Investing can be accessible for beginners by focusing on key foundational options that offer growth, diversification, and long-term potential[1].
Here are some of the best investments and strategies for beginners:
- High-yield savings accounts and certificates of deposit (CDs): These are low-risk ways to grow your cash with interest, best suited for short-term goals or an emergency fund[1].
- Index funds: These mutual funds track large market indexes like the S&P 500, providing instant diversification and typically lower fees than actively managed funds. Index funds are ideal for long-term investors who want stability and the potential for solid returns, but they will match—not beat—the market[1].
- Exchange-traded funds (ETFs): ETFs are similar to index funds but trade like stocks. They often have no commissions or investment minimums, making them accessible and affordable for new investors. ETFs also provide diversification and are generally more tax-efficient[1].
- Stock mutual funds and S&P 500 funds: Rather than picking individual stocks, most beginners find it easier and less risky to invest through diversified stock mutual funds or index funds. S&P 500 funds are a strong starting point since they represent 500 of the largest U.S. companies[2].
- Robo-advisors: These automate the process by selecting and rebalancing diversified portfolios for a low management fee—ideal for beginners who want a hands-off investment experience[2].
- Small-cap stock funds: These funds invest in smaller companies with higher growth potential. Although riskier and more volatile, small-cap funds can yield strong long-term returns and diversify your stock portfolio[3].
- 401(k) or workplace retirement plans: Contributing to a retirement plan through your employer is a tax-advantaged way to begin investing, often using mutual funds, index funds, or ETFs[6].
Key principles for beginners:
- Prioritize diversification: Funds like index funds and ETFs bundle many investments, lowering the risk that comes from betting on a single company[1].
- Think long term: Plan to leave investments untouched for at least 3–5 years, ideally longer, to help ride out market volatility[2].
- Start small and add regularly: Build your portfolio over time by investing what you can and contributing regularly, taking advantage of compounding returns[2].
- Understand risk and choose accordingly: Riskier assets like small-cap funds or individual stocks can offer higher returns but come with more ups and downs; beginners should balance these with more stable investments[3].