Investing money in the stock market is one of the main ways to build wealth and save for long-term goals such as retirement. But figuring out the best strategy can feel daunting.
Investing money is personal
Everyone has a unique financial situation. The best way to invest depends on your personal preferences and financial circumstances.
Here’s a five-step process that can help you figure out how to invest your money right now:
- Identify your financial goal and when you want to achieve that goal.
- Decide if you want to manage your money yourself or work with a service that does it for you.
- Pick the type of investment account you’ll use.
- Open an account.
- Choose your investments.
How to invest money
Give your money a goal
Figuring out how to invest money starts with determining your investing goals when you need or want to achieve them, and your comfort level with risk for each goal.
- Long-term goals: These goals are at least five years away.
- Short-term goals: These goals are less than five years away.
Decide how much help you want
Once you know your goals, you can dive into the specifics of how to invest (from picking the type of account to the best place to open an account to choosing investment vehicles). But if the DIY route doesn’t sound like it’ll be your cup of tea, no worries.
Pick an investment account
- If you’re investing for retirement: 401(k): You might already have a 401(k), which many employers offer. You can contribute to the account directly from your paycheck.
- Traditional or Roth IRA: If you’re already contributing to a 401(k) or don’t have one, you can open an individual retirement account.
- Taxable account: Sometimes called brokerage or nonqualified accounts, these are flexible investment accounts not earmarked for any specific purpose.
Open your account
Now that you know what kind of account you want and you’ve chosen an account provider, you need to open the account.
We have step-by-step directions for opening a brokerage account and opening an IRA, but the process is very similar to opening a bank account — you’ll provide some personal information, choose how to fund the account, and transfer the money, typically from a checking or savings account.
Choose investments that match your goals and tolerance for risk
Common investments include
- Stocks– Stocks are individual shares (pieces of ownership) of companies you believe will increase in value.
- Bonds– Bonds allow a company or government to borrow money to fund a project or refinance other debt.
- Mutual funds– Investing your money in funds like mutual funds, index funds, or exchange-traded funds (ETFs) allows you to purchase many stocks, bonds, or other investments all at once.