Investing might be one of those topics you’ve shied away from because it’s all too intimidating. Heck, finding the definition of “stock” is enough to send you into a fit of sweat.
But investing doesn’t have to be that complicated, especially when you’re just starting out. Plus, you’ll learn as you go.
If you’re looking for just the essentials, here’s our quick and easy guide to investing in the stock market.
4 Ways to Invest in the Stock Market
We told you we’re going to make this painless, so we’ll show you exactly how to invest in the stock market.
1. Beginner: Exchange-Traded Funds (ETFs)
What it is: A basket of investments (such as stocks and bonds) that trades on the stock exchange.
- The ability to invest in big names without buying whole stocks — honestly, who can afford an $1,800 share of Amazon stock?!
- Tend to hold less risk, since you’re not investing in whole stocks (you’re not putting all your eggs in one basket, so to say).
Heads up: Won’t necessarily help you retire early, but a great option for beginners.
How to start investing: Look for apps that allow you to invest in ETFs at low to no cost, like Acorns, which will round up your purchases and invest the spare change into the stock market for you. The app is $1 a month for balances under $1 million, and you’ll get a $5 bonus when you sign up.
2. Intermediate: Mutual Funds
What it is: A combination of stocks, bonds and other investments. Basically, your money gets pooled with other people’s money, which goes toward buying larger company shares. If you have a 401(k), there’s a chance you invest in mutual funds already.
- A way to diversify your investments. If a particular stock crashes, you’re not totally out of luck.
- Experts manage mutual funds, though that means you can’t control your portfolio.
Heads up: Typically require higher minimum investments; cannot be traded like ETFs and stocks; be aware of fees and expenses.
How to start investing: Purchase mutual funds through a mutual fund company, bank or brokerage firm (like Ally Invest and Fidelity Investments).
3. Advanced: Real Estate Investing
What it is: Either purchasing real estate to renovate and flip or otherwise sell for a profit, or investing in REITs, (real estate investment trusts), which allow you to own pieces of commercial real estate.
- Historically higher returns: Real estate can potentially earn you more money than the stock market. Over the long term, investing in the stock market will earn you an average annual return of 7%, adjusted for inflation, according to a number of studies.
Heads up: Typically require higher minimum investments; pays in dividends
How to start investing: A company called DiversyFund will invest your money in commercial real estate — specifically, in apartment complexes that it owns — and you only need $500. Diversyfund can’t guarantee how its investments will perform in the future — no one can — but historically, it has earned an annual return of 17% to 18%.
4. Expert: Individual Stocks
What it is: An investment that indicates you own a share of a company (e.g. Apple, Netflix or Amazon).
- Potential to earn big money. Think: If I’d only bought Apple stock for $22 a share back in 1980… it’s now worth nearly $220 a share…
Heads up: This is the riskiest option on this list. The value of stock hinges on a company’s performance. If everyone boycotts Apple tomorrow, your stock could drop in value, causing you to lose a lot of money. Not recommended for beginners.
How to start investing: Consult with a brokerage firm or online brokerage.
We also like an app called Stash. It lets you be a part of something that’s normally exclusive to the richest of the rich — buying pieces of other companies. But Stash lets you start with as little as a $5 investment. It takes two minutes to sign up, plus Stash will give you a $5 sign up-bonus. Stash offers subscription plans starting at $1 a month. (As a reminder, investing involves risk. )