While saving is the primary step to building wealth, putting your savings to work through investing is generally the initial step to growing that wealth.
While stocks are usually the primary thing people think to invest in, you can also invest in cryptocurrency, real estate, art, or just about anything else.
This guide targets fundamental financial instruments, including mutual funds, bonds, stocks, ETFs, and CDs.
Each of these comes with various levels of risk and return, so which ones are right for you largely depends on your time horizon, goals, and risk tolerance.
Here are the ten best types of investments for first-time investors:
Stocks are one of the best types of investments for first time investors. If you’ve never invested before, these are the safest place to start.
A stock is a little piece of a company that any person can buy.
If you are going this route, you should know the business you are investing in and be prepared to hold the stock for a long time, as these can be a high-risk investments since your profit falls or rises with the firm.
While stocks can earn a lot, people can be drawn in by the little-term mentality because stocks are priced at every second of the trading day.
A bond is an investment where you lend money to the government, company and other types of organization.
In return, a bond issuer pays you interest for the borrowed money and, at the same time, repays you the actual amount you paid for the bond.
In general, bonds are a fixed-income investment. Interest is paid in regular installments, generally once or twice a year.
On the other hand, the entire principal is paid through the bond’s maturity date.
Bonds are preferred mostly over stocks.
They offer steady and predictable returns, and can be purchased through government or corporate bond funds. However, they generally produce lower returns than other types of investments.
Government bonds are safer than business ones.
If you buy an individual bond, ensure you sell it before it matures to get your investment worth.
3. Mutual funds & ETFs
Mutual funds and ETFs are similar in that both are baskets of various bonds and stocks.
Some target a particular sector, while others track certain indexes.
Designed to provide diversification, they are less risky than individual stocks since your money is spread through various investments mechanically.
On the other hand, ETFs trade like stocks, meaning you can see the price as they change throughout the day.
In turn, you can set the price you are willing to pay beforehand.
There is no lowest for these securities, though your brokerage may charge a commission per trade.
Many ETFs follow famous indexes like the S&P 500 and the Dow Jones industrial average.
4. Real Estate
Real estate has been known to produce the most number of millionaires over the years.
As a first time investor you might not have the funds to buy property as it requires more money upfront or a tedious process of getting qualified for a loan.
However, buying physical property is not the only way to get a piece of this trillion dollar industry.
A new investment category called “real estate crowdfunding” makes it possible to own a fraction share of large commercial properties without the problem of being a landlord.
Crowdfunding real estate investments may need more considerable minimum investments than other types of investments.
They are riskier investments because you will put that total sum of 5,000 into one property than a diversified portfolio of 100s of individual investments.
Real estate investment trusts (REITs) are also another way to invest in real estate. This allows investors to invest in income-producing real estate without the hassle of managing physical property.
And if you can raise the funds to buy your first investment property in physical form, this is one of the best types of investments for first time investors who want to build their collateral.
5. Employer’s retirement plan
People invest mainly to save for their future, which is the time after retirement.
Retirement plans generally give tax advantages and opportunities to raise savings over time.
Our government’s retirement and personal equity account (PERA) is one example of a retirement saving plan.
Such retirement is entirely voluntary, and one can avail of it via banks.
6. Money market funds
Not to be confused with the general savings account, money market funds permit investors to leave a certain amount in a bank for a predetermined period.
You get your principal back for a higher interest rate by the time it is over.
The allotted time spans from at least three months to a year.
Although you can write checks out of money market funds, the worth of investment reduces as you do so.
7. Fixed-income securities
Fixed-income securities contain many types, such as corporate bonds, U.S Treasury bonds, municipal CDs, and bonds.
It is easier to think of them as credits to corporations, governments, banks, and state agencies.
You agree to let them “borrow” your money for a set period, and they will pay you interest and cash back at the end of the period.
8. Certificates of Deposit
A certificate of deposit (CD) is a banking item similar to a savings account via which a person can earn interest from their savings.
The critical difference is that CDs need you to keep your money in the account for a specific period of months to earn the guaranteed interest rate.
Then, when you redeem the CD at maturity, you will get your cashback in addition to the interest your account earned.
Like savings accounts, CDs are a risk-free investment because the FDIC insures the cash for up to $250,000.
9. Fixed annuities
Fixed annuities are an annuity contract that permits investors to pay a lump sum upfront in exchange for a series of payments over time.
Functionality and fixed annuities work like CD: you have agreed to lock up your access to your money for a set period, and you get a higher-than-average interest rate in exchange.
As of mid-September 2022, ten-year fixed yearly rates are around 4.75 percent, according to Blueprint income, a fixed annuity marketplace.
However, the higher interest rates generally come from less well-regarded insurers, meaning they can default on payment.
10. Robo advisors
For an investment house that comes with its furniture, Robo advisors make a significant way of investing for starters.
These digital investment platforms use computers to manage and curate an investment portfolio for you.
They generally start by asking you questions about your financial goals and risk tolerance, then advise a portfolio that matches your needs.
Most have extremely low – or even no, lowest, and charge lower fees than human, financial advisors.
Some examples of good robo-advisors include Sofi, Acorns, Ellevest and Betterment.
All the best investments for first time investors listed above are good but are limited in terms of how much return you can get from them. However, investing in yourself and starting your own business can produce unlimited returns that you can benefit from as your business grows.
And if you don’t want the hustle of managing your own business, consider start-up crowd investing which allows you to invest in small businesses that are on the rise and reap the rewards when they get off the ground.
After considering the various investment options available, it is important to remember that there is no one-size-fits-all solution. Each investor’s financial goals, risk tolerance, and time horizon should be taken into account when determining the best investment strategy.
That being said, for first time investors, a mix of low-risk investments such as index funds or bonds, along with some higher risk options such as stocks or real estate, can provide a good balance of stability and potential growth.
Seeking the guidance of a financial advisor can also be helpful in navigating the sometimes overwhelming world of investing.
Ultimately, the best investment for any individual is one that aligns with their personal goals and allows them to sleep well at night. Happy investing!
Disclaimer: This blog post is for general information only and should not be taken as financial advice. As always, please do your own research and consult a certified financial professional before making any investment decisions.
- 15 Best Investment Apps For Investing In Stocks
- 7 Best Apps To Help You Invest In Real Estate
- 30 Finance Books That Will Change Your View Of Money
- 10 Best Personal Finance Apps To Manage Your Money
- 10 Best Budgeting Apps to Help You Save Money
- Rent Vs Buy A Home: Which Is The Best Option?
- 10 Effective Ways To Build Your Credit & Improve Your Credit Score