Investments for Beginners

Starting an investment portfolio is a major milestone in one’s financial life. Deciding what to invest in, however, can be complicated. There are thousands of investment choices available, and choosing between them can get difficult. Before choosing, spend a few moments thinking about why you are investing. Specifically, consider the time frame that you have to save the money and when you want to be able to spend it.

For example, someone who is investing to have cash on hand in an emergency would only have a few weeks to save, and would need to plan on having access to their money immediately. A person who wants to save for his or her retirement, however, would probably have decades to save money and would have a lot of flexibility in how he or she would choose to withdraw it.

Also consider your individual risk tolerance. Keep in mind that this can vary based not only on your feelings, but also on the purpose of the investment. For example, an emergency fund would typically be invested in a low risk investment so that an investor could have money that was protected in the event that he or she needs to withdraw it quickly.

A college savings account, however, could be invested more aggressively since it’s funds will be withdrawn over a long period of time over which an investor could choose to wait out a bad market.

Once you have considered these things, it’s time to start making some investment choices. In general, beginning investors should stick to basic products. This makes it easier to track principal and returns, as well as understand where one’s money is.

For short-term, low risk investments such as an emergency fund or an account to pay for current living expenses, investments such as CDs and government bonds can be excellent choices. These investments can be purchased from most any bank, and they offer a guaranteed return, making it possible for an investor to make an accurate budget with the money. These are also fairly low cost investments.

For long-term, aggressive investing, such as a retirement fund, consider mutual funds or corporate bond funds. While there are thousands of these funds to choose from, a general fund that tracks a wide range of companies, such as an ETF, can be a great choice for a beginning investor. These funds will usually rise and fall with the stock market in general, making it easy to track the find’s performance. A combination of these type of investments should help beginning investors with a wide range of account types. After becoming familiar with these investments, an investor could branch out into more complicated and riskier investment products.