When you start investing on your own, it can feel like a lot to take in. There are so many choices, and it’s easy to worry about making mistakes. What if you pick the wrong option and regret it? You’re not alone. we have the best investment strategies for beginners.
A recent survey found that 77 percent of U.S. adults have regrets about their financial decisions. One of the biggest regrets—mentioned by 22 percent of people—is not starting to save for retirement early enough. Whether you’re already setting money aside for retirement or just opening your first investment account, some simple strategies can make things easier.
Here are five common investment approaches for beginners, along with their benefits and risks. These can help you work toward different financial goals.
Top 5 Ways to Start Investing for Beginners
A smart approach to investing helps lower risks while giving you a chance to grow your money. But before you jump in, keep in mind that market-based options like stocks and bonds can go up and down. This means you might lose money in the short term. That’s why it’s wise to sort out your other finances, like emergency savings, before getting started.
Investing takes patience, and results don’t happen overnight. It’s not a shortcut to wealth, so go in with clear expectations about what is and isn’t possible.
1. Buy and Hold
A buy-and-hold strategy is a well-known approach that has worked time and again. As the name suggests, you purchase an investment and keep it for a long time. Ideally, you would hold onto it for several years so it can grow, but at a minimum, you should aim for three to five years.
Buy and Hold: Frequently Asked Questions
Q: What is a buy-and-hold strategy?
A buy-and-hold strategy means purchasing an investment and holding it for a long period—usually several years—to allow it to grow in value. It’s a long-term, low-maintenance approach to investing.
Q: Why does buy-and-hold investing work?
It works because it reduces unnecessary trading, encourages long-term thinking, and allows investments to compound over time. Investors can avoid reacting to short-term market movements and focus on business fundamentals instead.
Q: What are the risks of a buy-and-hold strategy?
The main risk is staying invested during market downturns. Prices can drop significantly, and it can be emotionally difficult to hold onto an investment that’s losing value, but doing so is often key to long-term success.
Why it works:
This strategy helps you focus on long-term growth and think like a business owner. It keeps you from making frequent trades, which often hurt returns. Your success depends on how well the business behind the investment does over time. With patience, you could come across some of the stock market’s biggest winners and see your investment multiply many times over.
Another advantage is that you won’t need to check the market constantly. Unlike traders who watch price movements all day, you can invest and then spend your time on things you enjoy instead of worrying about daily market shifts.
What to watch out for:
Sticking with this plan means you must resist the urge to sell when prices drop. Markets can take big hits, and seeing your investment lose half its value or more can be tough. Individual stocks can fall even harder. Staying committed through rough times is easier said than done, but it’s part of the process.
2. Buy Index Funds
This approach is about picking a strong stock index and investing in a fund that follows it. Two well-known indexes are the S&P 500 and the Nasdaq Composite. Both include many leading companies, giving you a mix of investments in one go. Instead of trying to beat the market, you simply invest in it and earn what it earns.
Buy Index Funds: Frequently Asked Questions
Q: What is index fund investing?
This strategy involves buying a fund that tracks a stock index, like the S&P 500 or Nasdaq. You invest in the entire market instead of picking individual stocks.
Q: Why does investing in index funds work?
Index funds offer long-term growth with lower risk. Since you own many companies at once, you reduce the impact of any single stock performing poorly. It’s a time-saving, low-cost way to match market performance.
Q: What should I keep in mind with index funds?
While diversified, index funds still carry market risk. You’ll get average returns—not the highs of the top-performing stocks. But historically, those “average” returns have beaten most active investors over time.
Why it works:
Buying an index fund is an easy way to get solid returns, especially if you hold onto it for the long run. Your gains will reflect the average performance of all the stocks in the index. Since you own many stocks at once, your risk is lower compared to picking just a few. Plus, you don’t need to study individual stocks, so you save time while your investment grows.
Things to keep in mind:
Stocks always carry some risk, but spreading your money across many companies makes it safer. If you want the market’s usual long-term gains—about 10 percent per year for the S&P 500—you need to stick with it through market ups and downs. Since you’re investing in a group of stocks, your returns will be average, not the high returns of the best-performing ones. That said, even experts often struggle to do better than these indexes over time.
3. Index and a Little Extra
The “index and a little extra” approach mixes the idea of investing in index funds with adding a few smaller stock investments. For example, you might put 94% of your money into index funds and use the remaining 6% to invest in companies like Apple and Amazon if you believe they have strong long-term potential. This method helps beginners stick to a mostly safer index fund plan while also letting them add a small piece of individual stocks they like.
Index and a Little Extra: Frequently Asked Questions
Q: What is the “index and a little extra” investing strategy?
This method combines investing primarily in index funds with a small percentage in individual stocks—like allocating 94% to index funds and 6% to specific companies such as Apple or Amazon.
Q: Why does this approach work?
It keeps the core benefits of index investing—low risk and simplicity—while giving you the opportunity to explore and learn from individual stock picks without taking on too much risk.
Q: What should you watch out for with this strategy?
If your individual picks stay a small part of the portfolio, overall risk stays manageable. But if you don’t research those stocks, they could hurt your returns. Stock picking always requires proper understanding and due diligence.
Why This Works:
This approach keeps the best parts of index funds—less risk, less effort, and solid potential returns—while allowing those who want to take a few small stock positions to do so. It also gives beginners a fair chance to practice picking and studying individual stocks without putting too much at risk.
Things to Keep in Mind:
As long as the extra stock picks stay a small part of the overall portfolio, the risk is similar to just holding index funds. You’ll likely still get returns close to the market’s average unless the individual stocks perform extremely well or poorly. However, if you decide to invest in specific stocks, it’s important to take the time to understand them properly. Without research, these choices could end up hurting your overall investments.
4. Investing in Regular Payouts
This type of investing focuses on owning assets that pay you cash regularly, like dividend-paying stocks and bonds. Part of your earnings comes as cash, which you can use however you like or reinvest to grow your holdings. If you invest in stocks that provide income, you can still benefit from price increases along with steady cash flow.
Investing in Regular Payouts: Frequently Asked Questions
Q: What is regular payout investing?
This strategy focuses on owning assets like dividend-paying stocks or bonds that generate recurring income. You can either use this cash or reinvest it to grow your portfolio while also benefiting from price appreciation.
Q: Why does this strategy work?
It’s beginner-friendly—many income-focused funds handle the hard work for you. You get a steady stream of income, and well-established companies often increase their dividends over time, growing your earnings passively.
Q: What are the risks with payout-based investments?
These assets are more stable but can still lose value. Stocks may cut dividends, and bonds might not keep up with inflation. Also, income in a regular account may be taxable—so using a retirement account like an IRA can be smarter.
Why it works:
You can easily start by using funds that focus on income, so there’s no need to pick individual stocks or bonds yourself. These investments usually move up and down less than others, and you get a steady payout. Many well-established companies increase their dividend payments over time, which means your earnings can grow without extra effort, making this a great way to build passive income.
Things to Keep in Mind:
While these investments tend to be more stable, they can still drop in value. If you choose individual stocks, companies might reduce or even stop their payouts, leaving you with less cash and possibly a loss. Bonds don’t always offer attractive returns, and sometimes, they don’t grow enough to keep up with rising prices, which can reduce buying power. Also, if you hold these assets in a regular investment account, you may owe taxes on the income, so it might be better to keep them in a retirement account like an IRA.
5. Investing Bit by Bit
Investing bit by bit means putting money into your investments at regular intervals. For example, you might decide to invest $500 each month. No matter what’s happening in the market, you stick to that plan. If you prefer, you could invest $125 every week instead. By doing this, you’re spreading out when you buy.
Investing Bit by Bit: Frequently Asked Questions
Q: What is bit-by-bit investing?
This approach means regularly putting money into your investments over time—like investing $500 monthly or $125 weekly—regardless of market conditions.
Q: Why does it help?
Investing at set intervals removes the pressure of timing the market. You buy when prices are up and when they’re down, averaging your cost over time. It also builds a consistent investing habit.
Q: What should you keep in mind?
While it lowers the risk of bad timing, it also means you might miss out on the highest returns if prices stay low while you invest gradually. Still, it’s a solid long-term strategy for most beginners.
Why It Helps
Since you’re buying at different times, you won’t have to worry about picking the perfect moment. You won’t put all your money in when prices are high, and over time, your average cost evens out. This approach also helps you build a habit of investing regularly. With time, your portfolio is likely to grow because you kept up with your plan.
What to Keep in Mind
While this method helps avoid the risk of putting in everything at a bad time, it also means you won’t put everything in when prices are low. This means you may not get the highest returns possible.
Final Thought
Investing is one of the best choices you can make for yourself, but getting started can feel tricky. Make it easier by picking a simple approach that works for you and staying with it. When you become more fully versed in investing, you can expand your strategy and the types of investments you can make.