How To Invest Money for Beginners in 2024

I used to shy away from conversations about investing because I thought it was meant for wealthy people with enough money to do what they wanted. 

My financial security was a checking account with a few dollars in it. I didn’t spend much, but at the same time, I didn’t have enough to show for it because all the money I’d saved was within reach when something came up.

Another reason I didn’t get into investing earlier is I knew nothing about it. To me, the whole concept of stocks, crypto, and real estate sounded too complex and intimidating. 

Looking back now, I’m glad I got rid of that mentality and would like to help you do that, too. This is why I’m writing a detailed article on how to invest money for beginners. 

Regardless of your income, there isn’t a suitable time to start securing your future. The earlier, the better. You can do that for as little as $10.

Want quick $20 you can use to start your investing journey?

• Acorns –  Earn an instant $20 sign-up bonus when you set up a recurring investment of at least $5.

How To Invest Money for Beginners

Financial independence, accumulation of wealth, and tax benefits are among the advantages of investing money. But the question is, where do you start, and how much do you need?

Before investing, determine what you want and how much risk you can take. You can do it with the help of a financial advisor or navigate the waters independently.

Below is a step-by-step guide on how to invest money as a beginner:

1. Know Your Investment Goals  

Like any other venture, having a clear investment goal keeps you focused on the endgame. It acts as a guide on the exact steps to take toward financial independence.

Delving into investment without a goal will lead to jumping from one venture to another or even poor financial decisions, which may lead to loss of money.

Ask yourself these questions: 

• What is your ultimate goal for the money? 
• How long do you want your money to mature to meet your goal?

For instance, buying stocks and holding them for 10 or more years makes sense if you want to accumulate wealth in the long term. 

On the other hand, short-term strategies like corporate bonds or a high-yield savings account may be helpful if you aim to raise a down payment for a house.

2. Know Your Risk Tolerance 

Risk is a scary term for everyone who plans on investing. The mere thought of losing money in an investment may make you settle for “safer” methods like letting your money sit in a bank.

However, safe ways won’t make you wealthy. You won’t raise a down payment for your house or secure your children’s education by playing it safe. 

You can only stomach a certain amount of risk, so understanding your risk tolerance is crucial to success. 

Assessing your risk tolerance guides you in choosing an investment type that suits your needs without compromising your mental health. 

What’s the fun in putting your money away in an investment if you constantly worry about it?

If you have a high risk tolerance, you may find ventures like cryptocurrency, day trading, and startup investments intriguing. 

However, safer options like real estate, ETFs, and government bonds may work for you if your risk tolerance is lower.

3. Determine What Kind of Investor You Want To Be

The kind of investor you want to be generally boils down to your goals, capacity, time horizon, and risk tolerance. 

All factors considered, investors fall into two broad groups: short-term and long-term.

Short-Term Investor

A short-term investor mainly aims to generate quick returns within a short period. 

This investment strategy capitalizes on market fluctuations by buying assets when they’re low and selling them when their prices increase.

There are two types of short-term investment strategies:

• Day trading: This involves buying and selling investments like stocks within the same day. This venture is very risky and challenging, especially for beginners. 
• Swing trading: Swing trading focuses on leveraging seasonal price fluctuations to make a profit. Unlike day trading, this investment strategy is more flexible as you can hold your investment for a few days or months. 

Long-term Investor

A long-term investor capitalizes on time to make a profit. The longer the time, the more time your money has to compound. Generally, long-term investments are less risky compared to short-term.

Here are some common long-term investment strategies:

• Dividend investing: Involves investing in dividend stocks that pay dividends, say quarterly. You can reinvest your profits or channel them towards another goal. Dividend investments may not pay much at once, but they’re an excellent source of passive income over time. 
• Value investing: This involves purchasing undervalued stocks whose value may increase in the future. 
• Index investing: This is the most popular and safest long-term investment strategy. Index investing entails diversifying your portfolio by investing in several companies at once. This way, you spread the risk and increase returns.

4. Decide How Much To Invest 

Once you’ve determined your goals and time horizon, the next step to successful investment is determining how much you want to channel toward your investment. 

Most financial planners recommend investing 15% of your paycheck each month, but this isn’t written in stone. You might want to consider a higher percentage if you start your journey late. 

The amount of money you put into your investment should be proportionate to your income. It’s better to settle for small amounts over a long period than to compromise your quality of life.

5. Determine What You’ll Invest In

There are many investment avenues you can venture into that align with your goals and risk tolerance. Here are some of the most common ones:

Stocks 

When you buy a stock, you own a share representing ownership in a company. As mentioned, investing in different companies is a practical way to spread and reduce risk.

Generally, you earn returns when the stock appreciates and vice versa. So, consider buying low and selling high.

You can put your money in dividend stocks for regular passive income or flip non-dividend ones in the stock market. 

ETFs 

Want the flexibility of stocks without tying yourself down to one company? Exchange Traded Funds are a collection of bonds and stocks, which earn higher returns while spreading the risk. 

Index Funds 

Index funds focus on specific market indexes, like the S&P 500. Investing in these funds gives you access to a diverse pool of assets represented by a particular index. 

Index funds enable you to diversify your portfolio within a single investment instead of putting all your eggs in one basket like stocks. 

Real Estate 

In the past, real estate wasn’t an investment you’d consider without having thousands of dollars. 

Thanks to crowdfunding platforms like Arrived, the high barriers to entry have been eliminated, enabling you to invest from as low as $100. 

Arrived pools funds from investors and purchases a property. From there, investors receive quarterly payments based on their share capital. 

It’s among the best ways to make your money work for you, even with a low income. 

Mutual Funds 

Mutual funds work under the same concept as REITS, such as Arrived. Only this time, investors pool funds towards a collection of bonds and stocks rather than real estate.

You can manage your mutual funds actively or invest in a passive index like the S&P 500.

Bonds 

Bonds are low-risk investments made through loaning money to the government or a company. 

Generally, when you purchase a bond, you give the money to the issuer, who then repays it with interest after a set period. 

High-Yield Savings Account 

A high-yield savings account is another investment vehicle worth considering. With platforms like Raisin, you can open your account for $1 and earn an APY of up to 5.32%.

Cryptocurrency

Cryptocurrency is one of the riskiest and most profitable investment vehicles out there. Platforms like Nexo allow you to purchase, hold, sell, and take a loan against your crypto portfolio.  

6. Open an Investment Account 

After choosing an investment vehicle to meet your financial goal, open an investment account with a platform like Acorns. 

You can round up your spare change or make recurring investments on Acorns to secure your financial future. 

The app is based on time’s compounding effect, which lets you reap benefits in the long run, even with small strides. 

Get $20 when you set up a recurring investment of at least $5.

7. Build Your Portfolio

You now know that investments come with risks. You risk losing your money even if you choose safe methods like real estate. 

However, building a diverse portfolio helps reduce the risk by spreading it across different assets. This way, even if you lose your money in one, the rest covers the loss. 

Consider investing in different vehicles simultaneously instead of putting all your eggs in one basket. For instance, you can invest in real estate, stocks, and index funds.

8. Monitor and Rebalance Your Portfolio Over Time

Your investments will likely shift due to market fluctuations. After a year, your investment pattern may not suit your goals as it did initially.

This is why monitoring and rebalancing your portfolio regularly is a good idea. This simply means readjusting your investments to align with your financial goals. 

For instance, if your initial investment of 40% in bonds and 60% in stocks no longer serves you, you can adjust it to 30% in bonds and 70% in stocks. 

The Best Investing Apps for Beginners 

Now that you know how to invest money as a beginner, I’m sure you’re wondering whether to approach your bank.

Banks are one way to invest, but several apps have been developed to make investing easy and flexible and guide diversifying your portfolio based on your goals and risk tolerance. 

These investment apps have lower fees. Plus, they have an automation feature that lets you invest money passively. Here are some of the best apps worth considering:

Acorns 

Acorns is widely known for its automatic round-up feature. It rounds up your spare change and invests it in a portfolio of ETFs, bonds, stocks, and REITs.

This is how rounding up works: when you purchase a product for $1.25, Acorns rounds up the amount to $2.00. The platform then channels the extra $0.75 towards your investment portfolio. 

Through the roundup feature, Acorns offers a convenient way to save money, even for individuals who live paycheck to paycheck. 

This may seem like a small amount to invest, but with time and consistent recurring investments, you can gradually build savings toward financial stability without sacrificing your living standards.

Acorns has an additional feature called Acorns Earn, which works similarly to cashback sites. 

This feature lets you earn bonus investments by shopping at 15,000 top brands, like Kohl’s, Apple, Nike, and Groupon. 

Plus, they offer a $20 signup bonus when you sign up and set a recurring investment of at least $5.

M1 Finance 

M1 Finance offers over 6,000 stocks and ETFs and a lucrative 5%APY. The platform is perfect for beginners since it has model portfolios you can use if you’re still unsure which investment pattern best aligns with your needs. 

In addition to that, M1 Finance lets you borrow against up to 40% of your portfolio’s value at a low interest rate of 7.25%.

Are you worried about financial constraints that may hinder consistent recurring investments? M1 Finance partners with Spotify, Chewy, and StitchFix to offer up to 10% cashback, which you can reinvest into your portfolio.

Betterment 

Whether you want to save for retirement or invest money for a future goal, Betterment is the right app. The platform offers a variable 4.75% APY.

Furthermore, the account has no minimum balance, facilitates unlimited withdrawal, and is accepted and insured by FDIC. 

Betterment also has an automated system that offers personalized investments and portfolio rebalancing based on your needs. 

According to their profile, Betterment was recognized as the best Robo Advisor among 20 similar platforms. 

Its low fees, top-notch investor services, detailed financial planning, and well-defined investment strategies stood out. Overall, Betterment is worth trying if you want to invest money as a beginner. 

Stash Invest 

This is another beginner-friendly app you should have in your corner as you kickstart your investment journey. 

Stash Invest has a 4.7-star rating on the App Store and over two million active users, showing how good the platform is. 

Start with their automated investing feature if you want a stress-free approach. You can also go for self-directed investing if you want more control over your finances. 

Whichever way you choose, Stash Invest offers personalized advice to guide you on the best investment strategies that align with your goals and risk tolerance. 

I also like that they partner with platforms like Netflix, Disney+, and Spotify to offer 3% cashback, which is invested into stocks. 

Note that Stash Invest charges a $3 fee for a Stash Growth account and $9 for a Stash+ account.

Nexo 

Bitcoin is the most popular cryptocurrency out there. Many people are getting into it, and if you’re wondering how to do it, Nexo is your friend.

The platform lets you diversify your portfolio by investing in over 70 cryptocurrencies. You’ll earn up to 0.5% of crypto rewards upon purchase. 

You’ll earn up to 16% interest by holding popular crypto like BTC, USDC, and USDT. Additionally, you can take a loan against your portfolio at 0% interest when you’re in a fix.

Nexo also offers a dual-mode crypto card, a must-have if you decide to venture into this investment. You’ll earn 2% cashback using credit mode and up to 13% pa on your idle assets with debit mode.

Another way to make money on Nexo is by inviting friends. You’ll earn $25 in Bitcoin for every successful referral.

Mistakes You Should Avoid When Investing Money 

We’ve discussed the dos of investing and knowing the don’ts beforehand helps you avoid poor financial decisions. 

Here are some common mistakes to avoid when investing money:

Starting Late

One of my regrets is starting my investment journey late. Bitcoin was introduced in 2009, and the coin was worthless by then. 

If I had invested $100, my stake would have risen to millions by now. Jumping to a new investment opportunity isn’t always a good idea, but you’ll never know unless you take the risk. 

Most people believe the best time to invest is when you reach 40+ years old and have a family to consider. I’m here to tell you there’s no right time to start investing.

Remember, compound interest is the 8th wonder of the world. Start small and watch your investment grow gradually over time. 

Not Doing Your Due Diligence

Investing in anything, whether real estate or crypto, poses a particular risk. Doing your due diligence to understand the risk beforehand is vital.

Taking a calculated risk isn’t the same as investing ignorantly. Don’t just venture into crypto because everyone is talking about their profitability. 

Take time to research an investment vehicle, assess the potential risks and rewards, and gauge its viability in line with your goals. 

If you have no clue about investments but want to explore them anyway, speaking to a financial advisor is an excellent idea. 

They’ll help you choose the right strategies to achieve your investment goals without always being at the edge of your seat. 

Most brokerage accounts have simulators to help you master the art of trading, primarily stocks and crypto, before diving into the market. 

You can use such apps to hone your skills and master the art instead of investing in something you know nothing about.

Impatience 

A calm head is essential, especially for volatile investments like crypto and stocks. The market’s growth isn’t linear. Some days will be good and others bad.

You must always keep calm and let things play out by themselves because even the most experienced investors can’t control the market.

Impatience may lead to irrational decisions that impact your finances negatively in the long run. For instance, buying investments at inflated prices may lead to losses in the long term. 

Also, frequently selling and buying investments may increase taxes and brokerage fees, hurting your investment in the long run.

Finally, impatience can steer you away from a well-thought-through investment plan. Succumbing to short-term volatility may hinder your chances of long-term success.

Not Diversifying Your Portfolio 

This is one of the most impactful mistakes in investing. Diversifying your portfolio spreads the risk across different investments such that profits from the rest cover up for the loss when one fails. 

Failing to diversify your portfolio is like putting all your eggs in one basket. In the event of a storm, you may lose all your hard-earned cash. 

Consider speaking to a financial advisor to gauge your risk tolerance and select investment strategies that diversify your portfolio and reduce risks.

Frequently Asked Questions 

Should You Invest or Save?

Whether to save or invest your money depends on your goals and capacity to sustain recurring investments. 

Investing shouldn’t be a priority if you’re struggling financially. Clear your debts and build an emergency fund before considering investment. 

If you have money you won’t need soon, investing it could earn higher returns and avoid inflation instead of saving it in a traditional bank account. 

How Can You Start Investing With Little Money?

With the advent of crowdfunding platforms, the barriers to entry in investment are significantly lower. You can invest in REITs, low-cost ETFs, and index funds for as little as $100. 

Where To Invest Money To Get Good Returns?

Where to invest depends on your goals, risk tolerance, and time horizon. Any investment is bound to yield good returns if you approach it strategically. 

Consider delving into crypto if your risk tolerance is high. However, index funds make more sense if you have a lower risk tolerance.

Is $100 Enough To Start Investing?

Yes, $100 is enough to start investing. Many brokerage apps let you invest as low as $5, so $100 is generous. 

With $100, you can delve into real estate, stocks, ETFs, or mutual funds.  

Final Thoughts

Now that you know how to invest money as a beginner, I hope you’re ready to explore different avenues and let your money work for you. 

Understanding your risk tolerance and setting clear goals are essential steps in the investment process. Once that’s clear, research on various methods to find one that aligns with your needs.

Speaking to a financial advisor helps you avoid making poor decisions that may affect your investments negatively.