How to Invest Money in 2024: The Smart Beginner's Guide

If you’re ready to build wealth, here’s everything you need to know about how to invest money.

How to Invest Money: The Smart Beginner's Guide
Updated July 7, 2024
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Getting the hang of investing can help you put your extra savings or some of your earnings to work, aiming to build up wealth for the future. Investing doesn’t have to be complicated or a headache. For instance, just by putting money into a 401(k) plan, you’re already investing in things like stocks or bonds.

More than half of Americans, about 55%, have stocks in some form of investment account. You can join them by learning the ropes of investing and steering your future goals.

In this guide to investing your money

What you need to know about investing money

One of the biggest myths around investing is the idea that it’s too risky. While there is always an inherent risk when investing money, the reality is it remains one of the tried-and-true ways of building wealth over a period of time.

Investing is becoming increasingly accessible thanks to factors that include:

  • Learning how to invest is easier than ever: Thanks to technology and the democratization of investing, it’s possible for just about anyone to learn about investing techniques and access investments — even if you only have pocket change.
  • Investors have many options available: Investors can customize their market participation based on their goals, risk tolerance, and personal interests. Options include short-term and long-term investments, as well as values-based investing to uphold personal principles.
  • Investing can be very basic or quite advanced: You can make investing your money as simple or as complex as you prefer. You can invest in assets that require little attention or put your money in assets that need in-depth research and extensive experience

How can you invest your money?

To invest your money, you need to:

  1. Determine how much you can afford to invest
  2. Pick your investing goal(s)
  3. Decide where and in what should you invest your money
  4. Align your investments with your risk tolerance

1. Determine how much you can afford to invest

It’s important to decide how much you can afford to invest before you begin investing. Determining the amount of money you can put aside for investing can help you avoid prematurely needing the money.

Instead of investing a lump sum, you may choose to invest a set amount of money every two weeks or every month. This is a well-established strategy known as dollar-cost averaging that helps you reduce the impact of volatility and negative market conditions.

To determine how much you can afford to invest:

  • Assess your financial situation: Take a look at your current income, expenses, and debts to get a sense of your overall financial picture. This should help you understand how much money you have available to invest.
  • Set financial goals: Determine your financial goals and how much you need to save or invest to reach them. This should help you get a picture of your ideal investment amount.
  • Start small: Give yourself the time to learn how to invest by starting small and gradually increasing your invested money. 
  • Consider your risk tolerance: Think about the level of risk you are comfortable with when it comes to investing. This enables you to decide how much money you can afford to put into different assets.
  • Calculate your investment amount: A general rule of thumb is to save 15-20% of your income for long-term goals, such as investing in retirement savings. However, the amount you can afford to invest will depend on your individual circumstances.

Keep in mind
Past results don’t guarantee future returns. Only invest what you can afford to lose and maintain an emergency fund for unexpected costs.

2. Pick your investing goal(s)

Before you dive into the world of investing, it’s a good idea to have a clear picture of what you want your money to do for you. You’re not limited to just one goal, either. You can set up different targets for the long term, the mid-term, and the short term. This is known as the bucket strategy.

Learn how to choose your investing goals using the bucket strategy.

Real-life example

I have a tax-advantaged 401(k) account set up as a long-term investment for my retirement and a taxable and automated Charles Schwab Intelligent Portfolio for medium-term goals. I also keep my savings in a high-yield savings account to earn interest while maintaining them highly liquid for large purchases or urgent expenses.

Yahia Barakah, Editor

3. Decide where and in what should you invest your money

Once you choose your investing goals, you can decide where to invest your money. There are several account types you can use. Some of the common options are:

You should also consider the types of assets you want to invest in. This could include stocks, bonds, mutual funds, cryptocurrency, and more.

Explore the assets you can invest your money in.

4. Align your investments with your risk tolerance

Not all investments are created equal. Buying individual stocks can be like a wild rollercoaster ride — you could win big or lose big. But bonds, especially those from the U.S. government, are more like a gentle carousel ride — not much thrill, but safer.

The smart move is to go on all the rides. That way, if one doesn’t go well, you’ve got others to make up for it. It’s like not putting all your eggs in one basket.

Tip
Many investors like using funds, such as mutual funds or exchange-traded funds (ETFs), because they offer an easy way to get instant diversification. These types of investments include hundreds and even thousands of stocks or other assets.  

How you divvy up your money into different investments is called asset allocation. Things like your age, your financial status, and how long you’re planning to invest can all influence allocations within your investment portfolio.

For example, I’m relatively young and have a fairly high risk tolerance. I could handle seeing losses in my portfolio if I could buy more assets at a lower price and reap the gains later. That's why my retirement portfolio is made of 85% stock funds and 15% bond funds since I know I won’t need the money for a long while.

Where should you invest your money?

You can invest your money in one or more types of accounts and services. This includes:

  1. Savings accounts
  2. Online brokers and traditional brokerages
  3. Robo-advisors
  4. Investing apps
  5. Tax-advantaged retirement accounts
  6. Real estate

1. Savings accounts

A high-yield savings account can be a good place to put your money and still make money, thanks to the interest rate it earns in the form of annual percentage yield (APY). Savings bank accounts are highly liquid and allow quick access to money. Savings accounts often provide protection via the Federal Deposit Insurance Corporation (FDIC).

Explore the best savings accounts that offer high APY and user-friendly access.

You can also get a slightly higher yield in some cases by turning to a money market account. However, you might be subject to account minimums. These accounts may also be FDIC insured.

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You may also use certificates of deposit to save money without taking a risk. You can find them at banks or credit unions. They are often structured with different time horizons, allowing you some degree of flexibility when choosing the one that fits your needs.

Tip
CDs may offer a higher rate of return than savings accounts or checking accounts, but you give up some liquidity since redeeming them early can result in penalties.

Saving vs. investing

Saving and investing are two methods to manage your money, but they have some important differences.

Saving money Investing money
Learning how to save money means figuring out how to set aside a portion of your income in a safe, liquid place, such as a high-yield savings account or a certificate of deposit (CD).  Learning how to invest means finding out how to use your money to buy an asset, such as stocks or bonds, with the expectation of earning a return on the asset you buy.

The goal of saving is to have a reserve of money that you can access in case of an emergency or to achieve a specific personal finance goal, such as saving for a down payment on a house or for retirement. Depending on where you save your money, you may also make some money on your savings, but it may be a lower return than investing.

The goal of investing is to grow your money over time by taking on some level of risk. While there is a potential to earn money on your investment, there is also a possibility to lose money.

In general, saving involves little risk and is focused on preserving your capital. On the other hand, investing involves higher risk and focuses on maximizing the potential return on your money. The best way to approach saving and investing is to view them as parts of a comprehensive financial plan that play different roles in achieving your financial goals.

2. Online brokers and traditional brokerages

Online brokers and traditional brokerages are more accessible than ever. In the past, high minimums kept some people from investing in brokerage accounts.

Today, the best brokerage accounts offer products and services for a wide variety of investors, often with zero or low fees. These accounts typically enable you to invest in stocks, bonds, cryptocurrency, mutual funds, exchange-traded funds (ETFs), or more.

Some brokerages offer additional features that help new investors. For example, SoFi Invest is an online brokerage that offers education to beginner and advanced investors through its SoFi Learn portal.

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3. Robo-advisors

If you’re looking to learn how to invest money in a simple and straightforward way, you may enjoy what some of the best robo-advisors have to offer.

Robo-advisors are designed for automatic portfolio management in exchange for a small management fee. Many robo-advisors put together portfolios using ETFs. Some of the more popular robo-advisors, like Betterment, Wealthfront, and Wealthsimple, ask a few questions to get an idea of your goals and risk tolerance and then put together a portfolio that fits your needs.

You don’t have a lot of control with robo-advisors, but it’s pretty easy to “set it and forget it.” Some robo-advisors automatically rebalance your portfolio and make an effort to lower your capital gains taxes. For many new investors, it makes sense to set aside the same amount each month and invest that into a portfolio managed by a robo-advisor.

Some robo-advisors, like Acorns, allow you to invest your spare change. Acorns offers a Round-Ups feature that you can use to automatically round up your purchases to the nearest dollar and invest the rounded-up amount. This can build your portfolio incrementally, although you should also make regular contributions as a part of making effective investment decisions.

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4. Investing apps

Investing apps allow you to invest in individual stocks and ETFs. Some apps, such as Public and Robinhood, allow you to buy fractional shares, which represent a portion of a stock. This gives you access to expensive stocks without buying the whole stock.

For example, say you’re wondering how to invest in Amazon. If you want to buy a share of Amazon (AMZN), you might not want to spend over $100 to acquire a single share. Apps that allow fractional shares enable you to buy a portion of the share at a certain minimum, often $1 or $5. This allows you to benefit from the potential growth of Amazon's stock price.

Popular U.S. stocks like Apple (AAPL), Tesla (TSLA), and Google (GOOG) can also be purchased using the best investment apps. When combined with a dollar-cost averaging strategy where you contribute to your investment in fixed time intervals, you can build up to a full share (or more).

Some investment apps, such as Robinhood, have zero commission fees and require a $0 minimum balance. You can use the Robinhood app to invest small amounts of money and learn the ins and outs of active trading.

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5. Tax-advantaged retirement accounts

You might not think of your contributions to your tax-advantaged retirement account as investing money, but it is. Many of these accounts use your contributions to buy stocks, mutual funds, ETFs, bonds, or other assets in an attempt to grow your wealth over time.

The main two categories of retirement accounts are:

  • 401(k): This is a retirement plan that is often offered through your employer. The common form is a traditional 401(k), but you can also have a Roth 401(k) that offers different tax benefits. If you’re self-employed, you may be eligible for a solo 401(k). These plans come with 401(k) contribution limits that are relatively high ($23,000 in 2024, $30,500 if you're over 50).
  • Individual retirement account (IRA): This is a retirement plan you open independently. You can have a Roth or traditional IRA to get different tax benefits. Contribution limits are lower than 401(k)s ($7,000 in 2024, $8,000 if you're over 50), and there are income limits that restrict the amount high-earners can contribute to a Roth IRA. However, other versions of IRAs, such as SEP and SIMPLE, may allow business owners to make larger contributions.

When investing for retirement, consider your long-term tax planning needs:

  • Roth versions of IRAs and 401(k)s use after-tax money for contributions, allowing you to pay income taxes on your contributions now, so you don’t have to pay taxes when you later make withdrawals from your retirement plan.
  • Traditional versions of IRAs and 401(k)s come with an upfront tax advantage. You make contributions with pre-tax money, meaning that you don’t pay taxes on these contributions when you make them. The investments in your account grow tax-free until you’re ready to withdraw money. Once you withdraw the money, though, it’s taxed at your regular tax rate.

In general, if you think your taxes will be higher during retirement, putting some of your money into Roth accounts is a good idea. If you think your taxes will be lower during retirement, pre-tax contributions to traditional retirement accounts make sense.

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6. Real estate

Investing in real estate is an option that entails buying a property, potentially upgrading it or fixing it up, and selling it for a price higher than your purchase cost.

Learning how to invest in real estate unveils a variety of options, each may fit a different goal or budget. Here are some ways you can invest your money in real estate:

  • Rental properties: You can simply buy a property and rent it to others. The revenue from renting can cover the cost of the mortgage and maintenance and potentially provide income on top of that. If you sell this property later, you may make more money if your sale price is higher than your purchase value.
  • Real estate flips: You may find success buying low-cost homes that need work, doing what’s needed to upgrade them, and then selling them at a profit. There are several factors involved in learning how to start flipping houses, but it can be an enjoyable form of investing.
  • Real estate crowdfunding: If you don’t have enough capital to buy a property, real estate crowdfunding platforms can help you access real estate deals at a relatively low cost. Some of the more popular platforms include Fundrise, DiversyFund, and CrowdStreet.
  • Real estate investment trusts (REITs): Finally, if you want access to real estate but want the ease of trading on the exchange, REITs are a form of trusts that provides this access with relative ease.

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What can you invest your money in?

There are several asset classes, investment options, and financial products you can invest in, including:

  • Savings accounts and cash equivalent assets: These are assets that can be easily converted into cash or are already in the form of cash, such as money market or savings accounts that pay interest and allow withdrawals but are not as liquid as checking accounts.  
  • Stocks: Stocks are shares of ownership in a company. You make money if you sell your share for more than you paid and lose money if you get a lower price than you paid. You can access the stock market and buy stocks through a broker.
  • Bonds: A bond represents a loan you’re making to a company or an institution. You receive interest payments while holding the bond. Then at the end of its term, you receive the value of the bond. Many brokerages offer corporate bonds, but they may come with higher transaction fees than stocks. Learn how to buy bonds and begin making fixed income.
  • U.S. Treasury bonds: These bonds are issued by the federal government and represent loans to the U.S. Treasury. While you can get Treasury bonds through online brokers and traditional brokerages, your best option is to go to TreasuryDirect.gov to buy them from the U.S. Treasury.
  • Mutual funds: These funds represent hundreds or even thousands of individual stocks, bonds, or other assets. You can invest in all underlying assets of a mutual fund by purchasing its shares.
  • Exchange-traded funds (ETFs): These funds group together a number of assets and offer accessibility to them in the form of shares that are fairly liquid and trade like stocks on exchanges. You can find ETFs that offer exposure to stocks and bonds, as well as more exotic investment products like commodities and cryptocurrencies. Keep in mind that you don’t buy a direct stake in the underlying assets like you would with a mutual fund.
  • Real estate: Real estate assets can be your own home, a vacation house, an apartment, or various other property types. Investing in real estate can be done via direct ownership or through real estate investment trusts (REITs) and real estate crowdfunding. REITs and crowdfunding enable you to invest in real estate without buying an entire property and managing it on your own. They also often have much lower minimum investment requirements than property purchases.  
  • Cryptocurrencies: These are digital currencies that operate independently of any central authority, such as a government or financial institution. To invest in cryptocurrencies, you can learn how to buy in cryptocurrency by using one of the best cryptocurrency exchanges. However, keep in mind that the cryptocurrency market tends to be highly volatile, so it might not be the best market to join for first-time investors. 


How can you choose your investing goals?

One strategy that can help you choose your investing goals and money allocation is known as the bucket strategy. I personally use this strategy and find it helpful to stay focused on the essentials while avoiding panic during a volatile stock market.

The bucket strategy can be broken down into:

  • Short-term money bucket: If you plan to use the money within the next three to five years, keep it in a savings account or highly liquid, lower-risk investments like money market funds. Using low-risk investments may have low earning potential, but you can easily cash out in exchange.
  • Medium-term money bucket: If you have a sum of money you think you may need in five to eight years, consider putting it in low-to-medium risk assets like Treasury bonds, which are issued by the U.S. government, as well as dividend stocks or preferred stocks.
  • Long-term money bucket: If you don’t need the money for more than eight to 10 years, you can consider putting that money into stocks and mutual funds. You have more time for growth and recovery from potential downturns, so you can take bigger risks.

To use this strategy, use a budgeting plan to find out how much money you can invest and decide the amount you’ll set aside for each bucket. Prioritize your goals for the most important ones to be funded first. For example, I used an online retirement calculator to decide how much I should put into my SEP IRA each month. Then I divide the remaining available funds between my son’s 529 and my travel fund.

Should you pay off debt before investing?

Before investing a portion of your income, consider whether paying off your debt may benefit you more. Both investing and paying off debt are essential financial moves, so here are a few factors to consider when deciding whether to pay off debt or invest:

  • The type of debt: Some debt types, such as high-interest credit card debt, can cost you a significant amount of money, so your priority should be to pay them off quickly. On the other hand, debt with a lower interest rate, such as a mortgage or a student loan, can be less expensive and less pressing to pay off.
  • The opportunity cost: Consider the cost of paying off debt versus investing. For example, if you have low-interest debt and the potential return rate on your investment is higher, it may make more sense to invest to benefit from this higher return.
  • Your risk tolerance: Investing involves taking on some level of risk, and your risk tolerance will be a factor in determining whether it makes sense to invest or pay off debt. If you are risk-averse and prefer a more conservative approach, you may want to pay off debt before investing.
  • Tax implications: The tax implications of paying off debt or investing can also be a factor to consider. For example, if you have tax-deductible debt, such as mortgage interest, it may make sense to invest in a tax-advantaged account, such as a 401(k) or IRA, before paying off that debt.
  • Your long-term financial goals: Consider your financial goals over an extended time frame, such as saving for retirement or buying a house, and how paying off debt or investing will impact your ability to achieve those goals.

Whether to pay off debt or invest depends on your exact circumstances, but a general rule of thumb is to prioritize eliminating debt that comes with compound interest or has a high interest rate.

Should you get professional help?

Thanks to modern technology, it’s relatively easy to invest on your own or with the assistance of robo-advisors. You can get started even if you don’t have a lot of experience or money.

If you’re still unsure about how to start investing, it might make sense to get professional investment advice. A good investment advisor or certified financial planner (CFP) can help you pinpoint your goals and create an investment strategy. Some financial advisors charge a fee to help you create a plan and provide wealth management recommendations.

Additionally, some robo-advisors will help you build a portfolio but also provide add-on services that allow you to talk to a human financial advisor for a fee. No matter your needs, it’s possible to find someone to help you navigate your investment plan.

Investing money FAQ

How do beginners invest?

There are many different ways for beginners to potentially get started with investing. It’s possible to open an account with a robo-advisor and get started very easily. Additionally, there are apps like Robinhood and Stash that allow you to begin trading quickly and greatly simplify the process.

What can I invest $1,000 dollars in?

It’s possible to invest $1,000 in almost anything. Because it’s possible to invest in fractional shares with many investment services, including robo-advisors and stock trading apps, you can buy portions of mutual funds, ETFs, or individual stocks with $1,000. You might also take the opportunity to invest in real estate via real estate crowdfunding platforms.

Can day trading make you rich?

Some people achieved success with day trading. However, day trading comes with costs, risks, and money loss potential. For many investors, a long-term strategy is likely to be more effective than day trading when it comes to building long-term wealth.

Where do millionaires put their money?

Millionaires invest their money based on their goals and risk tolerance, just like the rest of us. However, you’re likely to find that many millionaires have their wealth in their retirement accounts, mutual funds, and individual stocks.

How to invest money: bottom line

In today’s world, it helps to learn how to invest money — even if it’s just passively with the help of index funds and ETFs — in order to build wealth over time. While savings accounts are an important part of finances, relying on them alone probably won’t help you beat inflation and build an adequate nest egg.

Keep in mind that you don’t need to be a broker on Wall Street to start investing. Thanks to modern technology, there are many investment apps, online brokerage firms, and robo-advisors that make investing your money simple and straightforward.

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Author Details

Miranda Marquit

Miranda Marquit has covered personal finance for more than a decade and is a nationally-recognized financial expert and journalist, appearing on CNBC, NPR, Forbes, Yahoo! Finance, FOX Business, and numerous other outlets.

Author Details

Yahia Barakah, CEPF

Yahia Barakah, CEPF, is a Senior Editor at FinanceBuzz and has created finance-focused content since 2011. As a Certified Educator of Personal Finance, he has a background in institutional investment and asset management, as well as a deep passion for financial literacy.