How to Invest Money: Smart Ways to Get Started – NerdWallet

Investing money in the stock market is the No. 1 Americans build wealth and save for long-run goals such as retirement, but figuring out the best manner to invest that money can feel daunting. This does n’t have to be the lawsuit.

The best way to invest money: A step-by-step guide

Everyone has a alone fiscal position. The best way to invest depends on your personal preferences along with your stream and future fiscal circumstances. It ‘s significant to have a detail reason of your income and expenses, assets and liabilities, responsibilities and goals when building a sound investing plan. here ‘s a five-step process that can help you figure out how to invest your money right now :

  1. Identify your fiscal goals, timeframe and feelings about risk .
  2. Decide whether you want to take a “ do-it-yourself ” or “ manage it for me ” overture .
  3. Pick the type of investment account you ‘ll use ( 401 ( kilobyte ), IRA, taxable brokerage history, department of education investment score ) .
  4. Open an account .
  5. Choose what investments match your risk tolerance ( stocks, bonds, common funds, real estate ) .

And here are the details on how to put your cash to work in the right way, right aside. » fix to start investing ? Read about the best investments right now

1. Give your money a goal

Figuring out how to invest money starts with determining your invest goals, when you need or want to achieve them and your comfort level with risk for each finish .

  • long-run goals : The universal goal is frequently retirement, but you may have others as well : Do you want a depressed requital on a house or college tutelage ? To purchase your dream vacation home or go on an anniversary trip in 10 years ?
  • short-run goals : This is adjacent year ‘s vacation, a house you want to buy following year, an emergency store or your Christmas hoggish bank .

In this post, we ‘re largely focusing on long-run goals. We ‘ll besides touch on how to invest with no specific finish in beware. After all, the bearing to grow your money is a fine finish by itself. money for short-run goals generally should n’t be invested at all. If you need the money you ‘re saving in under five years, check out our recommendations for how to invest money for short-run goals. » curious about buying stocks ? Learn how to invest in the stock market.

2. Decide how much help you want

once you know your goals, you can dive into the specifics about how to invest ( from picking the type of score to the best set to open an account to choosing investment vehicles ). But if the DIY route does n’t sound like it ‘ll be your cup of tea, no worries. many savers prefer having person invest their money for them. And while that used to be a costly proposition, nowadays it ‘s quite low-cost — brassy, even ! — to hire master aid thanks to the advent of automated portfolio management services a.k.a. robo-advisors. These on-line advisors use computer algorithm and advanced software to build and manage a node ’ sulfur investment portfolio, offering everything from automatic rebalancing to tax optimization and evening access to human help when you need it. » Need help investing ? Learn about robo-advisors If you ‘d quite do it yourself, let ‘s continue. ad

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NerdWallet rating  NerdWallet ‘s ratings are determined by our column team. The scoring formula for on-line brokers and robo-advisors takes into account over 15 factors, including report fees and minimums, investment choices, customer hold and mobile app capabilities .

NerdWallet rating  NerdWallet ‘s ratings are determined by our editorial team. The scoring formula for on-line brokers and robo-advisors takes into score over 15 factors, including report fees and minimums, investment choices, customer support and mobile app capabilities .

NerdWallet rating  NerdWallet ‘s ratings are determined by our editorial team. The scoring formula for on-line brokers and robo-advisors takes into report over 15 factors, including report fees and minimums, investment choices, customer support and mobile app capabilities .

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3. Pick an investment account

To buy most types of stocks and bonds, you ‘ll need an investment account. fair as there are a number of bank accounts for different purposes — checking, savings, money marketplace, certificates of situate — there are a handful of investment accounts to know about. Some accounts offer tax advantages if you ‘re investing for a specific aim, like retirement. Keep in beware that you may be taxed or penalized if you pull your money out early, or for a reason not considered qualified by the design rules. other accounts are general purpose and should be used for goals not related to retirement — that dream vacation home, the gravy boat to go with it or a home renovation down the line. here ‘s a number of some of the most democratic endow accounts :

If you’re investing for retirement:

  • 401 ( kilobyte ) : You might already have a 401 ( thousand ), which is offered by many employers and takes contributions right from your paycheck. many companies will match your contributions, up to a limit — if yours does, you should contribute at least adequate to earn that meet before investing elsewhere .
  • traditional or Roth IRA : If you ‘re already contributing to a 401 ( kilobyte ) or do n’t have one, you can open an individual retirement explanation. In a traditional IRA, your contributions are tax-deductible but distributions in retirement are taxed as ordinary income. A Roth IRA is a cousin of the traditional version, with the inverse tax discussion : Contributions are made after-tax, but money grows tax-exempt and distributions in retirement are not taxed. There are besides retirement accounts specifically designed for freelance people .

» View our roundup of the best wrath providers If you ‘re investing for another finish :

  • taxable score. sometimes called nonretirement or nonqualified accounts, these are flexible investment accounts not earmarked for any specific purpose. Unlike retirement accounts, there are no rules on contribution amounts, and you can take money out at any time. These accounts do n’t have specific tax advantages. If you ‘re saving for retirement and you ‘ve maxed out the above options, you can continue saving in a taxable account .
  • College savings accounts. Like retirement accounts, these offer tax perks for saving for college. A 529 bill and a Coverdell education savings account are normally used for college savings .

With the exception of a 401 ( kelvin ) — which is offered through your employer — you can open these accounts at an on-line broker. » View our roundup of the best on-line brokers

4. Open your account

nowadays that you know what kind of report you want, you need to choose an history provider. There are two major options :

  • An on-line broker will allow you to self-manage your score, buying and selling a diverseness of investments, including stocks, bonds, funds and more complex instruments. An history at an on-line agent is a good choice for investors who want a big survival of investment options or who prefer to be hands-on with report management. here ‘s how to open a brokerage house account .
  • A robo-advisor in a portfolio management company that uses computers to do much of the work for you, building and managing a portfolio based on your risk permissiveness and goal. You ‘ll pay an annual management tip for the servicing, generally around 0.25 % to 0.50 %. Robo-advisors frequently use funds, so they ‘re broadly not a good choice if you ‘re concern in individual stocks or bonds. But they can be ideal for investors who prefer to be hands off .

Do n’t worry if you ‘re good getting started. Often you can open an account with no initial situate. ( See our batting order of best brokers for beginning investors. ) Of course, you ‘re not investing until you actually add money to the account, something you ‘ll want to do regularly for the best results. You can set up automatic pistol transfers from your checking account to your investment report, or even directly from your paycheck if your employer allows that. » curious about buying stocks ? Learn how to invest in the stock market.

5. Choose investments that match your tolerance for risk

Figuring out how to invest money involves asking where you should invest money. The answer will depend on your goals and willingness to take on more risk in change for higher likely investment rewards. Common investments include :

  • Stocks : individual shares ( piece of possession ) of companies you believe will increase in value .
  • Bonds : Bonds allow a ship’s company or politics to borrow your money to fund a project or refinance other debt. Bonds are considered fixed-income investments and typically make regular pastime payments to investors. The principal is then returned on a set maturity date. ( here ‘s more on how bonds work. )
  • reciprocal funds : Investing your money in funds — like reciprocal funds, index funds or exchange-traded funds ( ETFs ) — allows you to purchase many stocks, bonds or other investments all at once. common funds build moment diversification by pooling investor money and using it to buy a basket of investments that align with the fund ‘s state goal. Funds may be actively managed, with a professional director selecting the investments used, or they may track an exponent. A Standard & Poor ‘s 500 index fund, for example, will hold 500 of the largest companies in the United States .
  • real estate : veridical estate is a way to diversify your investing portfolio outside of the traditional desegregate of stocks and bonds. It does n’t inevitably mean buying a home or becoming a landlord — you can invest in REITs, which are like common funds for real estate, or through on-line real estate endow platforms, which pool investor money .

The best investment accounts for you in 2022

Use our Best-Of Awards list to get the year’s best investment accounts for stock trading, IRA investing, and more.


For growth, invest in stocks and stock funds

If you have a high risk tolerance and can stomach excitability, you ’ ll want a portfolio that contains largely stocks or banal funds. If you have a moo risk tolerance, you ’ ll want a portfolio that has more bonds, since these tend to be more stable and less explosive. Your goals are significant in shaping your portfolio, besides. For long-run goals, your portfolio can be more aggressive and take more risks — potentially leading to higher returns — so you ’ ll probably want to own more stocks than bonds. Whichever route you choose, the best way to reach your long-run fiscal goals and minimize risk is to spread your money across a stove of asset types. That ’ mho called asset allotment. then within each asset class, you ’ ll besides want to diversify into multiple investments .

  • Asset allotment is important because different asset classes — stocks, bonds, ETFs, reciprocal funds, actual estate — answer to the commercialize differently. When one is up, another can be toss off. then deciding on the right mix will help your portfolio weather changing markets on the journey toward achieving your goals .
  • diversification means owning a range of assets across a variety of industries, company sizes and geographic areas. It ‘s like a subset of asset allocation .

Building a diversify portfolio of person stocks and bonds takes time and expertness, so most investors benefit from fund investing. index funds and ETFs are typically low-cost and slowly to manage, as it may take only four or five funds to build adequate diversification .

Am I on track financially?

Our investment strategy road map can guide your investing travel.

Learn more

More resources

now you know the induct basics, and you have some money you want to invest. Feel like you need more data ? The downstairs posts dive deep into some of what we discussed above .

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