing is a long-term strategy to grow your wealth.

    Saving accounts typically offer nominal returns, while it’s possible to see much higher returns on your investments, depending on the market and your investment strategy.

  • Do I need a broker to start investing?

    +

    If you’d prefer to avoid a full-service broker and its accompanying fees, we’ve got some good news for you: You don’t need one to start investing.

    Consider opting for a low-cost online broker or robo-adviser. These services typically have affordable fees and very low investment minimums.

  • What are the different types of mutual funds?

    +

    Several types of mutual funds exist, and common ones include equity funds, fixed-income funds, hybrid funds, and index funds.

    There are subsets of those categories as well. For instance, growth and value funds are types of equity funds.

  • How do you sell stocks?

    +

    The simplest way to sell stocks is through your brokerage account, assuming you’re managing your own investments.

    If you have a financial advisor managing your portfolio, you can request that they sell the stocks on your behalf.

  • What basic investment terms should I know?

    +

    Part of learning about investing involves understanding key investment terms. Common terms include:

    ​​Ask. The price that someone looking to sell stock wants to fetch.

    Bid. The price that someone is willing to pay for stock.

    Buy. To acquire shares and thereby take a position in a company.

    Sell. To get rid of shares whether because you’ve reached your goal or to prevent losses.

    Bull market. Market conditions in which investors expect prices to rise.

    Bear market. Market conditions in which investors expect prices to fall.

    Dividend. A portion of a company’s earnings paid to shareholders.

    Blue-chip stocks. Shares of large and well-recognized companies that have a long history of solid financial performance.

    Hedge fund: A hedge fund is composed of multiple investors' money, which is invested in different commodities in the hopes of making a profit. Hedge funds require relatively high minimums, so the investors are typically institutions or wealthy individuals.

    Earning per share. A company’s net profit divided by the number of outstanding common shares.

    Mutual fund. A collection of investments — stocks, bonds, commodities, and more — bundled together and held in common by a group of investors.

    For more, see our full list of investing terms everyone should know.

About our author

Jess Ullrich
Jess Ullrich, Freelance Contributor

Jess is a financial writer who's been creating digital content since 2009. Before transitioning to full-time freelance writing, she was an editor at Investopedia and The Balance. Her work has been published on NextAdvisor by Time, Bankrate, Investopedia, and more. In her spare time, she enjoys gardening, spending time with family, and exploring the outdoors.

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