LearnInvesting is a way to grow your money while letting it work for you. Legendary investor Warren Buffett describes investing as “the process of laying out money now to receive more money in the future.” Essentially, investing is about setting aside funds today with the goal of increasing their value over time.
If you have $1,000 saved up or even just $10 a week to spare, you’re ready to start investing. This guide will walk you through the basics of getting started as an investor and show you how to maximize returns while keeping costs low.
Key takeaways
- Investing is putting money toward future growth with the hope of earning income or profits.
- Investing carries some risk of loss, unlike simply saving or spending.
- Stocks are a popular way for beginners to gain experience and start building wealth.
What type of investor are you?
Before you invest, it’s important to understand your goals and risk tolerance. Online brokers like Charles Schwab and Fidelity often ask you about your objectives and risk level to help you make the best choices.
Some investors prefer a hands-on approach, while others want a more automated experience. Traditional online brokers like Schwab and Fidelity let you invest in various assets, including stocks, bonds, ETFs, index funds, and mutual funds, offering flexibility based on your style.
Choosing a broker
Brokers fall into two main categories: full-service and discount.
- Full-service brokers: These offer comprehensive services, including financial planning and advice, and often work with high-net-worth clients. They tend to have higher fees and may require large minimum balances (e.g., $25,000 or more). They justify their fees by offering personalized advice.
- Discount brokers: These are much more common today. Discount brokers offer self-directed trading tools and sometimes robo-advisory services for automatic investing. Many have low or no minimum deposit requirements, though some fees may apply for smaller accounts.
Robo-advisors
Following the 2008 financial crisis, robo-advisors emerged to offer low-cost, technology-driven investment management. Companies like Betterment pioneered this approach, and today many brokers, including Charles Schwab, offer robo-advisory options. Robo-advisors can be a good choice if you want automated, low-maintenance investing focused on long-term growth.
Investing through your employer
If you’re on a tight budget, consider investing just 1% of your salary in a workplace retirement plan like a 401(k). Contributions are deducted from your paycheck before taxes, making it a painless way to save. Over time, you can increase contributions as you receive raises, helping you build retirement savings without a significant impact on your take-home pay.
Minimums to open an account
Some brokers require minimum deposits to open an account, while others don’t. Minimums can range from $0 to $1,000 or more. Shopping around can help you find an account that fits your budget, and some brokers offer perks like commission-free trades or fee discounts based on your balance.
Commissions and fees
Even though many brokers now offer commission-free trades, all brokers still have ways to earn money from your account. Common costs include trade commissions, management fees, and account maintenance charges. If you plan to trade frequently, consider a broker that minimizes these fees.
Diversify and reduce risks
Diversification—spreading investments across various assets—reduces the impact of one underperforming investment on your overall portfolio. However, with a small balance, it’s tough to diversify by buying multiple stocks. This is where mutual funds and ETFs, which contain many different investments, become valuable options for beginners.
The bottom line
Starting to invest is possible even with a small amount of money. You’ll need to research account minimums and fees, compare brokers, and make choices that fit your goals. Diversification, understanding your investment style, and keeping costs low will help set you up for success as a new investor.