Investing for beginners

Investing is essential

A diversified and balanced portfolio of investments is an essential to achieving financial stability. It’s how most people plan and pay for major milestones - by investing specifically for education expenses, buying a home, transitioning to retirement and other big goals.

Investing can make big-ticket expenses possible because the money you’ve invested is hard at work, committed to high-performance tools - investments that pay higher returns than the interest you earn in most savings accounts.

Investments are typically reviewed together in what’s called a “portfolio.” That’s a fancy metaphor for your own selection of investments, which vary depending on your needs and expectations. 

You’ll review the investments inside your portfolio individually and collectively, to make sure each one is working as expected and together they’re performing to meet your goals. 

Get to know your investment options

The most common start point for investing is a mutual fund. If your employer offers a 401(k) or other retirement plan, you’ve probably encountered and even chosen a mutual fund.

A mutual fund is a portfolio of investments that pools your money with other investors to purchase a selection of stocks, bonds and other securities. It’s professionally managed, and among investment options, mutual funds are the most widely used.

Specialized investments provide focus and tax advantages. Like a 401(k) is designed for retirement, other funds are designed to supplement healthcare or education costs, often with tax advantages for your contributions.

Mutual funds typically outperform conventional savings accounts, delivering better returns over the long term, and because they’re built for long-term investing, they’re ideal when you’re aiming for milestone goals down the road. 

Stocks and bonds are usually included in mutual funds, and it’s also common to invest in these separately in your portfolio. Securities, commodities, futures and annuities are other common investing options too. 

Each has their benefits and their fair share of complexities - which is why financial advisors are so popular.

Use a financial advisor or a smart investment tool

Financial advisors can help you access more investment opportunities, they can handle transfers efficiently, they monitor your investments’ performance, and they can offer advice informed by their experience and how well they know you. 

Independent investment tools like Robinhood, Stash or Acorns are popular self-guided alternatives. These mobile- and web-based services provide access to investments, free from advisors’ traditional fee structures and the conventions of traditional advice. 

Know your tolerance for risk

As you start to invest - on your own or with an advisor, or even if you’ve already started - take time to measure your tolerance for risk.

How much can you afford to lose without it impacting your financial security? Your tolerance will probably shift as you get older - and as you get used to how investments work. 

Unlike most checking and savings accounts, most investments aren’t FDIC insured. Which means you’re at risk of losing some or all of the money you’ve invested, depending on how the investment’s value moves. 

There are both upsides and downsides to risk. The higher risk you’re willing to take, the more you’re likely to earn more - and the more you’re likely to lose, depending on the investment’s performance. 

Diversify and balance your portfolio

We started this topic advising you to work towards “a diversified and balanced portfolio.” Let’s talk about what that means. 

A simple way to explain it: “don’t put all your eggs in one basket.” With an investment portfolio, that means ensuring your money is invested in different tools, across different sectors and parts of the economy. 

If one stock falls sharply, others in different classes might not fall so hard. For example, if you put all your money in a local candle maker, but the candle maker is suddenly forced out of business, causing their stock value to tumble, you’ll lose everything. So you’d be wise to also invest in light bulb makers, ideally ones in another region of the country, as well as carpet makers or office suppliers or medical equipment manufacturers. 

Diversification also means using different kinds of investments, ensuring your money is invested in different tools. For example, sometimes stock values can fall while bonds remain steady. 

With the right diversification, you’ll have a portfolio that balances your risk, allowing you to make investments with higher risk knowing you also have investments that will likely remain steady.

Save and invest with Bright

Professional advisors and self-guided tools like Robinhood and Stash can help keep your portfolio on track. 

Bright offers a third way, a new patented system built to deliver highly personalized financial services. With a Bright Plan, your investments are tailored to you and your goals, and they’re managed - automatically - with insight powered by data science, a uniquely responsive, high-performance way to invest.