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A Beginner’s Guide To Investing

Dora Segall
By: Dora Segall
Nov 26, 2020 • 8 min read

A Beginner’s Guide To Investing – No Prior Experience Required.

Investing your money can be a great way to generate passive income. To become a successful investor, however, you will need a solid understanding of the stock market. If you’re interested in making investments but aren’t sure where to start, you’ve come to the right place. Here is a beginner’s guide to investing! Let’s talk finances.

guide to investing

Why Do You Want to Invest?

There are lots of reasons that people decide to purchase stocks or bonds. Investing will look a lot different for someone saving up for retirement than for a person just looking to make an extra buck for vacation. Taking the right approach to investing for your financial goals requires an understanding of the different options available. This should be your first step to consider before continuing with our guide to investing.


Bonds are like loans that earn interest until a specified end date. These work great when you’re saving up for a future expense, like a wedding or graduate school. Bonds, which can earn interest for anywhere from 1 to 20 years, are low-risk investments because they aren’t vulnerable to the same market fluctuations as stocks. That said, they usually generate less income for the same reason.

guide to investing


When you think of investing, you might picture a bunch of men in suits negotiating trades in a Wall Street office. This is the stock market, in which investors buy and sell portions of ownership, called shares, in individual companies. Because companies’ value can range widely depending on how an industry or the overall economy is doing, stocks are considered high-risk investments. This means that depending on strategy and luck, you can lose a lot to gain a lot of money. You could even end up with the same amount of money you had starting out.

Mutual Funds

Not everyone has the time or risk tolerance to handpick every investment they make. Mutual funds might just be the best option for first-time investors who aren’t looking to get their hands dirty, and the best part is that they are usually pretty affordable. A mutual fund is basically a collection of investments pooled into one. When you buy one share in a mutual fund, you buy a handful of stocks and bonds. The risk level of a mutual fund depends on the investments it contains. The good news is that because mutual funds contain various stocks and bonds, the loss of one can be offset by the gains or stability of another.

guide to investing

Index Funds

Index funds are actually a type of mutual fund. Whereas many mutual funds contain investments handpicked by professional money managers, an index fund automatically adjusts to reflect top-performing stock market investments. So if you buy a share in the Dow Jones, for example, your fund will reflect the 30 top-performing companies in that index. People who invest in index funds rather than professionally managed mutual funds generally do so to cut down on costs — an index is cheaper than other mutual funds because you aren’t paying a third party to manage your money for you.

Exchange-Traded Funds

Getting even more specific, an ETF is a type of index fund. The big difference between ETFs and other index or mutual funds is how frequently you can trade them. In contrast, your index or other mutual fund has a set value throughout each trading day. The value of your ETF fluctuates throughout the day like an individual stock. Though this doesn’t make a huge difference at the end of the day, it might be advantageous if you plan to check on your stocks often and trade them frequently to maximize your return.

guide to investing

How Much Money Do You Want to Invest?

The answer to this question will vary depending on your employment situation, investment goals, and personal circumstances that might impact your financial situation. If you are not yet sure how much money you want to invest, start small and let your income grow for a while before investing more. You’ll probably want to start off by investing no more than a couple thousand dollars. Assuming that your stocks perform well, the more money you invest, the greater your return will be (beware though, if your stocks perform poorly, more money invested means more money lost). If you have a stable job and want to accumulate wealth over time, you might want to set up an automatic or recurring investment through whatever financial service you use to invest. This way, you can grow your income gradually without manually depositing more money each month. Just be sure to keep in mind how much money you are willing to play with as you read this guide to investing.

What Financial Service Do You Want to Use?

There are many platforms and companies out there that exist solely as intermediaries between investors and companies. These are called brokerage accounts, and they can range widely in terms of cost and structure. Let’s explore a few of the options available to you as a first-time investor.

guide to investing

Managed Account With An In-Person Advisor

This is the more traditional route for investors looking for professional guidance with their transactions. Generally speaking, financial advisors have the ability to buy and sell assets without running decisions by their clients every single time. They do so, however, only to advance their clients’ returns and financial objectives. Managed accounts with in-person advisors offer the advantage of professional, full-time assistance, but they can be expensive. For this reason, first-time investors or people looking to invest amounts of money under $10,000 may want to consider other options. A couple of companies with in-person advisors are Charles Schwab and Vanguard.

Managed Account With a Robo-Advisor

If you want help with your investment decisions but are looking to avoid an in-person advisor’s expense, consider a Robo-advisor. Robo-advisors are like traditional managed accounts, except the financial advising is automated. They are, as a result, usually cheaper than accounts managed by real financial advisors. The main limitation of Robo-advisor accounts is that they generally do not allow investors to buy and sell individual stocks and bonds, only mutual funds. Some options for Robo-advisors are Betterment, Wealthfront, and SoFi.

guide to investing

Online Broker

If you feel confident in your own investment abilities, you might want to invest through an online broker. These companies allow you to buy and sell individual stocks, bonds, and mutual funds on your own, making them the best option for hands-on investors. Online brokers are cheaper than managed accounts. However, they are also riskier, as investors do not have the cushion of expert financial advice when making trades. Merrill Edge and Ameritrade are good options for beginning investors interested in online brokerage.

Ethically Responsible Companies

More and more, investors today have begun to pay more attention to factors other than companies’ financial performance. Though the hands-off nature of investment can make it easy to buy and sell without thinking too much about how that money is being generated, your role as a shareholder makes a big difference in the industries you invest in. With climate change looming and political tensions in the U.S. at an all-time high, many investors have begun seeking to allocate their assets towards companies that align with their values. As a result, lots of brokerage accounts have popped up to offer options for ethical investment. These accounts follow under a few categories.

guide to investing

Socially Responsible Indexes (SRIs)

The name is pretty self-explanatory — SRIs are indexes that exclude companies considered socially irresponsible, such as those involved in the firearms, tobacco, and oil industries. The goal is to promote ethically sound companies, regardless of financial performance.

Environmental, Social, and Governance funds (ESGs)

ESGs are a good option for investors looking to maximize their returns without compromising their values. ESGs treat a company’s environmental impact and treatment of employees as practical obstacles to profitability. Thus, they tend to value financial performance more than SRIs while still accounting for ethical concerns.

guide to investing

Impact Funds

While the chief goal of SRIs and ESGs, like any mutual fund, is to make money. Impact funds prioritize ethical impact OVER returns. This is a better option for someone with a high degree of financial stability looking to advance the success of companies whose missions they support. People who invest in impact funds do so for social, religious, or environmental reasons.

Now, Put This Guide to Investing to Good Use! 

There are many options for people looking to invest for the first time. Make sure you are financially stable before putting your income on the line! If you do so strategically, investing is a great way to play an active role in the national or global economy. If you play your cards right, it will also help you save up for the things you want most in life! Make sure to follow our beginner’s guide to investing so that you can start your journey on the right foot.

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