Many people find the idea of investing appealing. And really, who wouldn’t? It’s a great way to make your money work for you. You put away some of your earnings and watch it grow over the years.
But, if investing is so great, then why don’t more people do it?
Some don’t have enough money to invest. Others might find it too confusing. Still, others fear that it is too risky.
The truth is anyone who wants to invest can. In our experience, the most straightforward methods tend to be the most popular—and the most lucrative. But what is the simplest way to invest? In this article, we’ll go over some of the basics and strategies to get you started.
Table of Contents:
The Importance of Saving
Saving and investing go hand in hand. After all, you’ll need to put money aside before you can invest it.
However, saving is often the thing that stops many people from investing. They spend everything they earn and don’t think to stash some of it away.
If this sounds like you, don’t worry. Just because you aren’t a good saver now, doesn’t mean you can’t become one.
Start by setting aside $10 or so every week. You can easily do this by making small sacrifices. For example, eat in instead of going out to a restaurant. Or realize that you don’t need that new pair of shoes.
After a year or so, you’ll have a decent chunk of change saved up. Having savings isn’t just necessary for your financial security. You can use some of this money to start investing!
The great part about this is that it will help you develop good habits. Saving will become second nature to you.
When you keep saving, you won’t just have money for emergencies. You’ll be able to continue contributing to your investments so that they can grow even more!
What Is a Simple Investment?
Saving your earnings is half the battle. Now that you have extra cash, you can start investing.
The question is, where should you put your money?
Many people feel intimidated by the world of investing. Some think they need to have a thorough understanding of the stock market. They fear making major mistakes and losing all of the money they worked hard to save.
If you are a beginner, it’s best to stick to simple investments.
What is the simplest way to invest? Generally speaking, a simple investment is something that is, well, simple. It doesn’t require you to do a lot of research or actively manage your money.
Aside from being easy to do, simple investments tend to be low-risk. They also usually mean lower returns, but they’re an excellent option for those who can’t afford to take big gambles. You’ll be conservative with your money while still earning interest.
How to Start Investing
If you’re eager to start investing, follow these guidelines for beginners. We’ll go over some examples of simple investments and how to choose the one that’s right for you.
Analyze Your Goals
Analyzing your goals is the first (and perhaps most important) step.
Too many people blindly go into investing. When you analyze your goals, you realize what you’re working towards and how to make your money get you there. This assessment will help you:
- Choose the right investment strategy
- Opt in to the right type of investment account
- Decide how much to invest
- Determine where you should put your money
Plus, outlining your goals will better equip you to avoid wasting time and making mistakes.
Of course, the goal of investing is always to make money. But you need to determine why exactly you want the money. Some reasons why people invest include:
One of the most common things people invest in is their retirement. Retirement accounts help you build wealth so that you can have an income when you no longer work.
Maybe you are looking to save up for a new car or anniversary trip. If you want to reach your goal faster, investing your savings is a great route to go.
Related: Investing for Building Wealth
Weigh the Different Investment Strategies
Now that you know what you’re working towards, you need to choose the right investment strategy.
If your goal is something like 20+ years away, you’ll want to pick a long-term strategy.
Long-term strategies let your money sit for years. You continue giving to the account and watch the interest grow.
So, if you are saving for something like retirement, a long-term strategy is your best bet. Keep in mind that with most retirement accounts, you can’t take out your money early without penalty.
If your savings goal is a few years away, you don’t want to use a long-term strategy. Your money will be unavailable to you when you need it.
Instead, use a short-term strategy. This option will allow your money to earn interest and you can easily access it when the time comes.
Choose the Right Investment Account
So, what type of account is right for you?
If you’re saving for retirement, see if you can open a retirement account through your employer. Something like a 401(k) will take a portion of each paycheck and invest it. Over time, the account will grow and provide you with income when you retire.
If your job doesn’t have retirement plans, consider opening an individual retirement account (IRA). You can enlist the help of a robo advisor or manage your own through an online brokerage.
But what if you are saving for a goal other than retirement? If this is the case, a retirement account wouldn’t be appropriate.
Instead, you would want to open a taxable brokerage account. This option allows you to make investments and take your money out at any time, penalty-free.
If you need your money back within a few years, avoid high-risk options such as stocks. Use a high-interest savings account or similar low-risk options. These will help your money keep up with (and even beat) inflation while remaining low-risk.
Decide How Much to Invest
So, now that you’ve covered some options for what is the simplest way to invest, the big question arises: How much should you invest?
This question is one of the biggest concerns for beginners. They don’t think they have enough to get started. Or, they fear that what they have isn’t enough to reap the rewards.
It’s true that the more you put in, the more you’ll make. At the same time, you don’t need a lot of money to get started.
Below, we provide some general advice. But how much you decide to invest will come down to your personal goals, your current financial situation, etc.
Put 10-15% of Your Income in Retirement Accounts
The standard rule is to save 10-15% of your total income for retirement. This percentage might sound like a lot, but you can achieve this gradually.
Start by allocating 1% of your paycheck to your 401(k). In the grand scheme of things, you probably won’t miss this small of a contribution.
As time goes on, you will likely get used to contributing and earn pay raises. This habit will make it easy to increase your contribution gradually. Raising your contribution by 1% every year will allow you to eventually put 10-15% of your income into your 401(k).
Also, keep in mind that some companies will match your contributions. If your employer does this, take advantage of it! It’s essentially free money.
Can I Start Investing with $1,000?
You might be wondering what the perfect initial amount is.
The truth is, there is no magic number. What you are willing to contribute should depend on your personal circumstances.
With a 401(k), you don’t need an initial contribution. All you have to do is set up your account with your employer.
If you want to use other methods, you’ll need to open an account through an online brokerage (Note that you can also have a robo advisor manage your portfolio).
Let’s say you want to start with $1,000.
Once you open an account, you’ll need to make contributions on your own. If you want, you can automate these contributions from your bank account.
The good news is that many investment and high-interest savings don’t require a minimum. So, $1,000 is plenty for a starting sum.
What Should I Invest $1,000 In?
It might seem hard to save up $1,000 to invest. But, with a little discipline, you’ll be able to set aside this money and see decent payoffs.
A few ways you can invest $1,000 include:
- High-Interest Savings Account. This option is one of the safest ways to put your $1,000 to work. Many high-interest bank accounts have interest rates ranging from 1-2%. The great thing about them is that the interest compounds. So, you’ll be earning interest on the money you put in AND on the interest that you gain.
- Mutual Funds. Mutual funds are a great way to diversify your portfolio. Minimums range, but you can find some mutual funds with minimums of $1,000 or less.
- ETFs. Like mutual funds, ETFs diversify your portfolio. ETF minimums, however, are typically lower. This lower threshold makes them a great option if you don’t want to put as much into just one type of investment. Apps like Public make it possible to invest in popular ETFs from Vanguard, BlackRock, and Fidelity via fractional shares with no commission fees.
Read More: Best Ways to Invest $1k
Understand the Different Kinds of Investments
It’s crucial to understand the different kinds of investments to figure out what is the simplest way to invest relative to your financial situation.
For most people, a high-interest savings account is probably the simplest way to go. All you have to do is put your money in the account. The bank loans your money to other people, charging them interest. Then, the bank pays interest to you.
But, with other accounts, it’s a little more complicated. You have to determine what you want to invest in through your 401(k), traditional IRA, standard investment accounts, etc.
Some of the most popular options include:
When someone mentions investing, stocks might be the first thing that comes to mind. But what is a stock?
Stocks, also called equities, are shares of ownership in a company. Even if you buy only one share, you technically own part of that company.
You purchase stocks for a share price. Depending on the company, a share price can be anywhere from a few dollars to thousands of dollars.
When you purchase a stock, you are investing in the company’s success. If it prospers, the value of your stock will rise. Additionally, some companies pay out dividends to their investors.
Bonds are another common type of investment. A bond is essentially a loan that your funds enable to a company or government entity.
The borrower agrees to pay you back within a specified amount of time. All the while, you earn interest on the loan.
Mutual funds are a more diverse way to invest as they are a collection of investments. They are packages of stocks and bonds that you can purchase in one transaction.
Sometimes, professionals manage your mutual funds. But there are also index funds that follow the performance of specific investments. Because they don’t require professional management, index funds charge lower fees than regular mutual funds.
ETFs are similar to mutual funds in that they bundle individual investments.
However, as we mentioned earlier, ETFs usually have lower minimums. This option is excellent if you are new to the world of investing.
What Should I Invest in 2020?
This year, we are witnessing a worldwide economic recession. To say the least, this makes it an interesting time for investments.
The swift, global economic downturn has many people scrambling to figure out what is the simplest way to invest in an unstable market.
You should always do your research before investing, but now, it’s more important than ever to be informed. Here is some general advice.
If you can afford to commit to long-term investments, stocks may be a great option in 2020.
Consumer confidence is dropping, meaning that many companies are seeing their stock prices plummet. Many people are looking to buy these cheap shares.
While this sounds appealing, you need to be careful about what you buy. If the company doesn’t recover, you may end up losing money.
Even if the company does recover, it might take you a while to see a profit. The delay in returns is why you should only invest in stocks if you can afford to ride out this recession.
If you buy stocks, realize that you are taking a gamble. No one can predict the markets, but a little research and some patience will go a long way.
Less Risky Methods
If you need your money within the next few years, stocks probably aren’t the best option. A few years may not be enough time to ride out the lows of the market.
A less risky option? Bonds.
When you buy a bond, the borrower states precisely when they plan to pay you back and how much you can expect to earn. The rate of return may be lower, but you can rest knowing that your money is in a secure investment.
ETFs and mutual funds also tend to be less risky. They mitigate risk by encompassing several different stocks and bonds.
Keep in mind that like stocks, ETFs and mutual funds are most effective the longer you invest in them.
You’ve heard the saying, “Don’t put all of your eggs in one basket.” This piece of advice is especially applicable when it comes to investing.
No matter what kind of investments you choose, be sure to diversify your portfolio. You don’t want to rely too much on one type of stock, bond, etc.
Diversifying your portfolio is essential, even if you tend to invest in less risky methods.
Let’s say you put all of your money in a relatively safe ETF. In the unlikely event it does poorly, you are out of luck. You’ll have to hope it goes back up, all the while not having any other investments.
So, even if you choose more conservative methods, make sure you spread out the risk.
Best Online Discount Brokers
- Ally Invest: Best for new investors and those looking for a very easy website to navigate.
- TD Ameritrade: Ideal for more experienced traders looking for a rich set of tools and resources.
- Public: Offers a social investing experience where you can exchange ideas with friends and experts.
- E*TRADE: Offers trading platforms and tools for any investment style.
- You Invest by J.P. Morgan: Best for free trades and cash bonuses.
Some Final Advice
Here are a couple of final tips for the beginner investor:
Use a Robo Advisor
You should have a basic understanding of investments.
But, if you don’t feel qualified to make your investment decisions, consider using a robo advisor.
A robo advisor is an investment management service. It uses computer algorithms to create and oversee your portfolio.
Typically, robo advisors build your portfolio using index funds and ETFs. They rarely require minimums and are generally low-cost.
Robo advisors charge a small fee, usually around 0.25% of your balance. But, they are an easy way to get started and effectively manage your investments.
Dough Roller’s Best Robo-Advisors
|Brand||Minimum Investment||Best For||Fees||Promotions|
|M1 Finance||$0 to open, $100 to invest ($500 for retirement account)||Customizing your portfolio||$100 termination fee||No current promotions|
|Betterment||$0||Passive investors||0.25% or $25 for every $10,000 investment||Get up to 1 year managed free|
|Wealthfront||$500||First time investors||0.25% advisory fee plus a fund fee of 0.07% to 0.16%||Get your first $5,000 managed free|
|Wealthsimple||$0||Unique investment options like SRI||0.4% – 0.5%||Get your first $10,000 managed free for a year|
|Personal Capital||$100,000||Large investors||0.49% to 0.89%||No current promotions|
|Ally Invest||$100||Portfolio diversification||0.0%||Get commission-free trading and a cash bonus up to $3,500|
|Vanguard Personal Advisor Services||$50,000||High net worth, buy and hold investors||0.05% to 0.30%||No current promotions|
|Acorns||$0||Students and young investors||0.25%||Sign up and get $5 free|
Start as Early as Possible
It’s a shame that many young people don’t realize how valuable investing can be.
Young people have an advantage as time is on their side. They can let their money sit for years and allow compound interest to work its magic.
And, when you invest young, you have decades to ride out the highs and lows of the stock market.
If you are an older investor, this shouldn’t discourage you.
While an early start is essential, it’s never too late to get into investing!
With these tips, you will be well on your way to making your money work for you. The fact that you’re researching the simplest way to invest indicates you’re already on your way to establishing future success. Pursue any one of these strategies to invest in your future.