How to Invest Money: Smart Ways to Get Started - NerdWallet (2022)

Investing money in the stock market is the No. 1 way Americans build wealth and save for long-term goals such as retirement, but figuring out the best strategy to invest that money can feel daunting. This doesn't have to be the case.

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

Everyone has a unique financial situation. The best way to invest depends on your personal preferences along with your current and future financial circumstances. It's important to have a detailed understanding 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 financial goals, timeframe and feelings about risk.

  2. Decide whether you want to take a "do-it-yourself" or "manage it for me" approach.

  3. Pick the type of investment account you'll use (401(k), IRA, taxable brokerage account, education investment account).

  4. Open an account.

  5. Choose a combination of investments that match your risk tolerance and provide diversification (stocks, bonds, mutual funds, real estate).

And here are the details on how to put your cash to work in the right way, right away.

» Ready to start investing? Read about thebest investments right now

1.Give your money a goal

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

  • Long-term goals: These goals are at least five years away. The universal goal is often retirement, but you may have others as well: Do you want a down payment on a house or college tuition? To purchase your dream vacation home or go on an anniversary trip in 10 years?

  • Short-term goals: These goals are less than five years away. This is next year's vacation, a house you want to buy next year, an emergency fund or your Christmas piggy bank. Money for short-term goals generally shouldn't be invested at all. If you need the money you're saving in under five years, check out ourrecommendations for how to invest money for short-term goals.

In this post, we're largely focusing on long-term goals. We'll also touch on how to invest with no specific goal in mind. After all, the aim to grow your money is a fine goal by itself.

» 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 account to the best place to open an account to choosing investment vehicles). But if the DIY route doesn't sound like it'll be your cup of tea, no worries.

(Video) How to Make Money Online With the Nerdwallet Method

Many savers prefer having someone invest their money for them. And while that used to be a pricey proposition, nowadays it's quite affordable — cheap, even! — to hire professional help thanks to the advent of automated portfolio management services a.k.a. robo-advisors.

These online advisors use computer algorithms and advanced software to build and manage a client’s investment portfolio, offering everything from automatic rebalancing to tax optimization and even access to human help when you need it.

» Need help investing? Learn about robo-advisors

If you'd rather do it yourself, let's continue.

Advertisement

NerdWallet rating

NerdWallet rating

NerdWallet rating

Learn More

Learn More

Learn More

Fees

0%

management fee

Fees

0.25%

management fee

Fees

0.25%

management fee

Account minimum

$0

Account minimum

$0

Account minimum

$500

Promotion

Free

career counseling plus loan discounts with qualifying deposit

Promotion

Up to 1 year

of free management for new clients. Terms apply.

Promotion

Get $50 customer bonus

when you fund your first taxable Investment Account

3. Pick an investment account

To buy most types of stocks and bonds, you'll need an investment account. Just asthere are a number of bank accounts for different purposes — checking, savings, money market, certificates of deposit — there are a handful of investment accounts to know about.

Some accounts offer tax advantages if you're investing for a specific purpose, like retirement. Keep in mind that you may be taxed or penalized if you pull your money out early, or for a reason not considered qualified by the plan rules. Other accounts are general purposeand should be used forgoals not related to retirement — that dream vacation home, the boat to go with it or a home renovation down the line.

Here's a list of some of the most popular investing accounts:

If you're investing for retirement:

  • 401(k):You might already have a 401(k), 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 enough to earn that match before investing elsewhere.

  • Traditional or Roth IRA:If you're already contributing to a 401(k) or don't have one, you can open an individual retirement account. In atraditional 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 opposite tax treatment: Contributions are made after-tax and do not offer upfront tax-deductibility, but money grows tax-free and distributions in retirement are not taxed. There are also retirement accounts specifically designed for self-employed people.

» View our roundup of the best IRA providers

If you're investing for another goal:

  • Taxable account. Sometimes called brokerage 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 don't have tax deductibility, but 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 account and a Coverdell education savings account are commonly used for college savings.

    (Video) Saving vs. Investing: Where to Put Your Money Now

With the exception of a 401(k) — which is offered through your employer — you can open these accounts at an online broker.

» View our roundup of the best online brokers

4. Open your account

Now that you know what kind of account you want, you need tochoosean account provider.There are two major options:

  • An online brokerwill allow you to self-manage your account, buying and selling a variety of investments, including stocks, bonds, funds and more complex instruments. Anaccount at an online broker is a good choice for investors who want a large selection of investment optionsor who prefer to be hands-on with account management. Here's how to open a brokerage account.

  • A robo-advisor in a portfolio management company will use computers to do much of the work for you, building and managing a portfolio based on your risk tolerance and goals. You'll pay an annual management fee for the service, generally around 0.25% to 0.50%. Robo-advisors often use funds, so they're generally not a good choice if you're interested in individual stocks or bonds. But they can be ideal for investors who prefer to be hands off.

Don't worry if you're just getting started. Often you can open an account with no initial deposit. (See our lineup 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 transfers from your checking account to your investment account, 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 thatmatch 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 exchange for higher potential investment rewards. Common investments include:

  • Stocks:Individual shares (piece of ownership) ofcompanies you believe will increase in value.

  • Bonds:Bonds allow a company or government toborrow your money to fund a project or refinance other debt. Bonds are considered fixed-income investmentsandtypically make regular interest payments to investors. The principal is then returned on a set maturity date. (Here's more on how bonds work.)

  • Mutual funds:Investing your money in funds— like mutual funds, index funds or exchange-traded funds (ETFs)— allows you to purchase many stocks, bonds or other investments all at once. Mutual fundsbuild instant diversification bypooling investor money and using it to buy a basket of investments that align with the fund's stated goal. Funds may beactively managed, with a professional manager selecting the investments used, or they may track an index. A Standard & Poor's 500 index fund, for example, will hold 500 of the largest companies in the United States.

» Learn more: What are ETFs?

  • Real estate:Real estate is a way to diversify your investmentportfolio outside of the traditional mix of stocks and bonds. It doesn't necessarily mean buying a home or becoming a landlord — you can invest in REITs, which are like mutual funds for real estate, or through online real estate investing 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.

CHECK THE LIST

How to Invest Money: Smart Ways to Get Started - NerdWallet (4)

(Video) How To Build a Low-Cost Portfolio with Index Funds | NerdWallet

For growth, invest in stocks and stock funds

If you have a high risk tolerance, a long time horizon and can stomach volatility, you’ll want a portfolio that contains mostly stocks or stock funds. If you have a low risk tolerance, you’ll want a portfolio that has more bonds, since these tend to be more stable and less volatile. Your goals are important in shaping your portfolio, too. For long-term 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-term financial goals and minimize risk is to spread your money across a range of asset classes. That’s called asset diversification, and the proportion of dollars you put into each asset class is called asset allocation. Then within each asset class, you’ll also want to diversify into multiple investments.

  • Asset diversification means owning a range of assets across a variety of industries, company sizes and geographic areas. It's important because different asset classes — stocks, bonds, ETFs, mutual funds, real estate — respond to the market differently. When one is up, another can be down. So deciding on the right mix will help your portfolio weather changing markets on the journey toward achieving your goals.

  • Asset allocation is the percentage of dollars you put into each asset class. For example, let’s say based on your risk tolerance, time horizon and goals you’ve decided to allocate 90 percent of your money into stocks and 10 percent into bonds. Your asset allocation is 90/10. Within the 90 percent invested into stocks, you should diversify between large-cap stocks, mid-cap stocks, international stocks or value stocks.

Building a diversified portfolio of individual stocks and bonds takes time and expertise, so most investors benefit from fund investing. Index funds and ETFs are typically low-cost and easy to manage, as it may take only four or five funds to build adequate diversification.

How to Invest Money: Smart Ways to Get Started - NerdWallet (5)

Am I on track financially?

Our investment strategy road map can guide your investing journey.

Learn more
(Video) Grow your money with this 401(k) hack— in one minute

More resources

Now you know the investing basics, and you have some money you want to invest. Feel like you need more information? The below posts dive deeper into some of what we discussed above.

  • See how to invest in index funds.

  • Tips onbuilding a simple investment portfolio.

  • Read our guide to investing 101.

  • See how to invest in bonds.

  • Read about five ways to invest in real estate.

  • Learn how to choose a financial advisor if you'd like help balancing financial goals.

  • Use our inflation calculator to understand the relationship between inflation and investing.

FAQs

What should I invest in first as a beginner? ›

Best investments for beginners
  • High-yield savings accounts. This can be one of the simplest ways to boost the return on your money above what you're earning in a typical checking account. ...
  • Certificates of deposit (CDs) ...
  • 401(k) or another workplace retirement plan. ...
  • Mutual funds. ...
  • ETFs. ...
  • Individual stocks.
18 Jul 2022

Can you invest through NerdWallet? ›

NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

How do I start a smart investment? ›

The Six Principles of Smart Investing
  1. Know yourself. We all have different investing goals and different time frames for achieving them. ...
  2. Get an early start. ...
  3. Invest regularly. ...
  4. Build a diversified portfolio. ...
  5. Monitor your portfolio. ...
  6. Align your investments with your time horizons.

How should a $1000 Beginner invest? ›

How to Invest $1,000
  1. Start (or add to) a savings account. ...
  2. Invest in a 401(k) ...
  3. Invest in an IRA. ...
  4. Open a taxable brokerage account. ...
  5. Invest in ETFs. ...
  6. Use a robo-advisor. ...
  7. Invest in stocks.
13 Oct 2022

Is Bitcoin a good investment? ›

Bitcoin, the largest cryptocurrency by market cap, is a good investment if you have a high risk tolerance, are in a strong financial position and want to increase your portfolio's exposure to digital currency. It's not a sure thing, however.

How trustworthy is NerdWallet? ›

Yes, NerdWallet is legitimate. It is a popular personal finance website that has helped many people make better financial decisions. More than 77,000 consumers have given the NerdWallet app a 4.8 out of 5 star rating, and the website provides financial guidance to more than 100 million consumers each year.

How can I grow my money fast? ›

  1. How to invest $1,000 to make money fast.
  2. Play the stock market.
  3. Invest in a money-making course.
  4. Trade commodities.
  5. Trade cryptocurrencies.
  6. Use peer-to-peer lending.
  7. Trade options.
  8. Flip real estate contracts.

Where should I put my money to grow? ›

  1. Savings Accounts.
  2. High-Yield Savings Accounts.
  3. Certificates of Deposit (CDs)
  4. Money Market Funds.
  5. Money Market Deposit Accounts.
  6. Treasury Bills and Notes.
  7. Bonds.

What is the smartest investment? ›

12 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Money market funds.
  • Government bonds.
  • Corporate bonds.
  • Mutual funds.
  • Index funds.
  • Exchange-traded funds (ETFs)
27 Sept 2022

What is the safest investment right now? ›

Here are the best low-risk investments in October 2022:
  • High-yield savings accounts.
  • Series I savings bonds.
  • Short-term certificates of deposit.
  • Money market funds.
  • Treasury bills, notes, bonds and TIPS.
  • Corporate bonds.
  • Dividend-paying stocks.
  • Preferred stocks.
1 Oct 2022

How do I learn to invest? ›

Let's get into the steps to learn about investing.
  1. Buy and read investing books. ...
  2. Learn the investing terminology. ...
  3. Attend any company meetings for employees. ...
  4. Start reading fund prospectuses. ...
  5. Follow & read personal finance websites. ...
  6. Take an investing online course. ...
  7. Learn from stock simulators. ...
  8. Start investing with little money.
26 Apr 2021

Can you make a living off stocks? ›

Trading is often viewed as a high barrier-to-entry profession, but as long as you have both ambition and patience, you can trade for a living (even with little to no money). Trading can become a full-time career opportunity, a part-time opportunity, or just a way to generate supplemental income.

How can I grow $10000? ›

How To Invest $10,000
  1. Open an IRA. Bolstering your retirement savings is a great use of $10,000. ...
  2. Invest in Mutual Funds and ETFs. ...
  3. Build a Stock Portfolio. ...
  4. Invest in Bonds. ...
  5. Buy Real Estate with REITs. ...
  6. Prepare for healthcare costs with an HSA. ...
  7. Considering Crypto? ...
  8. Focus on the long-term.
22 Sept 2022

How can I make 1000 a day? ›

How can you make an extra $1,000 a day fast?
  1. Deliver food with DoorDash.
  2. Dog sit and dog walk with Rover.
  3. Do projects on HomeAdvisor.
  4. Resell on eBay.
  5. Sell your own products on Etsy.
  6. Start freelance writing for blogs.
  7. Create an online course.
  8. Build a podcast following.
26 Aug 2022

How do you build your wealth in 2022? ›

9 Ways To Become Rich in 2022
  1. What Does It Mean To Be Rich? ...
  2. Pay It Off. ...
  3. Watch Your Risk. ...
  4. Start Your Own Company and Sell It Later. ...
  5. Participate in a Startup and Receive Stock. ...
  6. Focus On Your Retirement Plan. ...
  7. Try Affiliate Marketing. ...
  8. Increase the Amount You Save.
19 Sept 2022

What stock will grow the most in 2022? ›

Fastest Growing Stocks
Price ($)Revenue Growth (%)
American Airlines Group Inc. (AAL)12.7179.5
Equitable Holdings Inc. (EQH)28.2975.2
Marriott Vacations Worldwide Corp. (VAC)126.5018.9
2 more rows

What are the 4 types of investments? ›

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.
  • Growth investments. ...
  • Shares. ...
  • Property. ...
  • Defensive investments. ...
  • Cash. ...
  • Fixed interest.

Which crypto will boom in 2022? ›

Ethereum. The second largest crypto by market cap is likely to grow in 2022 and 2023, according to crypto enthusiasts. According to some predictions, Ethereum could reach a worth between $8,000-$10,000 by the end of 2022.

What coin should I buy today? ›

Most Active Cryptocurrency - Volume
  • Tether. ₹ 82.36. -0.08%
  • Bitcoin. ₹ 17,00,772. 1.60%
  • Ethereum. ₹ 1,28,067. 2.23%
  • Binance USD. ₹ 82.33. -0.20%
  • USD Coin. ₹ 82.26. -0.30%
  • Dogecoin. ₹ 7.08. 14.77%
  • XRP. ₹ 38.72. 0.87%

Which crypto is best to invest now? ›

Top 10 Best Cryptocurrencies To Invest In For 2023
  • Top 10 Best Cryptocurrencies to Invest In 2023. ...
  • Ethereum (ETH) ...
  • Bitcoin (BTC) ...
  • ApeCoin (APE) ...
  • Solana (SOL) ...
  • Shiba Inu (SHIB) ...
  • Uniswap (UNI) – Best Decentralized Cryptocurrency to Invest in Long Term. ...
  • Decentraland (MANA)
4 Oct 2022

How much should I invest as a beginner? ›

That match is free money and a guaranteed return on your investment. You can start with as little as 1% of each paycheck, though it's a good idea to aim for contributing at least as much as your employer match. For example, a common matching arrangement is 50% of the first 6% of your salary you contribute.

What should my first stock be? ›

Blue-Chip Stocks

Blue chips are great for newer investors; they tend to move with the market predictably. They also carry less risk than most other stocks. The S&P 500 tracks top companies in key industries in the large-cap segment of the market; many of these are blue-chip stocks.

How can I start investing with little money? ›

How to Invest With Little Money
  1. Use a Microsavings App.
  2. Enroll in Your Employer's Retirement Account (or Open a Roth IRA)
  3. Invest With a Robo Advisor.
  4. Invest in Commission-Free Index Funds and ETFs.
  5. Invest in Target Date Mutual Funds.
  6. Buy Fractional Shares of Stock.

How much should I invest in stocks as a beginner? ›

"If you're a typical working person or a beginning investor, you should know that it doesn't take a lot of money to start," IBD founder William O'Neil wrote in "How to Make Money in Stocks." "You can begin with as little as $500 to $1,000 and add to it as you earn and save more money," he wrote.

What is the safest investment right now? ›

Here are the best low-risk investments in October 2022:
  • High-yield savings accounts.
  • Series I savings bonds.
  • Short-term certificates of deposit.
  • Money market funds.
  • Treasury bills, notes, bonds and TIPS.
  • Corporate bonds.
  • Dividend-paying stocks.
  • Preferred stocks.
1 Oct 2022

What is a good asset to buy? ›

Investing for income: 7 money-generating assets for your portfolio and how to get started
  • Dividend stocks. ...
  • Bonds. ...
  • Real estate. ...
  • Money market funds. ...
  • Certificates of deposit. ...
  • Money market accounts. ...
  • Annuities.

What are 4 types of investments? ›

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.
  • Growth investments. ...
  • Shares. ...
  • Property. ...
  • Defensive investments. ...
  • Cash. ...
  • Fixed interest.

What are the 10 best stocks to buy right now? ›

The 10 Best Stocks as of October 2022
  • Anheuser-Busch InBev BUD.
  • Yum China YUMC.
  • Equifax EFX.
  • Walt Disney DIS.
  • International Flavors & Fragrances IFF.
  • ASML Holding ASML.
  • TransUnion TRU.
  • GSK GSK.
13 Oct 2022

How can I be a millionaire? ›

6 Steps to Become a Millionaire by 30
  1. Start Saving Early. The easiest way to build your savings is to start early. ...
  2. Avoid Unnecessary Spending and Debt. Stop buying things you don't need. ...
  3. Save 15% of Your Income—or More. ...
  4. Make More Money. ...
  5. Don't Give in to Lifestyle Inflation. ...
  6. Get Help if You Need It.

Can I invest with $10? ›

You don't need a lot of money to start investing. In fact, you could start investing in the stock market with as little as $10, thanks to zero-fee brokerages and the magic of fractional shares.

What is the best investment to make quick money? ›

Here are a few of the best short-term investments to consider that still offer you some return.
  1. High-yield savings accounts. ...
  2. Short-term corporate bond funds. ...
  3. Money market accounts. ...
  4. Cash management accounts. ...
  5. Short-term U.S. government bond funds. ...
  6. No-penalty certificates of deposit. ...
  7. Treasurys. ...
  8. Money market mutual funds.
17 Oct 2022

How do you build wealth when you're broke? ›

1. Increase Your Income
  1. Venture into Business. The wealthiest people in the world are not employees but business founders. ...
  2. Take Up High-Paying Jobs. ...
  3. Run Side Hustles. ...
  4. Improve Your Skill Set. ...
  5. Create a Budget. ...
  6. Build an Emergency Fund. ...
  7. Live Below Your Means. ...
  8. Stock Market.
23 Apr 2022

Can you buy 1 share of Amazon stock? ›

Yes, there are brokers and online trading services that offer the ability to purchase fractional shares of Amazon stock. Before opening a brokerage account or setting up an online trading account to buy Amazon stock, check to see whether the service offers fractional shares.

Can you get rich off stocks? ›

Yes, you can become rich by investing in the stock market. Investing in the stock market is one of the most reliable ways to grow your wealth over time.

Is it worth it to buy 1 share of stock? ›

While purchasing a single share isn't advisable, if an investor would like to purchase one share, they should try to place a limit order for a greater chance of capital gains that offset the brokerage fees.

Videos

1. 5 Strategies to Make Your Money Work for You
(NerdWallet)
2. Making a Plan to Achieve Your Dream - Smart Money Podcast
(NerdWallet)
3. What is NerdWallet? Making Personal Finance Transparent
(How It Happened)
4. How To Start Affiliate Marketing For Beginners
(John Crestani)
5. Warren Buffett | How To Invest For Beginners: 3 Simple Rules
(FREENVESTING)
6. Investing During a Bear Market
(NerdWallet)

Top Articles

You might also like

Latest Posts

Article information

Author: Jonah Leffler

Last Updated: 11/17/2022

Views: 5542

Rating: 4.4 / 5 (45 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Jonah Leffler

Birthday: 1997-10-27

Address: 8987 Kieth Ports, Luettgenland, CT 54657-9808

Phone: +2611128251586

Job: Mining Supervisor

Hobby: Worldbuilding, Electronics, Amateur radio, Skiing, Cycling, Jogging, Taxidermy

Introduction: My name is Jonah Leffler, I am a determined, faithful, outstanding, inexpensive, cheerful, determined, smiling person who loves writing and wants to share my knowledge and understanding with you.