Investing 101: How to Invest Money

Estimated read time: 4 minutes

A funded savings account is an important part of financial stability. If you aren't already saving money, it's important to start doing so, even if you think your budget can only allow for a small amount.

Maybe you choose a credit card that offers cash in your pocket through rewards and commit to saving that cash back. Perhaps you follow a savings challenge or get a side hustle with the intention of saving that income. Maybe it's as simple as setting up an automatic transfer to savings on payday so you are sure money is going into savings on a regular basis.

Saving money in a traditional savings account isn't enough, though. You also need to be investing money.

Investing or Saving?

What's the difference between the two, and what should each be used for? Good question, I'm glad you asked!

Savings accounts are for just that – saving money. You'll earn a little bit of interest, but the basic goal is to hang onto money in one place. Maybe you have a specific savings goal in mind, or maybe you are saving in an emergency fund for an unexpected expense. Money that is in your savings account is relatively easy to get to if you need it, as it's usually kept at a financial institution.

Investing is for when you are looking to grow your money. Technically, you are saving money, but you are doing so in a way that is designed to multiply your initial investment.

Investing is done with the future in mind, whether it's for a child's college fund or your own retirement. Investing is inherently riskier than saving, but we've all heard it before: no risk, no reward.

Why Invest?

Making wise investments now is a great way to take care of your future self. Investing can be a bit of a roller coaster, but the sooner you start investing, the longer you have to recover if things get a bit bumpy for a while.

Regular savings accounts are designed to be a safe place for you to hang onto money. Investing is for seeing higher returns on your money long term. Unfortunately, the uncertainty over Social Security funding in the future means that it's a good idea to actively pursue ways now to take care of yourself during retirement. Beginning to invest as early as possible is a great place to start.

How to Invest in Stocks

Investing can seem pretty technical from the outside looking in, and that can be extremely intimidating. Fear not, however – getting started with your first investment isn't as scary as it may seem, and you don't have to be an expert to do so!

First things first, you will need to decide on an approach. You can turn to a brokerage, use a robo advisor, or manage your investments yourself. If you are just getting started, a robo advisor is a great place to start as they often have lower minimum investment requirements, as well as lower fees than using a brokerage. Unless you are incredibly comfortable with the world of investing, managing your own funds probably isn't the best approach as a beginner.

Next, you'll actually open your investment account and make your initial deposit. If you've chosen to use a brokerage or robo advisor, do some research and find a good match for you and your investment goals. Be sure to set up automatic transfers while you are at it so you can continue investing more money on a regular basis, just like you would continue adding money to your savings account regularly.

Once there's money deposited in your investment account, it's time to actually start investing! A robo advisor will do the work for you here, based on what you tell it your goals are when you open your account.

Remember to diversify your investments by choosing various different assets. The four most popular investment options are stocks, bonds, mutual funds, and Exchange-Traded Funds (or ETFs). Remember you don't have to have thousands of dollars to get started investing – even investing a few hundred dollars is a great start.

3 Stocks to Invest In

Feeling empowered and ready to start investing? With so many kinds of stocks available, it can be hard to know where to start. Here are three types of stocks to consider for your first investment.

Mutual Funds

Made up of several types of investments that have something in common, mutual funds are an easy way to diversify your investment without having to invest in stocks one at a time. Index funds are an especially great place to start as a beginner.

Individual Stocks

Buying individual stocks requires quite a bit of hands on research and attentiveness. If you find the stock market fascinating and feel pretty comfortable navigating it, this might be up your alley, but it should be reserved for just a small portion of your investment portfolio.

Exchange-Traded Funds (ETFs)

ETFs are similar to a mutual fund in that you are able to easily diversify your investment with them, but you are able to purchase ETFs for a share price and trade them like a stock. This is good news for investors who are looking to avoid the often higher minimum investment required by mutual funds.