How to start investing: A beginner’s guide to investment basics
How to start investing: A beginner’s guide to investment basics
New to investing? This guide walks you through investment basics and how to get started with confidence
How to start investing: A beginner’s guide to investment basics
New to investing? This guide walks you through investment basics and how to get started with confidence

Key takeaways
- Investing starts with identifying your financial goals and understanding how different investment strategies align with your time horizon and risk level.
- Broad-based market index funds are commonly used in beginner investment strategies because they offer low-cost, diversified exposure to the market.
- Exploring different types of investments — such as stocks, bonds, and cash alternatives — help new investors understand how to build a diversified portfolio.
Learning how to start investing can feel overwhelming at first, but understanding investment basics may be easier than you think. The key is choosing investments that align with your goals and your comfort with risk. Whether you're saving for retirement, a down payment, or future education costs, investing offers the potential to grow your money over time.
This guide to investing for beginners breaks down how to start investing in five simple steps — so no matter where you are in your financial journey, or how much money you have to invest, you can begin working toward your financial goals with clarity and confidence. Keep reading to learn investing basics or jump to the five steps to start investing.
Types of investments for beginners
Before you start investing, it helps to understand the different types of investment you can use to build your portfolio. Here’s a breakdown of common options for first-time investors:
Stocks (Equities)
Stocks represent partial ownership in a company. They offer potential for high returns but come with more risk. They may be suitable for longer-term goals and investors with higher risk tolerance.
Bonds (Fixed-income)
When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency, or other issuing entity. In return, you earn a specified rate of interest until it matures or comes due. Bonds tend to be lower-risk depending on the issuer and can provide balance to stock-heavy portfolios.
Mutual funds & ETFs
These pooled investment options contain a variety of securities. They can provide built-in diversification, to specific asset classes, making them one of the best ways to start investing — especially with little money. Index funds, in particular, offer low-cost exposure to broad market segments.
Cash alternatives
Cash alternatives are considered highly liquid because you can generally convert them into cash quickly. Some of the most common examples include savings accounts, money market deposit accounts, and money market funds. You may want to consider a portfolio with more cash alternatives if you have a short-term goal in mind or don’t want to take a lot of risk.
Other asset classes
More advanced investors might consider real estate, commodities like gold, or cryptocurrency. These fall into the category of alternative investments and should be approached with care.
How to start investing with mutual funds and ETFs
If you're not sure where to start, putting money in mutual funds or Exchange-Traded Funds (ETFs) can be one of the best ways to start investing. These pooled investments can help make asset allocation and diversification easier by offering a built-in mix of securities—like stocks, bonds, or both.
Index funds, which include both passively managed mutual funds and ETFs, are designed to track the performance of a market index. Rather than trying to beat the market, they aim to mirror its average returns by holding a representative sample of its assets.
Still, deciding which type of investment to buy doesn’t need to be either/or decision. Many investors use a mix of index funds and actively managed funds in their portfolio to balance, simplicity, cost, and potential performance.
Why portfolio diversification matters
Once you have an understanding of the ways to invest money, the next step is learning how to combine them effectively. That’s where portfolio diversification comes in — one of the most important investment strategies for beginners.
Picture your portfolio as a fruit stand. If you only sell oranges and a bad season hits, your income suffers. But if you also sell apples, bananas, and berries, your business is better equipped to handle market shifts. Similarly, a well-diversified investment portfolio spreads risk across:
- Different asset classes: Stocks, bonds, cash alternatives, and potentially real estate or commodities.
- Company sizes and investment styles: A mix of large-cap, mid-cap, and small-cap companies, as well as growth and value stocks.
- Sectors and industries: Investing across sectors like technology, healthcare, energy, consumer goods, and more helps reduce overexposure to any one part of the economy. Using pooled investments like mutual funds and ETFs or purchasing a sufficiently large number of individual securities can help here.
- Geographies: Including both U.S. and international markets can protect your portfolio from region-specific downturns.
Asset allocation and portfolio diversification won’t ensure a profit or protect against losses, but it does have the potential to improve returns at the level of risk you choose to target. One way to assess if your portfolio is diversified is to consider how stocks in your portfolio would react to a piece of news. To be effectively diversified, you’d want stocks that would react in opposite directions.
Can you pick individual stocks as a beginner?
While diversification is a smart long-term strategy, many beginner investors also wonder if they should pick individual stocks. It’s a tempting thought — if you had invested $1,000 in Apple's initial public offering (IPO) on December 12, 1980, your investment would be worth approximately $2.5 million today. So why chase the market average?
If you are someone who can tolerate risk within your portfolio, you may choose to supplement a well-diversified portfolio with a few hand-picked stocks. It is important to look at what you are already invested in, as you might already have exposure to your choice stock through your existing funds. A general guide for beginners is to limit stock picking to 4-5% of your portfolio and hold only a few individual stocks at most.
“Think of stock-picking the same way you would think about a game of chance: Only play with what you can afford to lose,” says Nicholas Ryan, Senior Financial Advisor & Planner at Empower. “For most people, investing isn’t about finding the next high-flying stock — it’s having a solid strategy and sticking to it.”
One way to assess if your portfolio is diversified is to consider how stocks in your portfolio would react to major market news. In a well-diversified portfolio, some investments should move in opposite directions — helping to cushion volatility and protect your overall strategy.
5 steps to start investing
Investing for beginners doesn’t need to feel overwhelming. Here’s a clear path to get started with investing today:
1: Set clear goals for your investments
Define what you're investing money for — retirement, a house, travel, education —and break it into short-, mid, and long-term goals. This helps determine your time horizon and risk tolerance. Keep in mind that the sooner you want to achieve the goal, the lower your risk capacity. You’ll also want to estimate how much you need to save to achieve each investment goal, so you know how much to invest over time.
Read more: How set financial goals & stick to them in 5 steps
2: Know what you can afford to invest
Figuring out how much money you can commit to investing now based on your budget. Review how much you are currently spending each month and determine how much you can reasonably set aside for your investments while still paying for necessities and funding your lifestyle. You can use the free Empower Personal DashboardTM to help determine how much you can consistently set aside for investing.
It is generally recommended that you pay off any high interest debt — like credit card debt — and build an emergency fund of 3—6 months of expenses before investing.
3. Pick an investment strategy
Now you know your financial goals and how much you can afford to invest each month, it’s time to choose a simple investment strategy and asset allocation that match your timeline and risk tolerance.
For long-term goals, like retirement, where you have more time to ride out market ups and downs, you may want to allocate more heavily toward stocks to pursue higher potential growth.
For shorter-term goals — such as a larger purchase in the next 2-3 years — you’ll want to prioritize liquidity and lower-risk. In these cases, consider keeping your money in cash alternatives like a high-yield savings account or a money market account, which offer stability and easy access to funds.
4. Choose your investments and open an account
Once you’ve identified the right strategy based on your goals and time horizon, you can choose specific investments and the best accounts to hold them in.
Types of investments to consider:
- Stocks (equities)
- Bonds
- Cash alternatives
- ETFs
- Mutual funds
- Alternative investments
Once you've chosen your investment mix, select the account that best supports your goals:
- Interest-bearing accounts: Includes high-yield savings accounts (HYSA), money market accounts (MMA), or a certificate of deposit (CD). Best for short-term or emergency savings.
- Taxable brokerage account: A brokerage account is an investment account used to buy and sell securities like stocks, mutual funds, bonds, and ETFs. Ideal for general investing.
- Retirement accounts: Specialized accounts that offer tax-deferred savings and are designed to help investors save for retirement, including 401(k)s, individual retirement accounts (IRAs), SIMPLE IRAs, and more.
- Education investment accounts: Specialized accounts that offer tax-deferred savings and allow investors to save and invest money to pay for their child’s education, such as 529 plans or an education savings account (ESA).
- Custodial accounts: Taxable investment accounts are set up to benefit a minor but controlled by an adult custodian (parent, guardian, relative, etc.) until the minor reaches the age of majority, such as the Uniform Transfer to Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA) accounts.
- Health savings accounts: Tax-free savings accounts to help set aside money for healthcare expenses, including health savings accounts (HSAs) and flexible spending accounts (FSAs).
5. Automate, monitor, and adjust
Once you’ve chosen an asset allocation that supports your investing goals, consistency is key. You may want to set up automated investments to keep building your portfolio without having to think about it each month. Be sure to check in regularly to make sure you are still on track and your needs haven’t changed.
Over time your portfolio may become too conservative or aggressive because of market conditions, your investment needs, or your investing time frame. Consider rebalancing your investments quarterly and adjusting your asset allocation to align with your evolving investment strategy.
The bottom line
Learning how to invest money can be one the best ways to build financial stability. By focusing on investment basics, choosing a strategy that suits your comfort level, and sticking to a consistent plan, you’re on the path to building real financial confidence. With time, even small investments have the potential to grow into meaningful wealth.
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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Compensation for freelance contributions not to exceed $1,250. Third-party data is obtained from sources believed to be reliable; however, Empower cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third-party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Empower of the contents on such third-party websites. This article is based on current events, research, and developments at the time of publication, which may change over time.
Certain sections of this blog may contain forward-looking statements that are based on our reasonable expectations, estimates, projections and assumptions. Past performance is not a guarantee of future return, nor is it indicative of future performance. Investing involves risk. The value of your investment will fluctuate and you may lose money.
Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.