These are good investments for beginners.
Investing is easy. Figuring out where to invest is the hard part, especially for beginner investors who likely have better ways to spend their time than researching investments. If studying charts and ratios isn't your thing, you can still be successful. The key is to start early, headed in the right direction. "If you're moving fast but you're going down the wrong road, it's not helping you," says Susan Mitcheltree, principal at Berman McAleer. "To quote Jim Rohn, you can't change your destination overnight but you can change your direction." These nine investments for beginners will get you headed in the right direction for $1,000 or less.
First things first: "Forget about trying to 'beat the market,'" says Stephen Caplan, a financial advisor at Neponset Valley Financial Partners. Many beginning investors learn the hard way that simple investment strategies are often better -- not to mention easier. Save yourself time, energy and unnecessary grief by opting for a straightforward strategy from the start, Caplan says. He points to low-cost index funds tracking the total U.S. and total international stock markets. "Through just these two vehicles, you'd be invested in about 10,000 companies across the world and would be paying under 0.1% in fees. To reduce risk, add a low-cost bond index fund to the mix."
For an even more simplified strategy of investing for beginners, consider target-date funds. These retirement-planning tools are designed to be one-stop shops for retirement savers. "You have a solid, diversified portfolio within one fund that will slowly get more conservative as you get closer to retirement," says Daniel Patterson, a CFP and founder of Sweetgrass Financial Planning. "You don't have to worry about any of the technical details, such as what the proper portfolio allocation should be or when to rebalance." Many large investment firms offer target-date funds. Just look for the fund corresponding to your retirement year and call it a day, or a retirement plan.
If you don't like the idea of your fund changing its allocation over time, target-risk or asset allocation funds are another good investment option for beginners. These funds maintain a set allocation of stocks to bonds indefinitely. Danielle L. Schultz, principal financial planner at Haven Financial Solutions in Evanston, Illinois, suggests anxious beginning investors use more moderate balanced funds like the Vanguard Wellington Fund (ticker: VWELX), Fidelity Puritan (FPURX) or Vanguard Balanced Index (VBINX). "They're a bit more conservative than target-date funds for millennials and more aggressive than target funds for older ages, but don't gyrate as much while still earning solid returns," she says.
Exchange-traded funds (ETFs)
Funds are good investments for beginners because you get diversification at every level of investment, whether you invest $10 or $10,000. Some mutual funds add a road block, however, with minimum investments. This is where ETFs shine: Unlike mutual funds, the only minimum on an ETF is the share price, which is often far lower. "ETFs are one of the easiest ways to achieve diversification, largely due to how easy they are to purchase," says Kip Meadows, founder and CEO of Nottingham in Rocky Mount, North Carolina. They're built like a mutual fund but trade like a stock. There are ETFs for every sector and even passive index fund ETFs.
No-transaction fee funds
As a beginning investor, cost is "tremendously important," says Guy M. Penn, principal at St. Louis Private Advisors. "If every week you were to invest $100 and purchase a security with a $7 trading fee, you're immediately down 7% on your investment." To avoid fee drag, look for "no transaction fee" funds. Most of the larger investment firms will have a list of ETFs and mutual funds you can purchase for no trading commission.
401(k)s or 403(b)s
While what you invest in is important, it would be negligent to talk about smart investments for beginners without mentioning the importance of where you invest. Because before you buy an investment, you need a place to keep it. One of the best places to start investing your first $1,000 is your employer-sponsored retirement plan. "401(k)s and 403(b)s often offer participants employer matching funds," Mitcheltree says, "which can boost contribution amounts for young investors who often have a lot of other demands on their paychecks." And most plans offer some of the investment options for beginners discussed in this article.
Another smart investment for beginners is a Roth IRA, especially if you don't have access to an employer-sponsored plan. You can invest in almost anything in a Roth IRA (including ETFs and mutual funds) and it'll grow tax-free. Just be aware that while Roth IRAs have many benefits, they do come with "some notable caveats, the biggest one being limited pre-retirement access to the money," Mitcheltree says. Likewise, you don't get a tax deduction today for the money you invest in a Roth. But since you won't have to pay taxes on it when you withdraw in retirement, Roth IRAs can be great places to house your first investments.
For an investment house that comes with its own furniture, robo advisors make a great way of investing for beginners. These digital investment platforms use computers to curate and manage an investment portfolio for you. They often begin by asking you questions about your financial goals and risk tolerance, then suggest a portfolio that suits your needs. Most have very low -- or even no -- minimums, and charge lower fees than human financial advisors. If you find a robo advisor that offers automatic investments from your bank each month, you've got yourself set up for streamlined, long-term investment success.
A financial advisor
Sometimes the best investment for beginners is in an expert who can help you get on track and stay on it. A good financial advisor "will explain things simply, be clear about how they are compensated and have a plan to help you as the stock market and economy go topsy-turvy," says Todd Murphy, a facilitator at Yale School of Management and financial advisor at Prime Financial Services in Wilton, Connecticut. Investing your first $1,000 is just the beginning. It can pay to have someone to guide you through investing your next $1,000 and beyond.
The best investments for beginners.
-- Index funds.
-- Target-date funds.
-- Balanced funds.
-- Exchange-traded funds.
-- No-transaction fee funds.
-- 401(k)s or 403(b)s.
-- Roth IRAs.
-- Robo advisors.
-- A financial advisor.
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