7 Great Investments for First-Timers

by Tara Struyk on 29 November 2012 4 comments
Photo: bgarciagil

Whether you’re young or not so young, if you haven’t put any of the money you earn into some type of investment yet, chances are you’re pretty intimidated by the whole thing. I’ve been there, and I can appreciate how confusing investing seems. But if you actually peek behind all the stock tickers and complicated commentary on CNBC, what you’ll find is that a lot of investments are pretty simple. And, although it takes a little work to learn and understand these investments, they're totally worth it. Not only is investing a much better way to make the most of your money (compared to, say, stockpiling it in a zero-interest account or, worse yet, just spending it all), but understanding the world of money is the best way to put yourself in control of your finances.

If you haven’t started investing, don’t worry — it’s never too late. Here are seven simple, suitable investments for first-timers to help you get started. (See also: Investing 101: 5 Essential Steps)

1. High-Interest Savings Accounts

The term “high” is definitely relative in this kind of interest-rate environment, but this type of savings account will offer a higher rate than most other bank accounts and can be a good place for a brand-new investor to start. That’s because in order to be a regular investor, you must first become a regular saver. Shop around at local banks and credit unions for the highest interest rate possible, and start making regular contributions to your new savings account. Once you have some money saved, you can look at building a more complicated — and higher earning — portfolio.

2. Certificates of Deposit (CDs)

CDs are savings certificates in which money is deposited for a certain amount of time (usually between three months and five years) in exchange for interest, which is paid when the CD matures. CDs generally have higher interest rates than savings accounts, but once you put the money in, you can’t take it out until the investment matures (at least not without paying a penalty or losing the interest you would have earned). Generally, the longer the CD’s term, the higher the interest rate. The interest on these babies is guaranteed by the institution that provides them, which makes them a simple, stress-free way to give your money a little boost.

3. Money Market Accounts

A money market account is offered by banks and credit unions. It’s a lot like a regular savings account, except that it pays somewhat higher interest and may also have a minimum balance requirement of between $1,000 and $5,000. You can even write checks from a money market account, although the number of withdrawals allowed per month will be very limited. Money market accounts are very safe, but it is still possible to lose money here. Because many money market accounts will charge a fee for going under the minimum balance or over the maximum number of allowable transactions, it is important to manage this type of account carefully.

4. Mutual Funds

A mutual fund is a pooled investment that many investors buy into together. This allows investors with more limited means to invest in a group of different stocks, bonds, and other investments, providing instant diversification (otherwise known as not putting all your eggs in the same basket). Mutual funds can also add some level of management expertise, because the investments are often chosen by a portfolio manager. But while mutual funds are very simple to use, investors should be on the lookout for high fees, often known as management expense ratios (MERs). When looking for a mutual fund, consider buying a low-fee fund that tracks an index — that’s the kind of performance many large mutual funds deliver anyway.

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5. Exchange-Traded Funds (ETFs)

One of the drawbacks of mutual funds is that they can’t be traded quickly — and investors will often incur fees when they try. An ETF, much like a mutual fund, is a combination of many different investment assets. However, ETFs are traded on the stock market like stocks, allowing shareholders to respond to changes in the market more easily. ETFs also tend to have lower fees than mutual funds (although they will be subject to trading fees every time they’re bought and sold). Most ETFs aim to match the returns of a market index (like the S&P 500), but watch out for more complex investments like inverse ETFs and leveraged ETFs. These investments carry significant risk, and should be avoided by all but the most experienced investors.

6. Stocks

OK, you got me. Stocks aren’t the simplest investment out there, but they aren’t rocket science either. The thing is, the only thing that will really ever prepare you to invest in stocks is to invest in stocks. Just do it slowly, and take the time to learn as you go. There are many low-cost brokers available now that make trading relatively inexpensive. When you can afford to put a little bit of money toward investing, give it a shot. Yes, it’s possible you’ll lose it, but if you can come to understand why — and eventually apply that knowledge to future stock picks — that’ll be a valuable investment in itself.

7. A Retirement Account

If there’s any type of investment you should be using, it’s a retirement account. Whether it’s a 401(k), IRA, or 403(b), the best way to ensure you have something set aside for your golden years is to start saving now. If your employer offers some kind of matching, take it. If you get a raise, increase your contributions. Whatever you do, making building that fund a habit. Unlike the other investments on this list, retirement accounts are really just accounts. As such, they can generally include a range of different investment types, many of which are found on this list. In other words, if you want to make the most of your retirement account, you’re going to have to know something about investing.

Retirement accounts have many different features and benefits — including tax breaks. You can check out a great overview about the different kinds of accounts here. This is one area of investing that can get pretty complicated, so it may also be worthwhile to consult with a qualified financial planner.

If everything isn’t perfectly clear right now, sorry — that isn’t how it works. I’ve tried to provide a bit of a head start for new investors in terms of where to look, but when it comes to choosing, buying, and managing those investments, the rest is up to you. After all, it is your money.

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Guest's picture

Great advice. I'll be graduating college shortly so it's nice to have information about all different types of investments in one place, with pros and cons clearly defined. I'm already looking forward to getting started with my investments and improving my knowledge of the stock market, so now I'm just counting the days until graduation!

Guest's picture
theMark

I think it's a good idea to invest in a few stocks and start paying attention to them. Maybe the first step is to find a few companies you like and buy a few shares of stock. Then follow those companies and their stock prices until you get a feel for how the stock market works. Plus, it's kind of cool to be able to people that you own part of a company.

Guest's picture
V

Mike; all they have listed is the same products in different forms. Look into gold and silver, real estate and NFCD's. They are REAL wealth NOT paper!!

Guest's picture
RBJ

In response to V's comment: Gold and silver are considered "speculative investments." I would not recommend investing in any speculative investment unless you really know what you're doing (know about that specific market). And as a soon-to-be-college graduate, real estate is most likely going to be too expensive. If I were Mike, I'd look into mutual funds and ETFs. They offer higher interest rates than the first couple options and typically carry moderate risk. At the end of the day, be sure to do your research. Know what you are investing in!