Types of Investments for Beginners
This is probably the most overwhelming part of getting started with investing. The sheer number of options can feel daunting, but keep in mind that you don’t need to necessarily dive into the complicated strategies right away at the start. Below are some of the more common, beginner-friendly investment types that will help you get going.
Stocks
Investing in individual stocks means purchasing shares of ownership in a specific company. When you own a stock, you’re essentially a shareholder, meaning you have a small stake in that company’s profits. Stocks have high growth potential but come with more risk compared to other investment options. Prices can fluctuate daily based on market conditions, company performance, and economic factors, making them volatile in the short term.
Benefits include a high potential for returns if the company you’re investing in performs well, and the ability to earn dividends if the stock offers them.
Drawbacks include that stocks can be risky since their prices can drop and cause losses, especially if you’re forced to sell in a downturn.
Bonds
Bonds are essentially loans you provide to corporations or governments. In return, the bond issuer promises to pay you regular interest and eventually return your principal when the bond reaches its maturity date. Bonds are generally considered safer than stocks, especially government bonds, but they offer lower returns.
Benefits include being a stable source of fixed income with less volatility than stocks. They’re a good option for risk-averse investors seeking a steady return.
Drawbacks include having lower returns that stocks. Bonds can also lose value if interests rates rise.
Hear Concenture Managing Director Robert Gilliland & Chief Investment Officer Mike Alexander further discuss the risks involved with Bonds on Wealth Strategies Unleashed.
Mutual Funds
Mutual funds pool money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities. These funds are managed by professional portfolio managers, making them an easy and hands-off option for beginners who may not have the expertise or time to manage their own portfolios.
Benefits include instant diversification, which we’ll discuss more later. Mutual funds invest in multiple assets which reduces the risk associated with any one company or sector.
Drawbacks include higher fees due to mutual funds being actively managed by someone on your behalf. You also don’t get to pick individual stocks or bonds within the fund.
ETFs (Exchange-Traded Funds)
ETFs are similar to mutual funds in that they represent a diversified basket of assets, but they trade on stock exchanges like individual stocks. They offer the best of both worlds, combining the diversification of mutual funds with the flexibility of stocks.
Benefits include having lower fees compared to mutual funds while still offering instant diversification across sectors, regions and asset types. They can also be bought and sold throughout the trading day like stocks.
Drawbacks include ETFs having trading fees associated with them, and there being inherent market risk.
How to Get Started
Contrary to what you might think, starting your investment journey doesn’t require a large sum of money or complex strategies.
Check out episode 2 of the Money Map podcast where we offer a more in-depth guide to building your portfolio.
1. Set up a Brokerage Account
A brokerage account is essential for buying and selling investments. Many brokerage platforms today offer user-friendly apps and websites that are perfect for beginners. Look for platforms with low or no fees, robust educational resources, and easy-to-use interfaces.
Considerations when choosing a brokerage:
- Fees – Avoid platforms that charge high commissions or account maintenance fees.
- Investment options – Ensure the brokerage offers a wide range of investment options, including stocks, bonds, mutual funds, and ETFs.
- Ease of use – Choose a platform that suits your level of experience.
2. Start Small
You don’t need thousands of dollars to get started. Many brokerages offer fractional shares, allowing you to invest small amounts in big companies. Starting small helps you learn the ropes without feeling overwhelmed by risk. Investing consistently, even with modest sums, will build your portfolio over time.
3. Do Your Research
Before diving into an investment, take the time to research and understand it. Learn about the different asset classes, risk factors, and potential rewards. Be mindful of any hidden fees or expenses that might eat into your returns. Websites, financial news outlets, and even your brokerage platform’s educational materials can be valuable resources.
You can start by visiting our insights page which offers weekly & monthly market insights.
Create a Diverse Portfolio
As we mentioned earlier, diversification is one of the fundamental principles of investing. It involves spreading your investments across various asset classes and sectors to reduce the risk of losing money if one area performs poorly. The idea is to hold a mix of stocks, bonds, and other assets so that no single investment has too much impact on your overall portfolio.
Asset allocation involves deciding how to divide your investments among different asset classes like stocks, bonds, and cash. The right allocation depends on your risk tolerance and investment goals.
Sector diversification ensures your stock holdings are spread across various industries (e.g., technology, healthcare, consumer goods) to avoid being too exposed to any single sector.
Geographic diversification means to invest in international markets that allow you to diversify beyond domestic risks.
Like we said before, ETFs are popular for achieving diversification at a low cost. They give you exposure to hundreds or even thousands of stocks and bonds, helping you build a balanced portfolio without picking individual assets.
The Importance of Learning and Patience
Investing is a long-term commitment, and success requires both continuous learning and patience. Markets are unpredictable and can experience volatility in the short term, but long-term trends often favor disciplined investors who stay the course and don’t make panicked decisions.
We talk more about why money is emotional here in episode 6 of Wealth Strategies Unleashed.
- As you grow more comfortable with investing, continue to expand your knowledge. Read books, follow reputable financial blogs, and learn from trusted experts.
- Don’t panic during market downturns. The key to long-term success is consistency. Avoid emotional decisions like selling investments during dips or chasing trends.
Remember, investing is a marathon, not a sprint. Stick to your plan, stay diversified, and focus on your long-term goals.
