Key takeaways
The sooner you start investing, the better – even if you only invest $100.
Historically, investing has delivered returns higher than inflation, though outcomes can vary.
Common ways to start investing include opening a retirement account, such as a 401(k) or IRA, using a robo-advisor, or trying a beginner-friendly investing app.
Diversifying your portfolio across different types of investments helps protect your money if one asset class performs poorly.
Investing for beginners doesn't require thousands of dollars or a finance degree. You can start with as little as $100, and over the long term, even small amounts can add up. This guide walks you through how to start investing so you can take your first steps with confidence.
What is investing?
Investing means putting your money into assets such as stocks, bonds, or funds to grow it over time. When you invest, you're buying a share of a company, lending to a government, or purchasing other assets that can increase in value.
Saving money in a savings account keeps it accessible and safe, but it usually earns minimal interest. Investing involves greater risk, and it also offers the potential for higher returns than a savings account over time.
Why should you invest?
The biggest reason to invest is to combat inflation. The cost of goods and services rises over time, which means your dollar buys less than it used to. If your money sits in a traditional savings account, the interest it earns likely won't keep up with these rising costs.
Over long periods, stocks have historically returned about 10% per year on average, well ahead of inflation, though there is no guarantee this will continue. (see disclosure 1)
Here's how that can add up. A one-time $100 investment earning a hypothetical 10% average annual return could grow to about $670 over 20 years. Add $100 at the start of each year for 20 years at that same rate, and your balance could reach roughly $6,300. (see disclosure 2)
Whether you want to build wealth for retirement or reach another long-term financial goal, investing can be an effective way to grow your money over time.
How much money do you need to start investing?
One of the biggest myths about investing is that you need to be rich to start. Many investing apps let you begin with as little as $1. Many brokerage and retirement accounts also have a low minimum or no minimum to open.
If you have $100, you're already in a good position to begin building a portfolio. The most important thing isn't how much you start with, but that you actually start – the sooner, the better.
Is investing right for me?
Before you jump in, do a quick financial check-up. You're likely ready to invest if you have:
Steady income: Reliable pay helps you contribute consistently.
Emergency savings: Enough to cover unexpected bills so you won't need to sell investments. If you're not there yet, here's how to build an emergency fund.
High-interest debt under control: Pay down credit card balances first, since few investments reliably outpace the high interest rates many credit cards charge.
You don't have to be completely debt-free to start. If you're paying off lower-interest debt like a car loan or mortgage and have your emergency fund sorted, you can invest at the same time.
A step-by-step strategy to start investing
The idea of investing can feel overwhelming for a beginner. This step-by-step guide walks you through getting started so you can set yourself up for success.
Step 1: Set your investment goals
Decide what you want to achieve before opening an account. Setting clear financial goals helps you stay focused and choose the right investments.
Your goal might be:
Saving for retirement in 30 years
Building wealth over the long term
Generating additional income
Your timeline and goals will shape which investments make sense for you. Consider talking to a financial advisor for personalized guidance tailored to your situation.
Step 2: Choose your investment tools
Once you know your goals, consider how you want to invest your money. Different types of investments have different purposes and risk levels:
Stocks have higher return potential but also higher risk.
Bonds are lower-risk investments with typically lower returns.
Retirement accounts like 401(k)s and Individual Retirement Accounts (IRAs) offer tax advantages for long-term saving.
You may need a brokerage account, depending on your investments. A brokerage account works a bit like a bank account but is designed for buying and selling securities, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs) – more on those later. Unlike a bank account, money invested through a brokerage account isn't FDIC insured and can lose value.
Step 3: Determine your ideal investment amount
Never put your entire savings into investments or borrow to fund your portfolio. Instead, use your extra money once you've built an emergency fund and paid your monthly bills. A budget can help you identify how much you can comfortably contribute to your investment account each month.
If you're investing in a traditional IRA, your annual contribution limit will determine how much you can invest. If you're diversifying across multiple accounts, budget a total monthly amount and divide it among your investments.
Step 4: Figure out your comfort level with risk
Risk and reward go hand in hand in investing, but you should never take risks that make you uncomfortable. Conservative investors typically prefer lower-risk options like bonds, while those comfortable with volatility might choose individual stocks with higher potential returns.
Consider taking a risk tolerance assessment to figure out your preferences. This helps you build wealth at your own comfort level and on your own timeline.
Step 5: Decide your investment approach
You can choose between active and passive investing.
Active investing means picking specific investments to outperform the market, which requires significant time, expertise, and analysis.
Passive investing aims to match the market by investing in index funds and holding them for the long term.
Active investing can generate higher returns, but it often involves higher fees, and all investment strategies carry risk. (see disclosure 3) Most beginners start with passive investing through index funds.
Step 6: Build a diversified portfolio
You've heard the expression, "Don't put all your eggs in one basket." Diversification means spreading your money across different types of investments, or baskets, rather than putting it into a single investment. If one investment declines, diversification can help prevent your entire portfolio from taking a hit.
A common approach includes a mix of the following assets:
Stocks
When you buy a stock, you own a small piece of a company. If the company performs well, your stock price increases, but if it performs poorly, your stock price will decrease.
Stocks offer potential for compounding returns, where you can reinvest dividends to buy more shares and grow your portfolio over time. However, stocks are volatile, and their values fluctuate with economic conditions and company news. Carefully select stocks that fit your risk tolerance and investment goals.
Bonds
A bond is a type of security in which you lend money to a business or government in exchange for a fixed interest rate. Bonds offer lower returns than stocks, but their fixed rates make them less risky and less affected by market fluctuations.
Different bond types include government, corporate, and municipal bonds. U.S. Treasury bonds are backed by the U.S. government, while corporate bonds carry more risk but can offer higher returns.
Mutual funds and ETFs
Mutual funds and ETFs let you invest in a basket of stocks and bonds at once to diversify your portfolio. If one of your holdings decreases, your entire portfolio is less affected and stays more stable.
Some funds focus on specific industries, such as real estate or technology, so you can invest in different sectors without picking individual stocks.
Step 7: Review and adjust your portfolio as needed
Review your portfolio periodically to make sure it still aligns with your goals and risk tolerance. Rebalancing helps keep your investments diversified as some holdings grow faster than others.
One simple way to stay on track is to automate your investing with recurring contributions, which keeps you consistent through market ups and downs. A financial planner can help with ongoing management, or if you use a robo-advisor, it can automatically monitor and rebalance your portfolio for you.
Ideal investments for beginners
Here are three beginner-friendly options to start investing without needing expertise in picking individual stocks and bonds.
401(k), IRA, or other retirement accounts
If your employer offers a 401(k) plan, this is a good place to start. Key benefits include:
Employer match: Many employers partially or fully match your contributions, which is like getting extra money for retirement.
Automatic contributions: Money comes straight from your pay, so you don't have to remember to invest.
Tax advantages: In a traditional 401(k), your contributions are made before taxes, which can reduce your taxable income. (see disclosure 4)
Don't have an employer plan? You can open an IRA on your own. These accounts are tax-advantaged and can provide tax benefits for long-term retirement saving. (see disclosure 5)
Many retirement accounts let you invest in target-date mutual funds. You simply enter when you want to retire, and the fund automatically picks a mix of stocks and bonds based on your timeline.
Robo-advisors
Robo-advisors are automated investment platforms that use algorithms, built by financial professionals, to manage your portfolio at a lower cost than traditional advisors. Benefits include:
Low minimums: You can often start with much less money than traditional advisors require.
Simple setup: You'll answer a quick questionnaire about your goals and risk tolerance to determine the best path forward.
Hands-off management: The platform automatically invests and rebalances for you, so you don't need to think about it.
Investing apps
Many investing apps let you start with as little as $1. These apps make it easy to buy individual stocks, bonds, and ETFs directly from your phone, giving you more control over your specific investment choices.
Chime Invest™ is one option that lets eligible Chime® members start investing directly from the Chime app. (see disclosure 6)
Common investing mistakes to avoid
Watch out for these common pitfalls as you start investing:
Timing the market: Trying to buy and sell at the perfect moment is nearly impossible, even for pros. Focus on staying invested for the long haul instead.
Lack of diversification: Putting all your money in one stock means you could lose a lot if that company struggles. Spread your investments across different assets for greater stability.
Panic selling: Your account balance will go up and down, and that's normal. Selling when the market drops locks in your losses instead of letting your investments recover.
Waiting for the "perfect" time: It's easy to wait for the ideal moment, but many experts say the best time to start was in the past. The next best time is today, even if you only have a small amount.
How to start investing with $100
Have exactly $100 to invest? Here's how to put it to work:
Max out an employer 401(k) match: If your employer matches contributions, put the money there first, since it's an instant return.
Open a Roth IRA: Contribute $100 now and add more when you can. If you meet the requirements for a Roth IRA, qualified distributions in retirement are tax-free. (see disclosure 7)
Use a robo-advisor or investing app: Many platforms have no minimums and will automatically diversify your $100 across multiple investments.
Remember: the amount matters less than building the habit. Starting with $100 today beats waiting until you have $1,000.
Take control of your financial future
Investing isn't a get-rich-quick strategy. It's a steady way to combat inflation and build wealth over the long haul. There are plenty of options for beginning investors, and starting small helps build your confidence over time.
Before you invest, it helps to have an emergency fund and everyday accounts in place. Chime is one financial technology company that works with partner banks to offer online checking and savings accounts, which can be a place to set aside the cash cushion you'll want before you begin.
To learn how to align your portfolio with your personal values, read our guide on ethical investing.