How can I invest money to make money?

There are countless ways to invest to make money. On the conservative side, high-yield savings accounts and U.S. Treasury bills offer relatively high yields as of June 2024 with little risk. More aggressive income options include corporate bonds and preferred stocks, while those seeking capital growth may look to low-cost index funds or individual stocks. The key to successfully investing is to think long-term, invest consistently and ensure that your investments match your financial objectives and risk tolerance.

How should a beginner invest?

Beginners may consider starting to invest with a mock portfolio so they can take the time to learn how the markets operate without risking any of their own money. Once they have a basic understanding, beginners have a number of good options to start their investment careers. Contributing to a company 401(k) or other retirement plan is a good start. Beyond that, robo-advisors, low-cost index funds and mutual funds can be good choices. Investors with more experience or the willingness to do extra research may move on to buying individual stocks that they understand. This has become easier as many brokerage firms now offer the ability to purchase fractional shares.

Is $100 enough to start investing?

In the modern investment world, $100 is definitely enough to start investing. Many brokerage firms, such as Schwab, allow you to buy fractional shares of stocks for as little as $5. Many mutual funds and robo-advisors have small or no minimums as well.

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How To Invest Money: Expert Tips for New Investors

August 20, 2024

Written by Karen Doyle

Edited by Elizabeth Constantineau

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Whether you’ve never invested before or have an existing portfolio and need to brush up on the basics, there are some fundamental investment principles that all investors should understand. While no one has a crystal ball as to where markets will move over the short term, these basic investment strategies will always serve you well.

To illustrate the impact of these strategies, GOBankingRates looked at how investments in different stock categories have grown over the past 25 years. By understanding these historical trends and implementing the tips on how to invest money, your portfolio should be well-prepared for 2024 and beyond.

How To Invest Money: 6 Expert Tips To Know

Here are expert tips that all investors, particularly new ones, should understand when it comes to investing their money:

Diversify
Consider your tolerance for risk
Keep your time horizon in mind
Set goals
Dollar-cost average
Consult a professional

1. Diversify

One of the cardinal rules of investing is diversification, or not putting all your eggs in one basket. This means that you need to have a mix of different kinds of investments in your portfolio.

These are some of the types of investments that should make up your portfolio.

Mutual funds: These funds typically hold tens or even hundreds of individual securities. Most traditional mutual funds are actively managed, meaning a professional investment manager decides which securities the fund should own, in line with its written objectives. Each share of a mutual fund owns a representative slice of all of the securities included in the fund. The diversification inherent in mutual funds can give you some protection in the event of a market downturn.

Exchange-traded funds: ETFs are similar to mutual funds, in that they include multiple securities. But they trade on exchanges like stocks, so the price can change throughout the day. Mutual funds, on the other hand, are priced at the end of the trading day. Some ETFs mimic market indexes, which makes them a good choice for investors who want to make market returns. You can buy an ETF that includes, essentially, all the stocks in the S&P 500 index or the Russell 2000 index, for example.

Stocks: Individual stocks can be an important part of your portfolio, but they can be risky. It’s important to “buy what you know,” or stick to the stocks of companies whose business you understand. Warren Buffet famously resisted buying technology stocks for years because he didn’t understand the business they were in. He’s since come around, but even before he invested in tech, he did pretty well.

Bonds: Bonds tend to act as a hedge to stocks — when stocks do well, bonds don’t, and vice versa. But that’s not always the case. If you hold your bonds until maturity, you don’t have to worry about market price action. But if you think you might need to sell your bonds before maturity, it’s important to understand that bonds lose value when interest rates rise and gain value when interest rates fall. This could make bonds an interesting option currently, as it’s anticipated that the Fed will begin cutting rates by the end of 2024.

Cryptocurrency: Crypto has been very volatile in the past and there’s no reason to think that volatility won’t continue. Keep that in mind when evaluating crypto as part of your overall portfolio. However, for aggressive speculators or those who believe in the future utility of cryptocurrency, it can offer large potential gains in exchange for the high volatility and risk that you could lose everything.

Certificates of deposit: A CD is one way to grow your money for a select term of your choosing. You lock in an APY rate at the beginning of your term until the CD matures — though, there are CDs available with variable rates as well. Fixed-rate CDs are one way to guarantee a predictable rate of return on the money you invest, all while being protected by FDIC insurance of $250,000. Watch for early withdrawal penalties if you take out your money before your expected term ends.

Precious metals: Gold and silver, along with other precious metals, are often referred to as “hard assets.” This is because they are tangible assets that you can touch, hold in your hand or store in your home. They are often considered defensive in case intangible financial assets, like shares of stock, lose their value. Gold and silver have had a good run over the past year, gold is up about 20%, while silver is up closer to 30%. Bear in mind that precious metals don’t pay dividends and don’t generate any earnings or profits, so their prices can be driven more by investor sentiment.

Commodities: Commodities can be a great diversification tool because their price movements don’t correlate very well with the stock and bond markets. In other words, if the stock market sells off dramatically, prices of certain commodities may actually rise. Adding commodities to your portfolio may actually reduce its risk. Common examples of commodities include agricultural products like wheat and corn, energy sources like gas and oil, and precious metals like gold and silver. However, there’s a wide range of tradable commodities, from orange juice and soybeans to sugar, cotton, coffee and more. The safest way to invest in commodities is via a mutual fund or ETF, but advanced investors can also trade futures contracts.

401(k): A 401(k) is a great way to invest for retirement because you don’t have to pay any tax on your income or gains until you withdraw the money. If your company offers an employer match, as most do, you’ll benefit from what’s essentially “free money” being poured into your account every year. This is a good way to maximize your saving potential. To visualize the potential growth of your 401(k), the following line graph illustrates how consistent contributions, combined with an employer match, could significantly grow your retirement savings over time.

Roth IRA or IRA: Like a 401(k), you won’t pay any tax as you earn income or capital gains within a Roth IRA. However, Roth IRAs also allow tax-free distributions in retirement. That’s because your Roth IRA contributions are made with after-tax dollars. Traditional IRAs are funded with pre-tax dollars, meaning you may get a tax deduction on the money you contribute. However, just as with a 401(k), your distributions from a traditional IRA will be fully taxable.

Evaluate Fees and Costs

Investments often come with fees and costs. For instance, mutual funds typically have management fees and expense ratios, while ETFs might have lower fees but can still incur trading costs. When considering diversification, be sure to account for these fees and associated costs.

2. Consider Your Tolerance for Risk

Having the best investments in the world won’t help you if they’re keeping you awake at night. Before you decide to throw all your savings into cryptocurrency, for example, think about what you would do under the very possible scenario in which your investment lost half its value. If your instinct is that you would immediately sell what remained and put the money in your sock drawer, you shouldn’t be taking that much risk in the first place.

If, on the other hand, you’d consider a 50% loss to be an opportunity to buy more, your risk tolerance is high. This means you may be suited for these types of aggressive investments.

3. Keep Your Time Horizon in Mind

When deciding how to invest, keep in mind how long you have before you’ll need the money. The market trends upwards over time, but there are always ups and downs along the way.

If you’re investing money that you will use to buy a house in five years, you don’t want to take a lot of risks. Keeping your money in relatively safe investments will ensure you have the funds for that down payment when you need them.

If you’re saving for the college education of a child who was just born, you can invest a little more aggressively. You can choose your own investments or use a target date fund in a 529 college savings plan. A 529 plan lets you save money and withdraw it tax-free if it’s used for qualified educational expenses. If you choose a target date fund, your investments start more aggressively and become more conservative as the child approaches college age.

If you’re just starting in your career and are saving for retirement, you can take more risks because you have a longer time horizon. If the market were to go south, you’d have time to make up for any losses.

4. Set Goals

You can’t have a successful investment plan without a road map. Your investment objectives will help guide you towards whether you should be buying stocks, bonds, a combination of the two or some other type of investment altogether. While your risk tolerance will help keep you away from investments that are too volatile for you, your objectives will steer you away from investments that won’t serve your goals.

For example, if you’re trying to maximize your account value for retirement, you’ll likely turn towards growth investments, like stocks. But if you are more conservative and plan to live off the income from your investments, bonds and other income-generating securities will be more appropriate.

Good To Know

Remember to regularly check and adjust your investments to keep them aligned with your goals. Since market conditions and personal circumstances can change, reviewing your portfolio periodically is key to staying on track.

5. Dollar-Cost Average

Since nobody has a crystal ball, it’s impossible to know when an investment has reached a peak — or a bottom. What you can do, though, is to invest regularly and use dollar-cost averaging to improve your returns.

Dollar-cost averaging simply means that you invest a certain amount of money each month, week or quarter. Keep the amount the same, regardless of the number of shares that money will buy. In this way, you are buying more shares when the price per share is lower, and fewer shares when the price per share is higher.

Here’s an example. You invest $100 a month in ABC Corp. stock. In January, the stock is selling at $20 a share, so you buy five shares. In February, the price drops to $10 a share, but you still invest $100, so you add 10 shares to your portfolio. In March, the price goes up to $12.50 a share, so your $100 buys eight shares. You now have 23 shares of ABC Corp., at an average price of just over $13 per share. You’re buying more shares when it’s cheaper, and fewer when it’s more expensive.

6. Consult a Professional

Even smart investors don’t have all the answers. If you’re looking to learn about how to invest money — or if you want to ensure you don’t make any life-changing mistakes with your money — consult with a licensed financial advisor. Although he or she may not have all the answers either, they have training and experience to help you make important decisions.

Most successful advisors also have a firm and/or a team of professionals behind them that can help find solutions for nearly any financial situation. Even if you end up not working with a professional or following their advice directly, getting a second opinion on your own methods can be invaluable.

FAQ

How can I invest money to make money?
- There are countless ways to invest to make money. On the conservative side, high-yield savings accounts and U.S. Treasury bills offer relatively high yields as of June 2024 with little risk. More aggressive income options include corporate bonds and preferred stocks, while those seeking capital growth may look to low-cost index funds or individual stocks.
- The key to successfully investing is to think long-term, invest consistently and ensure that your investments match your financial objectives and risk tolerance.
How should a beginner invest?
- Beginners may consider starting to invest with a mock portfolio so they can take the time to learn how the markets operate without risking any of their own money. Once they have a basic understanding, beginners have a number of good options to start their investment careers.
- Contributing to a company 401(k) or other retirement plan is a good start. Beyond that, robo-advisors, low-cost index funds and mutual funds can be good choices.
- Investors with more experience or the willingness to do extra research may move on to buying individual stocks that they understand. This has become easier as many brokerage firms now offer the ability to purchase fractional shares.
Is $100 enough to start investing?
- In the modern investment world, $100 is definitely enough to start investing. Many brokerage firms, such as Schwab, allow you to buy fractional shares of stocks for as little as $5. Many mutual funds and robo-advisors have small or no minimums as well.

John Csiszar and Melanie Grafil contributed to the reporting for this article.

Methodology: GOBankingRates analyzed investment types over time to find how much someone could have made by investing in different strategies. First, GOBankingRates found some of the most commonly traded stocks through recent history as sourced from Kiplinger. Next, GOBankingRates used the Bureau of Labor Statistics Inflation calculator to find that $1,000 in 2024 was worth $529 in 1999, 25 years ago. For each stock, a $529 investment was calculated using DQYDJ.com’s stock return calculator which allows us to calculate the value of a stock from one period of time to another. These calculations assumed you follow the DRIP investing plan which states that dividends are to be reinvested in the same stock. Trading prices were taken from July 30, 1999, to July 30, 2024, along with every five years in between to calculate 25 year investments. The 401(k) was calculated using AARP’s 401(k) calculator. To calculate the 401(k) investment, GOBankingRates made the following assumptions; starting 401(k) balance of $0, current age is 40, annual rate of return is 6%, annual salary is $59,428 (average national salary), expected annual salary increase is 3%, percent to contribute is 6%, employer matches 100% up to 4% of salary. This 401(k) estimation follows the financial model that recommends investing 10% towards your 401(k). Using the calculations to find the estimated current value of the 401(k) and stocks, GOBankingRates calculated how much you would have made by investing in different strategies. All data was collected on and is up to date as of Aug. 6, 2024.

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