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Investing for beginners: 7 types of investments to get you started

Investing your money is easier than its ever been. But with so many different options out there, the process can be a bit overwhelming—lucky for you, we’re here to help. Let’s take a look at 7 types of investment opportunities that are great for beginners.

Pro tip: If you missed out on part one of this series, check it out here.

1. Mutual funds

A mutual fund is an investment that pools money from many investors and invests the money in other securities such as stocks, bonds, short-term debt, and other assets.

As a mutual fund investor, you don’t directly own the stock in the companies, but have an equal share in the profits or losses of the fund’s total holdings (that’s where the “mutual” in mutual funds comes from!). When you invest in mutual funds, your investment can increase in value from dividend payment, capital gains, and overall net asset value.

One of the biggest draws of mutual funds is the convenience. Mutual funds make it very easy to invest and if you automate your investment strategy, you won’t have to worry about spending hours managing your portfolio. Another advantage of mutual funds is profit reinvestment, which means that if the mutual fund pays out dividends, the money can be reinvested without any fees.

It’s not all sunshine and rainbows though. Mutual funds are known for high fees of 1% of more and tax inefficiency problems. When you invest in a mutual fund, take note of any advertising fees or sales charges the company may be charging.

Some of the most popular mutual funds for beginners to start investing in include Schwab, Fidelity, Merrill, and E*TRADE.

2. 401k or other employer retirement plan

A 401k is a retirement savings and investment plan that your employer offers. When you sign up for a 401k, you will allot a certain percentage of each paycheck directly to your account—if you’re lucky, your employer will match part or all of your contributions.

There are 2 types of 401ks: traditional and Roth. The main difference between the two is how they are taxed. Contributions for traditional 401ks are “pre-tax” which means that taxable income is reduced, but any withdrawals are taxed. With a Roth, it’s the opposite—contributions are “post-tax” which means that you pay taxes with each contribution, but withdrawals are not taxed.

A 401k can be a great retirement savings vehicle because the contribution limits are high ($20,500 limit for 2022) and the income tax benefits that come with pretax dollars. Plus if your employer matches your contributions, it’s essentially free money toward your retirement!

However, 401k plans can be difficult to navigate. As the individual contributor, you’re responsible for making investment decisions within the plan and need to monitor performance over time. Also, if you need to withdraw contributions before age 59 ½, you’ll be subject to high fees.

3. Robo-advisor

Wait, like a robot? Kind of!

Robo-advisors are digital platforms that provide financial planning services based on algorithms. It’s essentially an online automated investing service.

The great thing about robo-advisors is that they are usually really easy to set up—all you have to do is make an account, answer some questions about your financial situation and goals, and then the robo-advisor automatically invests for you. Robo-advisors are also available 24/7 and the annual fees are quite low—between .25-.5%.

On the other hand, robo-advisors take the personal relationship out of the equation. When you have a financial advisor or investment manager, they get to know you and understand where your strengths and weaknesses are. Robo-advisors also have limited investment options, so if you’re looking for a more complex range of investment opportunities, this may not be the option for you.

A few of the most popular robo-advisors include Betterment, Wealthfront, Personal Capital, and Ally invest.

4. Index funds

Index funds are another popular investment option for beginner investors because it’s typically a low cost, low risk investment. An index fund is an investment that tracks a market index made up of stocks or bonds.

To get started, all you have to do is pick the index you want to track, choose a fund that tracks that index, and buy the shares. It’s a low-cost way to invest and has a track record of providing solid returns.

However, index funds by nature aren’t very flexible and follow the nature of a very volatile market. Meaning that when the market plunges, your index fund will closely follow suit.

5. Exchange traded funds

An exchange-traded fund (ETF) is a basket of investments that trade on the stock market just like stocks or bonds. They can include all types of investments including stocks, commodities, or bonds.

ETFs are similar to mutual funds in that they are a pooled investment fund, but unlike mutual funds, ETFs can be bought and sold on a stock exchange.

ETFs can be a great option for beginner investors because they’re relatively inexpensive with lower risk. However the downside is that ETFs can have high fees so before you invest, make sure to do your research and due diligence and read all of the fine print.

6. Try an investment app

Investing got a whole lot more accessible when investment apps started getting introduced to the market. Investment apps, like Acorn or Robin-hood, offer easy access to the stock market and are a great option for beginner investors. Apps make it simple to invest and choose how to split your assets. Many apps also allow you to automatically invest additional money from your account, so you don’t even have to lift a finger.

As with Robo-advisors, using an investment app takes the personal aspect out of the equation. While apps may be a good idea for those who are looking to invest small amounts, if you are interested in investing large amounts of money, it may not be the right fit for you.

7. High yield savings account

One of the easiest ways to get starting in investing is by opening up a high-yield savings account. A high-yield savings account is a savings vehicle that pays 20-25 times higher than the average standard savings or checking account. This is a great way to get your feet wet if you're cautious about investing because there’s no stocks or trading involved—it’s just your money in a different bank account.

The national average annual percentage yield (APY) hovers around .06%, while the APY of high yield savings accounts are about .5%. While a .5% APY isn’t going to make Jeff Bezos shake in his boots, it's a big jump from .05%.

When you're choosing a high interest savings account, look for accounts that have minimal service changes. Some institutions don’t charge monthly fees, while others do but will waive them if you meet a minimum balance requirement.

Some of the most competitive high yield savings accounts include Ally Bank, Maruc by Goldman Sachs, Alien, and Capital One 360 Performance Savings.

Which investment option is right for you?

As you can see, there are a lot of different options available when it comes to investing (and we only covered a small portion of them!). The right investment option for you depends on your financial goals and current financial situation. If you're interested in other types of alternative investments, check out our model and see if we're the right fit for you by getting in touch with our team.


This material is intended for informational purposes only and should not be construed as legal or tax advice. Information here is not intended to replace the advice of your investment advisor or financial advisor. This information is not an offer or a solicitation to buy or sell securities. This information may have been compiled from third-party sources and is believed to be reliable. All investing involves risk, including the loss of principal.

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