Investments for Beginners

 A 401(k) or other employer retirement plan

If you have a 401(k) or another retirement plan at work, it’s very likely the first place you should put your money — especially if your company matches a portion of your contributions. That match is free money and a guaranteed return on your investment.

You can contribute up to $19,000 to a 401(k) in 2019 (or $25,000 if you’re 50 or older), but that doesn’t mean you have to contribute that much. The beauty of a 401(k) is that there typically isn’t an investment minimum.

That means you can start with as little as 1% of each paycheck, though it’s a good idea to aim for contributing at least as much as your employer match. For example, a common matching arrangement is 50% of the first 6% of your salary you contribute. To capture the full match in that scenario, you would have to contribute 6% of your salary each year. But you can work your way up to that over time.

When you elect to contribute to a 401(k), the money will go directly from your paycheck into the account without ever making it to your bank. Most 401(k) contributions are made pretax. Some 401(k)s today will place your funds by default in a target-date fund — more on those below — but you may have other choices. Here’s how to invest in your 401(k).

To sign up for your 401(k) or learn more about your specific plan, contact your HR department.

2. A robo-advisor

Maybe you’re on this page to eat your peas, so to speak: You know you’re supposed to invest, you’ve managed to scrape together a little bit of money to do so, but you would really rather wash your hands of the whole situation.

There’s good news: You largely can, thanks to robo-advisors. These services manage your investments for you using computer algorithms. Due to low overhead, they charge low fees relative to human investment managers — a robo-advisor typically costs 0.25% to 0.50% of your account balance per year, and many allow you to open an account with no minimum.

They’re a great way for beginners to get started investing because they often require very little money and they do most of the work for you. That’s not to say you shouldn’t keep eyes on your account — this is your money; you never want to be completely hands-off — but a robo-advisor will do the heavy lifting.

And if you’re interested in learning how to invest, but you need a little help getting up to speed, robo-advisors can help there, too. It’s useful to see how the service constructs a portfolio and what investments are used. Some services also offer educational content and tools, and a few even allow you to customize your portfolio to a degree if you wish to experiment a bit in the future.

Here’s more on robo-advisors, along with some of our top picks.

3. Target-date mutual funds

These are kind of like the robo-advisor of yore, though they’re still widely used and incredibly popular, especially in employer retirement plans. Target-date mutual funds are retirement investments that automatically invest with your estimated retirement year in mind.

Let’s back up a little and explain what a mutual fund is: essentially, a basket of investments. Investors buy a share in the fund and in doing so, they invest in all of the fund’s holdings with one transaction.

A professional manager typically chooses how the fund is invested, but there will be some kind of general theme: For example, a U.S. equity mutual fund will invest in U.S. stocks (also called equities).

A target-date mutual fund often holds a mix of stocks and bonds. If you plan to retire in 30 years, you could choose a target-date fund with 2050 in the name. That fund will initially hold mostly stocks since your retirement date is far away, and stock returns tend to be higher over the long term.

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