Investing Your Savings as a Beginner: A Step-by-Step Guide

Are you looking to grow your savings beyond what traditional bank accounts can offer? Investing can be a great way to do this, but it can seem daunting, especially for beginners. In this guide, we'll walk you through the process of investing your savings, covering everything from the basics to more nuanced strategies.

Understand What Investing Isn't

It’s important to first understand that simply keeping money in a savings account does not constitute an investment. Saving money is about storing value, while investing is about using that money to generate more value over time.

For example, if you buy a printer for $10,000 and use it to print commercially, with the intention of making more money than the cost of the printer, you are engaging in an investment. On the other hand, if you simply keep $10,000 in a bank account with no plans to invest it in any way, that is merely saving money.

Starting Points for Beginners

For those new to investing, there are several platforms and methods to consider when looking to grow your savings. One popular choice is using a brokerage platform that offers fractional stocks, such as Robinhood or M1 Finance, which allow you to invest in small amounts of different stocks.

Let’s look at a real-life example. Imagine you have $25 to spare each month. You can invest this amount in different stocks like Netflix, Tesla, and Amazon. For instance, each month you could invest $10 in Netflix, $5 in Tesla, and $10 in Amazon. Over time, these small investments can add up and diversify your portfolio.

The Balance, a reputable financial education platform, offers an extensive article on all the options for investing in fractional stocks. They detail various brokerages that provide diversified portfolios, making it easier to start investing without the need for a large lump sum. Some brokerages even offer fractional investing at no cost, making it even more accessible.

The 7 Best Fractional Share Investing Brokerages of 2019

Diversification and Long-Term Thinking

The key takeaway is that successful investing requires diversification. You should spread your investments across multiple stocks, not just focus on a single investment. This helps reduce risk and ensures that your portfolio is not heavily reliant on any one asset.

It’s also crucial to avoid the temptation of frequent trading. Trading frequently, buying and selling stocks regularly, can be a losing game for most beginners. Professional traders have honed their skills and strategies over years of practice, and even then, they carry a high level of risk. For the typical investor, it’s best to have a long-term mindset and let your investments grow over time.

Deciding on Your Investment Strategy

Once you decide to invest, you’ll need to determine your investment strategy based on your risk tolerance and goals. Here are two common approaches:

Passive Investing: This involves investing in broad market indices or mutual funds. Passive investors often have a long-term vision and a preference for lower risk. Mutual funds, which pool money from multiple investors to purchase a diversified portfolio, are a good choice for those interested in passive investing. Active Investing: Active investors are more hands-on and willing to dive deep into research and analysis. They read a lot and are continually updating their knowledge. This approach can be rewarding, but it also requires more time and resources.

Remember, the goal is to find a strategy that fits your individual financial situation and long-term goals. Whether you choose to be a passive or active investor, the key is to stay informed and vigilant.

Conclusion

Investing your savings isn't just about making your money grow; it's about understanding the difference between saving and investing. By exploring brokerage platforms like Robinhood or M1 Finance and considering passive strategies, you can start building a diversified portfolio that aligns with your financial aspirations.

For more detailed guidance, check out the extensive resources available on platforms like The Balance. Start small, stay diversified, and keep a long-term perspective. With the right approach, you can build a solid foundation for your investment journey.