Let’s talk about how to start investing. When I first started investing, I wasn’t earning six figures, I didn’t know everything there was to know about the stock market, and I certainly couldn’t predict what the market was going to do next. What I did understand was that if I wanted to build long-term wealth, saving money alone wasn’t going to be enough. I needed to put some of my money into assets that had the potential to grow over time.
That decision became an important part of my financial life. I started my career earning $54,000 a year, began saving and investing, continued investing through various financial downturns, and eventually built a significant investment portfolio.
More than two decades after I started my own investing journey, and after more than a decade of teaching women about personal finance through Clever Girl Finance, I don’t think beginners need complicated investing strategies. You need to understand a few fundamental concepts, choose investments that make sense for your goals, and give yourself enough time to let investing do what it’s designed to do.
So if you’re wondering how to start investing, I’m going to walk you through what I think you actually need to know, including the things I wish more beginners understood before putting their first dollar into the market.
What is investing?
Investing means putting your money into an asset with the expectation that it may increase in value or generate income over time.
When most people hear the word investing, they immediately think about the stock market. Stocks are certainly one type of investment, but you can also invest in bonds, real estate, businesses, and other assets.
Investing is different from saving.
Money in a savings account is generally there because you want it to remain accessible and relatively stable. You may be saving for an emergency, an upcoming expense, or a goal you expect to reach within the next few years.
When you invest, you’re accepting some level of risk in exchange for the possibility of earning a greater return over time.
I think about this as giving different dollars different jobs. I don’t need the money in my emergency fund to accomplish the same thing as money I’m investing for long-term wealth. My emergency savings needs to be available when I need it. My long-term investments have years, and potentially decades, to grow.
Understanding that distinction can make investing much less confusing.
Why I believe investing is essential for building wealth
Saving was incredibly important when I started building my financial foundation, and it remains important to me today. But there is a limit to what saving alone can accomplish.
One reason is inflation. As prices rise over time, the purchasing power of your money changes. Investing gives your money the opportunity to grow over long periods rather than relying entirely on what you can personally earn and save.
Investing also gives you access to compounding.
When your investments generate returns and those returns remain invested, future growth can occur on both the money you originally contributed and the returns you’ve already earned. Over decades, that compounding can become incredibly powerful.
This is one reason time matters so much.
You don’t necessarily need a huge amount of money to begin investing, but starting earlier gives the money you do invest more time to potentially grow.
That doesn’t mean you should invest money simply because someone tells you you’re “losing time.” Your overall financial situation still matters. But once you’re financially ready to begin, I wouldn’t wait until you feel like you’ve mastered everything about investing.
I certainly hadn’t mastered everything when I started.
How I started building wealth without earning six figures
When I started my career, I earned $54,000 a year before taxes. During the next approximately three and a half years, I was able to save more than $100,000.
There is important context to that number. I didn’t have student loan debt because my mother paid for my college education, and I made deliberate choices that allowed me to keep my expenses relatively low and save aggressively.
But I didn’t want all of my long-term money sitting in cash.
I understood that investing needed to become part of my wealth-building strategy, so I began putting money toward my future while continuing to build my overall financial foundation.
What investing through financial crisis taught me
The 2008 financial crisis was one of my earliest major lessons about what it actually means to be a long-term investor.
It’s easy to talk about risk when the market is doing well. It’s much harder when you’re watching investment values decline and the news around you is filled with reasons to be afraid.
I continued investing.
One of the ways I reframed what was happening was to think of the market as being “on sale.” Investments that had previously cost more could now be purchased at lower prices.
I want to be careful about how I explain this because hindsight makes past market declines look much easier than they felt while they were happening. At the time, I didn’t know exactly when the market would recover or what would happen next.
That’s the nature of investing.
You don’t get advance notice telling you when the bottom has arrived or when the recovery will begin.
What I could control was whether I continued following my long-term plan.
That experience shaped the way I think about investing to this day. Your investment strategy shouldn’t only make sense when markets are rising. It needs to be a strategy you can live with when markets are falling too.
Before you start investing, look at your financial foundation
I don’t believe you need a perfect financial life before you’re allowed to invest.
At the same time, investing shouldn’t come at the expense of being able to pay your bills or handle a basic financial emergency.
Look at your overall financial situation before deciding how much to invest.
Do you have some emergency savings? Are you living paycheck to paycheck? Are you carrying extremely high-interest debt? Does your employer offer a retirement-plan match? How stable is your income?
These questions matter because personal finance decisions rarely exist in isolation.
For example, if your employer matches part of your workplace retirement contribution, you may decide that contributing enough to receive the full available match makes sense even while you’re working on other financial goals.
On the other hand, if you’re carrying credit card debt at an extremely high interest rate and have no emergency savings, aggressively investing large amounts while your financial foundation is unstable may not be the best priority.
You don’t necessarily have to choose between investing and every other financial goal. You can work on multiple priorities at once, but you should understand the tradeoffs you’re making.
How to start investing as a beginner
Once you’re ready to invest, I would keep the process much simpler than it can initially appear.
You do not need to understand every stock, memorize investing terminology, predict the economy, or find the next company that’s going to make investors rich.
You need a goal, an account, an appropriate investment strategy, and a plan for contributing consistently.
Here’s how I would approach it.
Step 1: Decide what you’re investing for
Before choosing an investment, determine what the money is supposed to accomplish.
Retirement is one of the most common long-term investing goals, but you might also invest for another goal that’s many years away.
Your timeline matters because investing involves risk.
If you’re saving money for something you expect to purchase next year, you probably don’t want to expose that money to a significant stock-market decline right before you need it.
Money you’re investing for retirement 30 years from now has a very different timeline.
Ask yourself what you’re investing for, approximately when you’ll need the money, and how much risk you’re willing and able to accept along the way.
Those answers should help shape your investment decisions.
Step 2: Understand the difference between an investment account and an investment
This is one of the most important concepts I want every beginner investor to understand because these terms are often used interchangeably when they shouldn’t be.
A 401(k), 403(b), IRA, Roth IRA, or brokerage account is an account.
Stocks, bonds, mutual funds, index funds, ETFs, and other assets are investments you may hold inside an account.
Think about the account as the container and the investments as what you put inside it.
Opening a Roth IRA, for example, doesn’t necessarily mean your money is invested. Depending on how the account is set up, you may still need to choose investments for the money you’ve contributed.
Understanding this distinction can prevent the unfortunate situation where someone believes she has been investing for years only to discover that her contributions have been sitting in cash inside an investment account.
Step 3: Look at your workplace retirement plan first
If your employer offers a retirement plan such as a 401(k) or 403(b), I would start by understanding exactly what is available to you.
Find out whether your employer offers matching contributions and what you need to contribute to receive the full available match.
An employer match can make your workplace retirement plan particularly valuable because your employer is contributing additional money toward your retirement based on the terms of the plan.
You should also look at the investments available inside the plan and understand the fees you’re paying.
If you don’t have access to an employer-sponsored retirement account, or if you want another retirement investing option, you can research an Individual Retirement Account, commonly called an IRA.
Traditional and Roth IRAs have different tax treatment and eligibility considerations, so take the time to understand which may be appropriate for your circumstances.
And if you’re investing beyond retirement accounts, a regular taxable brokerage account can give you access to a wide variety of investments without requiring the money to be designated specifically for retirement.
The important thing is to understand why you’re opening each account instead of accumulating financial accounts simply because you’ve heard you’re supposed to have them.
Step 4: Learn the basic types of investments
You don’t need to understand every possible investment before you begin, but there are several basic categories worth knowing.
A stock represents ownership in a company. When you purchase an individual company’s stock, the performance of your investment is closely tied to that particular company.
A bond generally represents money lent to a government, municipality, or company in exchange for interest payments and the expected return of principal according to the bond’s terms.
A mutual fund pools money from many investors to purchase a collection of investments.
An index fund is a type of fund designed to track a particular market index rather than having a manager actively choose investments in an attempt to outperform it.
An exchange-traded fund, or ETF, can also hold a collection of investments and trades on an exchange throughout the day.
A target-date fund typically holds a diversified mix of investments that becomes more conservative as the fund approaches its designated target year. These are commonly available inside retirement plans.
The important thing isn’t memorizing these definitions. It’s understanding that you don’t necessarily have to research and buy dozens of individual companies to become an investor.
Funds can allow you to own many investments at once.
Step 5: Diversify instead of trying to pick the next winner
If I were starting as a beginner today, diversification would be one of my priorities.
Diversification means spreading your money across different investments instead of depending heavily on the success of one company, industry, or asset.
If most of your portfolio is invested in one company and that company performs terribly, your financial future can be heavily affected by that single investment.
A broadly diversified fund, on the other hand, can give you exposure to many companies through one investment.
Diversification doesn’t eliminate investment risk, and it doesn’t guarantee that your portfolio won’t lose value. A diversified stock portfolio can absolutely decline during a broad market downturn.
What diversification can do is reduce your dependence on any single investment performing well.
For a beginner, I think that’s much more important than trying to identify the next hot stock.
Step 6: Understand your risk tolerance before the market tests it
People often describe themselves as aggressive investors when markets are rising.
The real test comes when their account balance starts falling.
Risk tolerance isn’t simply how much risk you’re willing to say you’ll accept on a questionnaire. You also need to consider how you’re likely to behave when you’re experiencing losses.
Would a significant market decline cause you to lose sleep or would you immediately want to sell? Would you abandon your investing plan?
Your age, goals, investment timeline, financial circumstances, and emotional comfort with volatility all matter.
This is another reason my experience investing through financial downturns has been so important. Market declines stopped being theoretical. I learned what it actually felt like to watch them happen.
You want an investment strategy that gives you an appropriate opportunity for growth without taking so much risk that the first major downturn causes you to abandon the entire plan.
Step 7: Decide how much you can start investing consistently
There is no amount of money you have to reach before you’re officially allowed to become an investor.
If you can afford to invest $25 consistently, start there. Only have $100? Start with $100. If you can invest substantially more, that’s great too.
Your starting amount doesn’t have to be your permanent amount. As your income grows, debt decreases, or other expenses change, you can increase your contributions.
I care much more about establishing the habit of investing consistently than waiting until you can afford an amount that feels impressive.
This is also where automation can be incredibly helpful.
Workplace retirement contributions can generally be deducted automatically from your paycheck. Many other investment accounts can be set up to receive automatic recurring contributions.
Automation removes the need to make a new investing decision every month.
Step 8: Pay attention to investment fees
Fees may look small when they’re displayed as percentages, but they can have a significant effect over a long investing timeline.
Depending on what you invest in and where your account is held, you may encounter expense ratios, advisory fees, account fees, trading costs, or other charges.
Before choosing an investment or investment service, understand what you’re paying and what you’re receiving in return.
I don’t believe the goal should automatically be to pay absolutely nothing. There may be financial services or professional advice worth paying for.
The goal is to avoid paying fees you don’t understand for services or investment products that aren’t providing enough value to justify the cost.
Step 9: Keep investing over time
This is the part of investing that isn’t particularly exciting, which is probably why it doesn’t get as much attention as picking stocks.
Consistency matters.
Once you have a diversified investment strategy that makes sense for your goals, continuing to contribute can be more important than constantly looking for something new to buy.
Markets will rise. Markets will fall. There will be recessions, frightening headlines, exciting new investment trends, predictions about crashes, predictions about booms, and people insisting that this time everything is different.
I’ve invested through enough market cycles to know that there will always be something that can make you question your plan.
That doesn’t mean you should blindly ignore changes in your life or never adjust your investments. Your portfolio should evolve as your goals, timeline, financial circumstances, and risk capacity change.
But changing your strategy intentionally is very different from reacting impulsively to whatever the market did this week.
What I would not do as a beginning investor
One of the biggest mistakes I think beginners can make is believing successful investing requires constantly doing something.
You don’t need to chase whatever stock everyone is suddenly talking about. You don’t need to buy an investment because someone on social media says it’s about to explode in value. And you definitely don’t need to put money into something you don’t understand because you’re afraid everyone else is getting rich without you.
I also wouldn’t invest money I knew I was likely to need in the near future simply because I wanted a higher potential return.
And I wouldn’t build an investment strategy around trying to predict exactly when the market will rise or fall. Market timing sounds wonderful in theory: sell before prices fall and buy immediately before they rise.
The problem is that you have to repeatedly make those decisions correctly.
I would rather build an investment strategy around things I can control, including how much I invest, what I invest in, the fees I pay, how diversified I am, and whether I remain consistent with my long-term plan.
Can you start investing with $100?
Yes, $100 can absolutely be enough to begin investing.
Many investment platforms have low or no account minimums, and fractional shares may allow investors to purchase portions of investments that would otherwise cost more than the amount they have available.
But I don’t want you to become overly focused on whether $100 is the “right” amount. Your first $100 isn’t powerful because $100 is a magical investing number. It’s valuable because you’ve begun.
If you eventually invest $100 every month, increase that amount as your income grows, take advantage of retirement accounts available to you, and continue investing over many years, your financial situation can look very different from where you started. The same is true if you’re starting with $1,000.
It’s a great milestone, but the bigger question is what happens after that first investment.
Long-term wealth is rarely built from one contribution.
Should you use a robo-advisor or work with a financial advisor?
You don’t have to manage every aspect of your portfolio yourself.
A robo-advisor can use information about your goals, timeline, and risk preferences to create and manage an investment portfolio using automated technology. This can appeal to someone who wants a relatively hands-off investing experience.
A financial advisor can provide more individualized guidance, which may be useful if your finances are more complex or you simply want professional help making investment decisions.
You can also manage your own investments through a brokerage.
None of these approaches automatically makes you a better investor.
If you choose professional or automated help, understand how the service works, how your money is being invested, and what you’re paying for it.
You should never feel like you have to hand over complete understanding of your finances simply because someone else is helping you manage them.
What I’ve learned after more than 20 years of investing
When I started investing, I couldn’t know where my financial life would eventually take me.
I didn’t know that I would continue investing through various financial crisis. I didn’t know that I would eventually build a multimillion-dollar investment portfolio. And I certainly didn’t know that I would later spend more than a decade teaching other women how to build their own financial foundations and invest for their futures.
What I could do was start. Then I could continue learning.
And when the market became frightening, I could make decisions based on the long-term financial plan I was building instead of assuming that fear automatically meant I needed to stop investing.
That is still one of the biggest lessons I would give a beginner today.
You don’t need to predict what the market will do next. You need to understand why you’re investing, choose investments that make sense for your goals and timeline, and build a strategy you’re capable of sticking with through different market conditions.
Frequently asked questions about to how start investing
What should a beginner invest in first?
There isn’t one investment that’s right for every beginner. Start by determining your goal and timeline and then understand the investment accounts available to you. If you have a workplace retirement account with an employer match, that’s an important benefit to consider. When choosing investments, diversified funds such as broad-market index funds or an appropriate target-date fund can be worth researching because they can provide exposure to many investments without requiring you to choose individual companies yourself.
Can I start investing with $100?
Yes. You don’t need thousands of dollars before you can begin investing. Depending on the brokerage and investments you choose, you may be able to start with $100 or considerably less. What’s more important is whether you’re financially ready to invest and whether you can continue contributing over time.
Should I invest if I have debt?
Having debt doesn’t automatically mean you shouldn’t invest. Look at the type of debt, interest rate, employer retirement benefits, emergency savings, and overall financial situation. Extremely high-interest debt may deserve aggressive attention, while someone with lower-interest debt and an employer retirement match may decide to invest while simultaneously paying down debt.
What’s the difference between an IRA and a brokerage account?
An IRA is a retirement account with specific tax advantages, contribution rules, and withdrawal considerations. A regular brokerage account is a taxable investment account that doesn’t have the same retirement-specific tax structure. Both accounts can potentially hold investments such as stocks, bonds, mutual funds, index funds, and ETFs, depending on the provider.
Do I need a financial advisor to start investing?
No. Many people begin investing through a workplace retirement plan, brokerage, or robo-advisor without hiring a personal financial advisor. However, professional advice may be useful if your financial situation is complex, you’re uncomfortable making investment decisions yourself, or you want help developing a broader financial plan.
Can I lose money investing?
Yes. Investing involves risk, and the value of your investments can decline. That’s one reason your investment timeline, diversification, asset allocation, and risk tolerance matter. Money you expect to need soon generally shouldn’t be treated the same way as money you’re investing toward a goal decades away.
You don’t need to know everything before you start investing
I understand why investing can feel intimidating when you’re new to it. There are endless financial terms, account types, funds, opinions, market predictions, and people telling you what you should be doing with your money.
But after more than 20 years of investing, I don’t believe successful long-term investing requires knowing everything.
You should understand what you’re investing in, why you’re investing in it, what it costs you, what risks you’re taking, and how the investment fits into the future you’re trying to build.
Then give your plan time to work.
My own wealth wasn’t built because I discovered one perfect investment at exactly the right moment. Investing became powerful in my financial life because I started, continued investing through difficult markets, kept learning, and allowed years of consistent decisions to build on one another.
Whether you’re starting with $25, $100, $1,000, or considerably more, don’t underestimate what that first decision represents.
You’re putting some of the money you’ve earned today to work toward the life you want to have years from now. And that is where I would start.
