Investing Strategies for Beginners

October 12, 2021

Trying to get started with investing? Here’s a look at some of the best investing strategies for beginners, even if you’ve never invested a cent before.

There are two ways to (legally) earn money in this life: earning an income through your job and earning money through investments. In fact, earning money through investments is the best way to grow your wealth—and the only way to grow your money. In a savings account, your money just sits there. But in investments, you can earn money on the money you already have.

So why aren’t more Americans taking advantage of investments?

While 52% of Americans have some form of investment in the market, this primarily comes from 401(k) accounts. Think about that: that means that almost half of U.S. households aren’t investing their money at all, and those that are investing are only taking advantage of a small sliver of potential growth opportunities.

If you haven’t invested yet because you’re not sure where to begin, we’re here to simplify things. Here’s a few critical investing strategies for beginners.

Sign Up for a Retirement Account

First, if you’re one of the 48% of American households that doesn’t have a retirement account, now is the time to get one. For most people, the simplest way to do this is by signing up for your employer-offered 401(k) plan.

A 401(k) is a type of tax-advantaged retirement savings plan that allows employees to contribute a portion of their wages to their individual retirement accounts. It’s one of the most popular retirement plans, and for good reason—it’s a great investment vehicle. If your employer offers matching contributions, even better—it’s basically free money.

If you work for yourself, or your employer doesn’t offer a 401(k) plan, the IRA is your new BFF. An IRA is another type of tax-advantaged account that allows you to save for retirement, with different advantages based on the type of IRA. Most people choose between one of three types: traditional, Roth, or rollover.

A Robo-Advisor

For brand new investors, a robo-advisor is a fantastic partner, especially if you have trouble setting money aside (or remembering to set money aside).

Basically, a robo-advisor is a digital platform offering automated, algorithm-driven with minimal (or no) human oversight. These advisors will automatically build a diversified portfolio for you, and better still, they do it at a fraction of the cost you would pay for a human advisor.

Some popular robo-advisors include:

  • Acorns
  • Betterment
  • Stash
  • Vanguard
  • Wealthfront
  • SoFi
  • Ellevest
  • Schwab Intelligent Portfolios

These are especially handy for beginners because the algorithms take care of your portfolio for you. You don’t need to make decisions on buying and selling—the platform takes care of it. The downside, of course, is that you give up some control over your portfolio.

Growth Investing

Growth investing is an investment strategy focused on growing the investor’s capital. In stocks, for example, growth investing focuses on business with the potential for explosive growth within their industry. These stocks may look more expensive at first blush, but investors are willing to swallow the initial sticker price in the hope of major returns.

Companies that make good growth investments are usually those that create in-demand products or services that are also highly unique, making them difficult for a competitor to copy.

That said, finding worthwhile growth investments takes a fair bit of work. You have to do extensive due diligence on financial statements, company products, and other key metrics, keeping in mind that the company may not perform well even if all the metrics are on the money.

If you’re looking for an active, highly involved strategy, this is a great fit.

Buy-and-Hold Investing

If you’re a passive investor, you’ll probably prefer the buy-and-hold strategy, which is when you buy securities and hold onto them for a long period of time, regardless of ups and downs in the market.

Under this logic, “time in the market” matters more than “timing the market”. When you buy and sell by timing the market, you attempt to buy at low prices and sell at high prices, which is quite difficult to do successfully. When you focus on time in the market, you’re buying and selling on the premise that it’s more valuable to ride out market turbulence instead of trying to time the ups and downs.

This one is especially handy for beginners, since the strategy is much simpler than trying to time the market. Plus, by trading less often, you reduce the cost of trading and the risk of human error. That said, you are still vulnerable to stock market volatility, and there’s always the risk that you may wind up buying high and selling low. One way or another, you will eventually have to time the market, you’re just taking longer to do it.

Keep in mind that it’s a good idea to use a blend of strategies across your portfolio. You could use a buy-and-hold strategy for a percentage of your portfolio and a growth strategy elsewhere. The choice is yours.

Ready to Get Started with Investing Strategies for Beginners?

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