Beginner-Friendly Investment Options to Jumpstart Your Financial Journey

While investing is a great option to earn a passive income, it can be intimidating for people who are just starting. Investing can help save for various financial goals and build wealth but the ever-changing market environment is something to look out for. However, with the right knowledge and the right pick of investment methods, even beginners can churn out a profit. After all, the chair and CEO of Berkshire Hathaway, Warren Buffet once said, “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”

Here are a few investment options that beginners can look into.

Mutual funds

Mutual funds provide new investors an opportunity to invest their money in a basket of stocks or bonds (or other assets) that they may not be able to build on their own. Popular mutual funds track indexes such as the S&P 500 which is comprised of about 500 of the largest companies in the U.S. Since index funds usually come with very low fees, they help investors keep more of the returns for themselves and build wealth over time.

Exchange-traded funds

Exchange-traded funds prominently known as ETFs are like mutual funds as they hold a basket of securities as well. However, they differ in the way that ETFs are traded throughout the day in the same way a stock would. Further, they do not come with the same minimum investment requirements as mutual funds and they can be purchased for the cost of one share plus any fees or commissions. ETFs also tend to be more transparent, cost-effective, and liquid.

Target date funds

As the name suggests, a target date fund or TDF is a fund offered by an investment company that seeks to grow assets over a specified period. Investors get TDFs for a targeted financial goal, mostly retirement. They are one of the best and easiest means of getting into investing for the long term. A class of mutual funds or ETFs, TDFs rebalance assets to manage risk and returns.

Thus, asset managers of TDFs, tend to take more risk in the initial years to make larger gains and then steadily reduce risk as investors age to keep the money safe and stable. “I think they’re a fabulous, simple solution for novice investors — and any investor,” said Christine Benz, Morningstar’s director of personal finance and retirement planning in a CNBC report.

Index funds

Index funds invest money within a specific market index like the S&P 500 index fund. They often have a minimum investment requirement such as mutual funds. However, some brokerage platforms such as J.P. Morgan Self-Directed Investing generally allow people to invest money in an index fund without a minimum.

Individual stocks

One of the riskiest options in investment is buying stocks in individual companies. However, it can also be one of the most rewarding. Beginners should set goals and understand if they want to invest for the long term which generally means at least five years. Since, stocks are priced every second of the trading day, investing in them is the riskiest out of all the other options mentioned above. Thus, beginners who do not have room to ride out market fluctuations can look into the safer options.