A Quick Investing Guide for Beginners

With the right tools and resources, investing can be much easier than you'd expect. Best of all, you don't need a lot of money to get started. Simply start out small and gradually increase your investment contributions over time as your income and savings grow. The important thing is to start saving for your goals as early as you can, so your money has more time to potentially grow.

5 steps to help you to start your investing journey

These simple investing steps consider your personal needs and preferences and include supporting resources to help you make decisions that are right for your unique financial situation.

1. Identify your financial goals

Retirement should always be the first investing goal on your list. But it's also important to plan and save for other goals like a house or a child's education. Once you've mapped your investing goals, it's time to consider your:

  • Financial situations: Figure out how much your monthly income, expense and how much you're saving every month and how much you want to invest toward your goals.
  • Time duration: Determine how much time you'll need to achieve your goals. For example, if you have many years until retirement, it's a long-term goal. If you're planning to buy a home in 5 years, that's a short-term goal. The longer your time frame, the more time to potentially benefit from the power of compounding, where your earnings generate their own earnings over time period.
  • Risk tolerance: Think about the amount of market volatility and potential loss you're willing to accept. Your risk tolerance will likely vary depending on the time horizon for each of your goals. For example, the longer you have to reach your goal, the more time you have to weather market ups and downs, which means you may be comfortable taking on more risk.

2. Choose your type of investment account that suits your goals

There are several different types of investment accounts to support your goals. Here are a few:

  • Taxable Brokerage Account: This is a standard investment account that offers the most flexibility. Any profits are subject to capital gains taxes.
  • Retirement Accounts: These accounts offer tax advantages for long-term savings:
  • Employer-Sponsored Plans: Offered through your workplace, these often come with employer matching contributions.
  • Education Savings Accounts: Designed to save for educational expenses, offering tax advantages.
  • A brokerage account allows you to buy and sell a variety of investments, including individual stocks, bonds, and funds. Brokerage accounts are a good option for investors who want more control over their investments. Since it's a taxable account, you might owe taxes when selling investments that have increased in value.

3. Select your asset allocation

Now that you've identified your financial goals, and picked the right investment account for you, it's time to determine your asset allocation, how to divide your portfolio among stocks, bonds, and cash based on your goals, time horizon, and risk tolerance. Different asset classes tend to act in specific ways. Choosing how to allocate your assets helps to give you a certain amount of control over your investing experience.

4. Select your investments

There are many types of investments to choose from to suit your needs, including mutual funds, individual stocks and bonds and exchange-traded funds (ETFs). Be sure to diversify your portfolio by choosing a variety of investment types to help lower your risk and improve your chances of achieving your investment goals. For example:

  • Invest in different asset classes. A portfolio that includes stock, bonds, and cash can help reduce your risk of potential losses if one class underperforms. Mutual funds and ETFs offer an easy way to accomplish this because they invest in a diversified mix of individual investments.

  • Invest in different sectors: By investing in different sectors, you can further reduce your risk. Within each asset class, there are different sectors. For example, the stock market is divided into sectors such as technology, health care, and finance.

5. Open a new account

Select a Brokerage Firm or Financial Institution to open a new account

  • Online Brokers: Offer user-friendly platforms, lower fees, and a wide range of investment options. Examples include Zerodha, Groww, Angel One, and international brokers.
  • Traditional Full-Service Brokers: Provide personalized advice, financial planning, and research, but typically have higher fees.
  • Robo-Advisors: Use algorithms to manage your portfolio based on your goals and risk tolerance, often with low fees.
  • Banks and Credit Unions: Many banks will offer investment services like mutual funds and bonds as well.