When it comes to investing, many of us get lost with just the basics. However, there are several different investment ideas that you also need to take into account. But which are the best for beginners?
For the purposes of this article, I am defining “beginner” as someone who has never invested before. However, I am assuming that they follow (or have at least heard of!) an investing philosophy like rule one or value investing.
15. Investment Apps
The internet is the future. As with almost everything else, stock brokerages too have gone online. With that, apps on your phone have been developed to help you invest.
Usually, these investment apps are fully regulated investment brokers. However, there is one major difference: monthly fees. Investments apps generally have low monthly fees, with some even having no fees at all!
In an attempt to get new clients, many of these apps also charge very little commission (the cost of the brokerage buying the stock on your behalf). Some of these even charge nothing!
These investment apps also allow you to do almost everything to do with investing from your phone. Not only can you buy a stock from your phone, but you can also do stock research and analysis on it too (usually).
14. Robo-Advisers
Several of these investment apps offer another service, occasionally free of charge: robo-advisers. Many of these apps are built around them, whilst others just offer them as an extension of their brokerage services.
A robo-adviser is a highly advanced computer algorithm that helps you to invest your money. Depending on the settings and the type of robo-adviser you use, they sometimes invest automatically, or at your request.
Most of these robo-advisers use algorithms to find safe stocks that will help grow your portfolio. Some of them will then invest an allocated amount automatically, where others will require you to do it manually.
The best part about it? They were programmed with the help of human financial advisers! Most of the brokerages that offer robo-advisers also offer human financial advisers for a small fee as well.
13. Financial Adviser
Depending on who you are, how old you are and what you do for a living, having a financial adviser might be the best idea. Essentially, you take the process of investing out of your hands and into a professional’s.
This professional will chagre you a fee for doing this every quarter. However, you are paying for their knowledge of the stock market and their ability to make your money grow regardless of how the market is doing!
With that being said, you will probably get lower total ROI than if you did it yourself. Although, there is very little chance of you losing all of your money, you also don’t have to do any of the work!
You will also want to make sure you hire a fiduciary, rather than a “standard” financial adviser. This is because they aren’t paid on commission and are legally bound to act in your best interest rather than their own!
12. Roth IRA
In recent years, Roth IRAs have become a favorite of personal finance blogs. You may be familiar with the 401(k), essentially, the Roth IRA is a better, cheaper and more tax effective way to invest.
The Roth IRA is very similar to a standard 401(k). Each month, you pay in a portion of your salary, which is subsequently invested in stocks, bonds and real estate. By retirement age, you can withdraw as much as you need.
Unlike a 401(k), where you pay taxes on what you withdraw, the Roth IRA is the opposite: you pay taxes on what you pay in. This allows your portfolio to grow, year on year, tax free. You also don’t have to worry about taxes in retirement.
It is generally seen as one of the best investment ideas due to its incredibly low fees. Compared to other investment ideas, especially ones where you hire someone else to do the investing for you, fees are as low as 0.25%!
11. 401(k)
Many people believe that the 401(k) is the best investment idea they could have. It is usually offered by the company you work for, which you invest a given amount of money each month until you retire.
For most companies, they have a minimum and a maximum you can invest each month. Your company will similarly match whatever you invest (eg. you invest $200 and you company matches it with $200).
Unlike most other investment ideas, a 401(k) is relatively cheap. It is usually free of charge (both to invest and later to withdraw) as well as being tax-deductible. Compared to other ideas, it is also very low risk.
Once you retire, you are able to withdraw a percentage of whatever your 401(k) has accumulated to, every month. This, combined with whatever other pensions/income streams will be your income during retirement.
10. 403(b)
If you work for a company, you may have access to the aforementioned 401(k). However, if you work for the local government or a non-profit organization, your equivalent is a 403(b).
Both the 401(k) and 403(b) are the essentially the same, but one is half funded by the local government, where the other is funded by a private company.
Just as with the 401(k), whatever you invest, your employ will match. Just as with the 401(k), it is also free to invest in and withdraw. Plus, unless the government collapses, you 403(b) is guaranteed!
The 403(b) is likewise tax-deductible, which gives you the best of both worlds! However, people on a 403(b) plan can actually decide how their money is invested (into either annuities or mutual funds).
9. Low-Cost Index Funds
If you’re looking to invest in stocks, but are confused about how to find an undervalued stock, there is always another way. These are low risk, but somewhat expensive index funds.
Essentially, index funds are an externally traded group of companies, usually the “top” (most expensive) companies on a given stock exchange. If done on the right stock exchange, index funds can be extremely lucrative!
On top of all this, there is no need to worry about diversification. Most index funds cover a wide range of companies in a wide range of industries, which helps to keep the index fund growing, even when one industry is down!
When you look at most famous investors, many of them do have a stake in various index funds. Usually, this is the S&P 500 (the largest companies in the US), although others include the NASDAQ 100 and FTSE 100.
8. Mutual Funds
In many ways, mutual funds are similar to index funds. Both investment ideas are relatively low risk as well as diversifying well. And best of all? They’re managed by a professional investor!
A mutual fund gathers funds from a wide array of investors and invests them in a series of securities. These securities in turn generate returns which are split equally based on the share a person has in the fund.
Unlike most other managed funds, mutual funds don’t require a certain net worth or buy-in amount. If your aim is slow, but steady growth, with average returns, then mutual funds are probably for you.
With that being said, this service isn’t free. Mutual funds have higher average returns than if you were to use a financial adviser, but they also cost a lot more to own and operate, which the investors has to pay for.
7. Gold
For a long time, there has been a debate raging as to whether or not you should invest in gold. However, for beginner who’s looking for one of the safest investing ideas, gold is certainly near the top of that list!
This is because gold rarely, if ever, decreases in price. Unlike most other investment ideas, gold is mostly recession proof, often seeing huge price spikes during economic turn downs.
Even during bull markets, gold increases in price. Over time, gold generally holds its value, making it a relatively low risk investment. However, investors do tend to think of gold as security rather than an investment.
This is because gold has one major flaw: income. Or more accurately, lack thereof. Unlike every other investment idea I’ve talked about, gold cannot produce a revenue stream, ever, which has its own issues.
6. Exchange Traded Funds (ETFs)
An exchange traded fund (ETF) is generally seen as one the best low risk investments you can have! In many way they are similar to index funds, with some ETFs owning index funds.
ETFs are funds that own a series of securities. Sometimes, these are stocks, bonds, real estate and gold all thrown in together. Other times, these are just stocks from a specific industry, or just stocks and bonds.
As with other investments, ETFs are attractable due to their inherent diversification benefits. ETFs are also extremely low cost, whilst yielding fairly high ROIs, as well as being tax deductible (sometimes).
ETFs also bring in income. Depending on the type of ETF you’ve bought, you may receive payments in the form of dividends and/or interest. As you own a percentage of the ETF, if it were to enter liquidation, you would receive a payout (based on the leftovers).
5. Bonds
If you’re looking for a relatively cheap, low risk and widely accepted investment idea, bonds are probably the place you should go! To put it in perspective, Benjamin Graham, believed that we should all invest in bonds!
Essentially, a bond is a form of debt. By buying a bond, you are essentially buying an I.O.U from whoever issued the bond. The money you bought the bond with is then invested by the issuer for a given purpose.
The most common bonds are municipal (local government) and corporate bonds. These bonds generally last for between three and ten years, with you receiving the price of the bond at the end of that period.
On top of that, each year you are paid interest on those bonds (which is usually detailed on your bonds). However, sometimes these interest payments are less than inflation (meaning you lose money!)
4. Dividend Funds
Many investors have heard of the term growth investing, which many of these investment ideas are a part of. However, if you’re interested in the yearly payments over ROI, you might be better suited to dividend investing.
As the name of both the philosophy and the fund may imply, you are investing in a fund who’s sole purpose is to bring home a large dividend yield. Whilst these funds do grow, they sacrifice growth for dividend payments.
Dividend Funds most commonly invest in stocks, trying to get the best (financially stable) dividend stocks. However, these funds will also invest in both real estate and high yield bonds from specialist industries.
Many people also want the best of both worlds: high yield dividend stocks and for them to grow over time. As such, there are several “Dividend Growth ETFs” available alongside standard dividend ETFs.
3. Balanced Funds
Balanced funds are very similar to Dividend Growth ETFs. In many ways, a Dividend Growth ETF can be seen as a balanced fund, although there are some minor differences between the two.
Essentially, a balanced fund invests in low-to-medium risk growth stocks and bonds that also produce a slightly higher than average dividend yield. Hence, being balanced between growth and dividend stocks/bonds.
Balanced funds usually compound higher year-on-year and generally make only slightly less than ETFs in terms of dividends. However, balanced funds generally cost more in terms of fees than ETFs.
At the end of the day, the difference between the two is a matter of pennies. It just depends on how much of dividend/growth investor/dividend-growth investor you want to be.
2. House Hacking
If you aren’t interested in commodities or stocks, real estate might just up your street! (No pun intended!) One of the lowest risk ways to do this is through house hacking, it also has one of the highest yields.
Essentially, house hacking is the process of buying several properties at once, usually in the same building/area. Whilst you live in one of these properties, you rent the rest out to other tenants.
The aim of this is to essentially have your tenants pay your mortgage for you. For example, you have three units to rent at $500 per month (for argument’s sake) and your mortgage payment is $1500 per month.
By renting out the other three units, you essentially live for free! In some instances, you can even make money just by living in your own house / apartment! This also frees up your disposable income to invest or live.
1. Private Companies
Alright, For the most part, investing private companies is not for beginners. However, if you are feeling confident, and have had some success with some of the previous investment ideas, it may prove to be very profitable!
A private company isn’t like one you’d buy on the stock market. Private companies can vary from very small to some of the largest aircraft companies on the planet!
Naturally, as these companies aren’t regulated by the SEC (or other investing regulators) there is a higher risk when investing in private companies. These companies also have odd shareholder structures which can make takeovers difficult.
However, if you can do your due diligence correctly, you can find a great company at a great price! Just as with investing in the stock market, you don’t necessarily have to manage the company day-to-day!
Have you tried any of these investment ideas? How did they go? Tell me in the comments!
