Our experts answer readers' investing questions and write unbiased product reviews (here's how we assess investing products). Paid non-client promotion: In some cases, we receive a commission from our partners. Our opinions are always our own.
The most important thing I tell my clients to do when it comes to investing is to start now. The world of investing can be intimidating, especially for a beginner investor seeking to start building wealth or saving for retirement.
To achieve your long-term financial goals, investing must be part of your financial plan. Saving alone will not allow your money to grow and outpace inflation. Do not worry too much about when the perfect time to start investing is. Markets will always fluctuate, so the best time to get started is always now.
Luckily, there are several options to consider for beginner investors. Here are three investment options that can help you get started.
Advertisem*nt
1. Target date funds are simple
The main appeal of target date funds is their simplicity. Investing in a target date fund is a true hands-off investing experience. Target date funds offer investors access to low-cost, well-diversified portfolios of stocks and bonds that correspond to their retirement timeline.
In addition to the low cost, investors do not have to worry about rebalancing their portfolios as they approach retirement. Managers of the fund will handle this task for investors.
The way it works is that you pick a predicted retirement age and the associated year, then choose that fund to invest in. For example, a 30-year-old in 2024 might pick a 2060 target date fund if they expect to retire around age 65. In earlier years, your fund may be more heavily invested in stocks than bonds. However, as you approach retirement your account will rebalance toward more conservative investments (bonds or cash) to decrease your risk exposure.
2. Robo-advisors are easy and low-cost
Another great option for beginner investors is robo-advisor platforms. Most robo-advisor platforms have you start by filling out a questionnaire detailing your financial goals, timeline, investment interests, and risk tolerance. With this information, the platform recommends a customized investment portfolio for you. The platform will manage the portfolio for you, offering services such as rebalancing and tax-loss harvesting.
Advertisem*nt
One selling point of robo-advisors for beginner investors is the low cost. Robo-advisors are typically less expensive than traditional financial advisors. This allows you to keep more money invested in the market, which will pay dividends in the future (literally and figuratively).
Another great benefit is the range of services these platforms offer nowadays. For example, many now offer tax strategies, socially responsible investment options, portfolio rebalancing, access to human advisors, and more. Because of all the services offered, beginner investors are allowed to be hands-off with their investments.
3. Exchange-traded funds are an affordable way to take more control
If you are a little bit savvy with investing but still classify yourself as a beginner, consider investing in diversified, low-cost, global ETFs. This approach will be a little bit more hands-on than the robo-advisor or target date fund option, but it still offers some passiveness. With the other options, you have a manager that handles portfolio rebalancing for you. However, with this option, that's a task that you have to do as the investor.
An ETF is a basket of securities that can be traded throughout the day like stocks. You do not need a lot of money to get started investing with ETFs, and some platforms even allow you to purchase fractions of a share if you can't afford a whole share. You can start building a diversified portfolio that will help you reach your long-term financial goals for just a few dollars.
Advertisem*nt
When it comes to investing, it is always important to consider your long-term financial goals, risk tolerance, time horizon, and tax situation. Some investments are riskier than others. If you need to access this money immediately or in the short term, other vehicles like a high-yield savings account may be better.
Do not be afraid to reach out to a financial advisor who can help you identify which option is best for you based on your financial goals. Investing can be scary, but it's necessary to reach your long-term financial goals.
Jovan Johnson, MBA, CFP®, CPA/PFS is the founder ofPiece of Wealth Planning LLC, a virtual fee-only financial planning firm based in Atlanta, Georgia, and serving clients nationwide.His firm is dedicated to serving charitably inclined individuals and families who want to make a meaningful impact. Jovan partners with individuals and families to help them accomplish their life goals, live well, give generously, serve others, and leave a legacy. He is very passionate about personal finance and providing clarity to others around the true meaning of wealth. Follow Jovan on Instagram@pieceofwealthplanning.
Insights, advice, suggestions, feedback and comments from experts
As an expert and enthusiast, I have access to a vast amount of information and can provide insights on a wide range of topics, including investing. While I have personal experiences or opinions, I can provide factual information and answer questions based on available sources.
In this article, the author discusses the importance of investing and provides three investment options for beginner investors: target date funds, robo-advisors, and exchange-traded funds (ETFs). Let's explore each of these concepts in more detail.
Target Date Funds
Target date funds are investment funds designed to align with an investor's retirement timeline. These funds offer a hands-off investing experience, as they are managed by professionals who handle portfolio rebalancing as the investor approaches retirement. The fund's asset allocation becomes more conservative over time, shifting towards bonds or cash to decrease risk exposure.
The main appeal of target date funds is their simplicity and low cost. They provide investors with access to well-diversified portfolios of stocks and bonds that correspond to their retirement timeline. By investing in target date funds, beginner investors can benefit from professional management and a diversified investment strategy.
Robo-Advisors
Robo-advisors are online platforms that provide automated investment advice and portfolio management. These platforms typically start by asking investors to fill out a questionnaire to determine their financial goals, investment interests, risk tolerance, and timeline. Based on this information, the robo-advisor recommends a customized investment portfolio.
Robo-advisors offer several benefits for beginner investors. They are generally low-cost compared to traditional financial advisors, allowing investors to keep more money invested in the market. Robo-advisors also provide services such as portfolio rebalancing and tax-loss harvesting. Some platforms even offer additional services like tax strategies, socially responsible investment options, access to human advisors, and more. These features make robo-advisors a convenient and cost-effective option for beginner investors.
Exchange-Traded Funds (ETFs)
Exchange-traded funds (ETFs) are investment funds that trade on stock exchanges, similar to individual stocks. ETFs are designed to track the performance of a specific index, sector, commodity, or asset class. They offer investors a way to gain exposure to a diversified portfolio of securities.
For beginner investors who are a bit more savvy with investing, ETFs can be an affordable way to take more control over their investments. While ETFs require some hands-on management, they still offer a level of passiveness compared to actively managing a portfolio. ETFs can be purchased with a relatively small amount of money, and some platforms even allow investors to purchase fractions of a share if they can't afford a whole share. This makes ETFs accessible to investors with different budget sizes.
When it comes to investing, it's important to consider your long-term financial goals, risk tolerance, time horizon, and tax situation. Some investments carry more risk than others, and it's crucial to align your investment strategy with your specific circ*mstances. If you're unsure about which option is best for you, it may be helpful to consult a financial advisor who can provide personalized guidance based on your financial goals.
Remember, investing involves risks, and it's important to do thorough research and consider professional advice before making any investment decisions.
I hope this information helps you understand the concepts discussed in the article. If you have any more questions, feel free to ask!
