For those who have never dabbled in investing or managed money before, it can be a daunting task for a beginner. This is especially true given the seeming complexity of the financial markets. However, with the right approach, research, and continuous learning, investing can be a powerful tool for building wealth and achieving your long-term financial goals. For beginners, it’s probably good to start with investments that offer a balance between growth potential while managing risk.

Below, we’ll lay out some investment ideas for newbies. They offer a solid foundation to help you navigate the complex investment landscape while building a stable nest egg. Understanding these seven investment options can set you on the path to financial prosperity. That's true whether you’re looking to grow your savings, grow your retirement fund, or achieve other financial milestones.

1. 401(k)s

A 401(k) is a savings plan offered by many employers. It allows the employee to contribute a portion of their salary on a pre-tax basis, which means the money deducted from your bi-weekly paycheck before taxes are applied. These contributions are then invested in a retirement fund that includes stocks, bonds, mutual funds.

Investing in a 401(k) provides a tax-advantaged way to save for retirement since contributions are made on a pre-tax basis. This is a positive because with this retirement fund option you can lower your tax burden while building wealth for the future.

image of plant and coins representing growing wealth

It's never too early for beginner investments to help you get started growing your wealth.

Another great feature about a 401(k) is employer match. This is where the company you work for matches a certain percentage of the contributions you made as an employee. This is basically free money and can significantly boost the overall growth of your account. This option also offers a wide range of investment options, which allows you to customize your portfolio based on your risk tolerance and financial goals.

Since 401(k)s are designed for long-term investing, there are certain restrictions on the account like penalties for early withdrawals. This prevents people from tapping into their retirement savings too early.

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Many companies offer 401(k) accounts for their employees.

2. IRAs (Traditional IRA vs Roth IRA)

An individual retirement account or IRA is a retirement savings account that provides a tax-advantaged way to save for retirement. IRAs are a great option if your employer doesn’t offer a 401(k). Since they are not tied to an employer, IRAs must be opened by individuals through a brokerage or bank.

Investing in an IRA can be beneficial because similar to a 401(k), IRA contributions are made on a pre-tax basis, which means money is deducted from taxable income during the year of contribution. This could lower your tax liability. The funds in your IRA will grow tax deferred until withdrawals are made during retirement, allowing for compound growth over time.

It’s important to distinguish the two types of IRAs: Traditional and Roth. The main difference is how they are taxed. With a Traditional IRA, contributions are tax deductible but withdrawals in retirement are taxed as ordinary income, making it a potentially between option for those who may be in a lower tax bracket during retirement. Roth IRAs are funded with after-tax contributions. In other words, contributions are not tax deductible but qualified withdrawals in retirement are tax free. Roth IRAs can be beneficial for people who believe they’ll have a higher tax bracket in retirement or for those who want to have tax-free growth on their investments.

There are income limits and contribution limits for both account types. And similar to a 401(k), early withdrawals from an IRA could result in penalties.

3. Mutual Funds / ETFs

Mutual funds and exchange-traded funds are investments that pool money from different people to invest in a diversified portfolio of securities like stocks, bonds, or a combo of both. A mutual fund is managed by a professional fund manager(s) that invests in a diversified portfolio of securities. They are priced at the end of each trading day and are bought and sold through a mutual fund company or broker. An ETF is an investment fund that’s traded on stock exchanges, similar to stocks. ETFs track the performance of an index, sector or asset class and are priced and traded throughout the day.

Both mutual funds and ETFs are liquid investments. Investors can buy and sell shares at any time and can access their investments on an as needed basis. Moreover, for investors who have different risk tolerances and investment goals, both investment vehicles offer a variety of different funds ranging from conservative for those with a lower risk tolerance to growth funds for those with a higher level of risk tolerance.

4. Health Savings Accounts

A health savings account is a tax-advantaged savings account suitable for individuals who have high-deductible health insurance plans. HSAs can help you save and pay for certain medical expenses in the short term and during retirement.

photo of two piggy banks balacing on a scale

Health savings accounts are a wise use of any extra "rainy day" funds.

HSA contributions are tax-deductible, providing account holders with tax savings and reducing their tax liability. Also, any interest or investment gains within the HSA are tax-free. Furthermore, qualified withdrawals for certain medical expenses are tax-free. These tax benefits are what make HSAs a powerful tool for managing health care costs while maximizing savings.

But you can also use HSAs as a long term investment vehicle. HSAs provide investment options like mutual funds or stocks that allow you to grow your HSA funds over time and grow higher returns to cover future medical expenses. Having an HSA can offer a peace of mind for planning for unexpected medical costs that may arise while accumulating wealth for retirement.

5. Robo-Advisors

A robo-advisor is a digital platform that provides automated investment advice based on personalized data from each individual. The platforms use algorithms to assess each person’s financial goals and then automatically allocate and manage their investments. The way it works is, when you open an online account, you’ll be prompted to answer questions about your finances and investment goals. Based on that data, the app’s algorithms will create a custom investment plan for you.

This is probably one of the most convenient and simple ways to get started with investing. You can even access a robo-advisor through a mobile app. Another reason is robo-advisors have a low or no minimum investment requirement to open an account, making its very accessible for beginners to start their investment journeys. This way of investing is cost effective because the fees associated with the account are very low.

Remember, this option is probably best suited for beginners. If you’re closer to retirement age, your finances and goals may be more complex and may require a traditional human advisor to better assess your financial situation.

6. Stock Indices

A stock index tracks the aggregate performance of an entire category of stocks. The grouping of stocks that make up the index might be based on the sector the companies operate in, such as the tech-focused Nasdaq (NDX). It could simply include a few dozen of the largest companies by market capitalization, as is the case with the Dow Jones Industrials (DJIA).

Stock indices can also be made up of hundreds or thousands of individual stocks covering large swathes of the broader market, like the S&P 500 (SPX) or Russell 2000. The Russell 2000 tracks thousands of "small cap" companies. The S&P is sometimes abbreviated SPY, the symbol for the index's futures contract.

There are many indexes (indices) to choose from. Stock indices tend to be "safer" and simpler. Most traders (and many portfolio managers, frankly) don't beat the broader market. Whereas buying and holding a basket of the world's biggest companies has produced excellent returns over most 10-, 20-, and 30-year time periods.

shadow of a bull and a bear in front of numbers representing a stock exchange

Stock indices are a convenient way of gaining broad exposure to the equity markets.

In short: stock indices are relatively safe and extremely liquid. They can offer exposure to either a diverse section of the market or a concentrated industry.

7. Investing Apps

It's highly recommended to invest in some inexpensive tools that will help you manage your investment portfolio, as well. Some handy apps can help you keep tabs on or track the performance of your investments. Similar to robo-advisors, they can often be used from the convenience of your phone or mobile device.

photo of an apple watch

Investing apps are similar to health and wellness apps for dieting and exercise—except for your money!

Investment tracking apps are also a great way to get acquainted with the basics of wealth management. You flatten the learning curve for yourself as time goes on. Even if you hire a professional financial advisor, which is a good idea, it's still smart to stay aware of your investments and engage with the process.

Make It Easy to Start Investing

Investing for beginners doesn’t have to be a challenge. This list of seven options is a great place to start but there are many other investment vehicles that are also available. There are many options to consider that offer a balance between manageable risk and growth but since there is no one-size-fits-all investment, it’s important to assess your financial situation to make the best investment option that suits you.

Written by Paulina Likos

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