No matter who you are or where you come from, investing has become increasingly common in the digital age. Essentially, investing boils down to putting your money into assets that you expect will grow in value over time. This anticipated growth can help you achieve your financial goals, whether that means saving for retirement, purchasing a home, or building wealth for future generations. 

In this guide for beginners, we’ll break down the essentials of investing so you can kickstart your investment journey. So, let’s dive in and learn how you can start making your money work for you!

Investing goals

Investing can provide a source of income and wealth, accelerating the path to achieving your financial goals. Common financial goals include saving to:

  • Purchase a home
  • Fund a wedding
  • Raise children
  • Pay for education costs
  • Establish an emergency fund
  • Buy a car
  • Travel on vacation
  • Prepare for retirement
  • Build wealth

Start by estimating how much money you’ll need for each goal, along with the desired timeline. You’ll likely face a few one-time costs, like a wedding or honeymoon, where the timeframe might not be as flexible. Other goals, like a down payment on a home, combined with ongoing costs in the form of a mortgage payment. 

The time it takes to achieve these goals can vary — according to how much you need to save, how much you’re starting with (your starting capital), how much you can add to your investments each month, and how well your investments perform, which isn’t guaranteed. 

Substantial costs like paying for college or saving for retirement may take several decades, while you may be able to save for the down payment of a house in a few years.  

Basic investing concepts

Just as a roadmap helps you plan the best route, avoid major obstacles, and stay on course, an investment strategy plots out the steps to achieving your financial goals. Consider the following as you map out your strategy and create a portfolio of investments:

  • Investment goals and time frame. Tailor your investment strategy to your financial goals, which are often centered around life events or major milestones. Remember, it’s not usually a good idea to invest in the stock market if you’re saving for something you’ll need soon — like buying a car. Short-term market fluctuations could hurt you more than help you because you’ll need to sell your investments when it’s time to buy your car, even if those investments have lost money.

    Long-term investing focuses on buying and holding assets over many years to build wealth for larger goals, such as retirement. Holding over longer periods allows profits to grow on profits, which can compound returns to your benefit.

  • Inflation. If you hold cash and don’t invest, the value of your money decreases over time because of inflation — the rising cost of goods and services. Over the long run, investment returns have historically tended to outpace inflation.  
  • Risk management. Achieving a higher level of returns — the performance generated on your investments — usually requires taking on more market risk, but taking risks doesn’t guarantee higher performance. Most balanced portfolios invest in at least a few stocks, which offer ownership of a company but can be risky.

    Your ability to invest in risky assets and stomach market swings depends on your risk tolerance — a measurement of the uncertainty (and potential loss) you can handle. This isn’t a specific number. It’s more about how comfortable you are with the idea that your investments might lose money, at least for a while, and how much you can afford to lose.

    How far away you are from retirement, for example, can affect how much risk you’re willing to take — and which retirement investments are best for you.

  • Asset allocation. Asset allocation refers to picking assets for your portfolio (deciding what you want to invest in) and determining the desired investment amounts. 

    Well-diversified portfolios contain a mix of different investments that balance risk and potential returns. Spreading investments across different asset classes like stocks, bonds, and alternative investments is a classic way to maximize returns for the level of risk taken.

Basic investment strategies

Remember that no investment strategy can guarantee returns, as all investments carry some risk. In return for taking on risk, your strategy may generate reasonable returns to beat inflation and grow your portfolio. 

Here are a few common investment strategies to consider:

  1. Sixty/forty (60/40) portfolio. This traditional investment strategy involves allocating 60% of your portfolio to stocks and 40% to bonds. Buying stock in a company is like owning a small piece of that company. Buying a bond is basically loaning a small amount of money to a company or governmental body and expecting them to pay you back with interest.

    The goal is to balance the growth potential (but higher risk) of stocks with the lower growth potential (but higher stability) of bonds. You can always use different percentages according to your own risk tolerance.

  1. Passive investing. Also referred to as buy-and-hold, this approach emphasizes long-term investing and prioritizes building a well-diversified portfolio. It uses low-cost index funds or exchange-traded funds (ETFs) to track broad market indices, such as the Dow Jones or the S&P 500. A market index takes many different stocks into account to give investors a feel for how the market is doing overall.

    Passive investors hope to track this overall market performance instead of trying to beat it. The focus of this approach is to keep investing whether the market goes up or down and avoid frequent trading. 

  1. Real estate investing. Real estate can offer both capital appreciation and income generation through rental properties and publicly or privately traded investments. You can invest directly in physical properties or indirectly through real estate investment trusts (REITs), which pool funds to invest in a portfolio of properties and which trade like stocks. Private asset managers also provide real estate investment opportunities, though investing in them may require more capital upfront. 

Basic investment principles

Investors often follow these popular rules of thumb. Keep these investment principles in mind when taking the plunge into the world of investing:

  1. Time in the market beats timing the market. Instead of trying to pinpoint the perfect moment to invest, focus on staying invested for a longer period. Not only is it virtually impossible to accurately time the market, but staying invested has historically led to better returns than trying to pick an entry point.
  2. Dollar-cost averaging. Regularly invest a fixed amount of money — every month, for example — regardless of market conditions. These monthly investments get “averaged” into the dollar value of your investment costs. 
  3. Maintain portfolio diversification. Don’t put all your eggs in one basket. Investment professionals generally recommend investing in different kinds of assets (e.g. stocks, bonds, real estate), different industries (e.g. technology, hospitality, and agriculture), and different geographies (e.g. US, Europe, and Asia).
  4. Keep fees low. Some investment products come with fees. If an investment with a high return is also costing you a lot to buy or own, that return isn’t as good as it looks. Be wary of trading fees or management fees and look for zero-fee or low-fee options instead.
  5. Stay disciplined. Emotions can easily disrupt a carefully crafted investment plan. Stay focused on the big picture and try not to react to daily, weekly, or even monthly market swings. 

How to invest your money

You can get started on your investment journey in just a few steps:

  1. Plan your financial goals. Choose your financial goals, such as saving for retirement, a real estate purchase, or a college education. 
  2. Decide on an investment strategy. Design your starting investment style from the basic strategies and principles listed above. Consider your financial needs, risk tolerance, and time frame to develop an investment plan.
  3. Open an investment account. Choose an investment account that lets you buy the kinds of investments you want to buy. Different accounts exist for various purposes — you could open a brokerage account to buy stocks, for example, or open a tax-advantaged retirement account. 
  4. Set up a plan to regularly contribute to your investment accounts. Commit to consistently investing, for example through dollar-cost averaging. If you can’t invest the same amount each month, that’s okay! Invest the amount that works for you — showing up is half the battle. Many brokerages offer automatic withdrawals so you can put contributions on autopilot.
  5. Research and select investments or an investment manager. If you plan to manage your own investments, research investment options such as stocks, bonds, and alternatives like commodities and real estate. Alternatively, you can choose professionally managed investment products or services — some investment accounts even offer robo-advisor services that can automate your investment management.
  6. Monitor and rebalance your portfolio. Review and adjust your portfolio at regular intervals—such as quarterly—to keep it aligned with your investment goals.

Even if you’re completely new to investing, you can start working toward your financial goals today. Open an account, or several different accounts for different kinds of investments, and track them all in Quicken!