If you have limited funds and no experience, getting started investing can be overwhelming. Fortunately, there are a number of investment opportunities with low risk and little money required to get started. That makes it easier to learn and grow your money as you go.
While keeping some money in savings for emergencies is a good way to keep it safe, you'll need to invest your money to let it work for you and grow your wealth over time. Check out these six easy ways to start investing in 2023.
1. Start Investing in a 401(k)
One of the easiest and most effective ways to get started investing is to enroll in your employer's 401(k) plan. Signing up for automatic retirement contributions each paycheck can help you meet your investing goals faster because:
- The money you contribute is deposited on a pretax basis and grows tax-deferred.
- Your contributions are automatic, which makes it easier to stay on track with consistent saving.
- Some employers offer to match your 401(k) contributions up to a certain percent of your compensation. If they do, make sure you contribute at least enough to exhaust the match: It adds up to free money toward your retirement.
2. Open an IRA
Individual retirement accounts (IRAs) are another excellent starting point for new investors, especially if you don't have access to a 401(k) through your job. Opening an IRA is quick and easy, and there are two main types of IRAs to choose between:
- Traditional IRA: Traditional IRAs are funded with pretax dollars, reducing your taxable income on your income taxes for the year. Your money grows tax-deferred, and you'll pay taxes on the funds you withdraw in retirement.
- Roth IRA: Contributions to a Roth IRA are made with post-tax dollars, and you won't owe any taxes when you withdraw those funds in retirement. The returns your Roth IRA earns aren't subject to taxation, now or in retirement.
Traditional IRAs tend to offer the most financial benefit if you expect to earn less in retirement than while working, while Roth IRAs can be beneficial for young investors who earn and are taxed less than they're likely to be later in their careers. If you're not sure which option is best for you, work with a financial planner to come up with a plan.
3. Invest With a Robo-Advisor
Robo-advising can be an attractive option for getting started with investing. They have low fees and low minimum account balances, which makes them a financially accessible option. On top of that, robo-advisors automate investing decisions and rebalance your portfolio for you based on your risk tolerance and goals. Taking the emotion out of your investing strategy can be a big plus for new investors.
Of course, there are some downsides to robo-advising too. You may prefer to go with traditional or hybrid investing, which gives you the option to speak to a human investor when you have questions about your investments.
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4. Buy Series I Savings Bonds
Series I bonds have a lot to offer investors who seek predictable interest returns with limited risk. These conservative, predictable investments pay interest on both a fixed and inflation-adjusted rate. They're also government-backed, making them as close as you can get to a risk-free investment.
Series I bonds are an especially good deal during times of high inflation, when they keep pace with and even tend to outperform other savings vehicles, such as high-yield savings accounts. Their major downside? You'll have to leave your money tied up for five years to avoid forfeiting some interest gains. You can learn more about Treasury bond restrictions and purchase bonds through TreasuryDirect.gov.
5. Invest in Pooled Funds
Making broad and diverse investments helps build wealth while mitigating risk. But buying many individual assets isn't always practical, especially if you're new to investing. Luckily, three main types of investment funds can help you diversify and invest broadly:
- Mutual funds: Mutual funds allow you to invest in a pool of diverse securities such as stocks and bonds by combining the capital of many investors across a range of assets. Mutual funds that are actively managed often charge management fees that can eat into returns.
- Exchange-traded funds (ETFs): Like mutual funds, ETFs pool investors' funds across diverse baskets of securities. Exchange-traded funds can be traded throughout the day like stocks, and often have lower fees than mutual funds.
- Index funds: Index funds are a type of mutual fund or ETF that invest in securities that mirror a market index, such as the S&P 500. They offer low fees because they're passively managed, and they historically offer returns as high as actively managed funds, according to the Securities and Exchange Commission (SEC).
6. Try Investing in REITs
Investing in real estate properties can be lucrative, but it also requires large amounts of money and expert knowledge of markets to pull off successfully. Instead of jumping straight in, get your feet wet with real estate investment trusts (REITs).
REITs allow you to diversify your portfolio and invest in real estate without having to physically own and manage properties. Like stocks, REITs are publicly traded companies. When you invest in one, your money is pooled with other investors' funds to finance income-producing real estate properties. You can buy shares of REITs through a brokerage to dabble in real estate investing—all without ever having to buy, own, flip or rent out any properties yourself.
Slow and Steady Investing Wins the Race
With many investment options well-suited for beginners, you can start growing your money, building wealth and saving toward future goals like retirement now. It's always important to only invest in assets you understand, and to be especially cautious when it comes to risky investments like stocks or cryptocurrency. The best option for beginners is usually to take advantage of your workplace 401(k) or start investing in an IRA.
Lastly, for the most personalized advice on the best way to invest, consider reaching out to a financial planner. They can help you balance investing with other goals, such as building up your emergency savings or buying a home.