How to Invest Money Wisely [Your Simple Beginner’s Guide]

By Todd Kunsman


Published on

Updated on

In order to become wealthy or reach your financial goals, you’ll have to learn how to invest money wisely

Of course, that is easier said than done as there is a magnitude of information and investment options out there for you.

Where does one actually start and ensure they are doing the right thing?

Investing money is very much based on your personal interests, timelines, risks you can afford, and many other factors. “What” and “how” you invest might be very different from the next person.

However, if you want to become an investor there is a basic framework to enhancing your knowledge and steps to begin properly.  

Why Should You Start Investing ASAP?

Investing early allows you to get a head start and puts time on your side. And by starting as soon as possible, you begin to develop disciplined money habits that help you prioritize your overall financial health. 

But here are some of the top reasons you need to begin investing early.

The Power of Time

When you start investing young, even if it’s just smaller amounts — you have time on your side. Meaning you have years before retirement or when you may start withdrawing from your investments. 

You can afford to make some mistakes or be aggressive early on, because you have time to recover if something goes wrong. 

For example, if you started investing in your 40s, you’d have to contribute more to match someone who begin investing in their 20’s and is the same age as you.

If you are getting a later start, that’s okay! But remember, time will help your finances.

The Magic of Compounding

Compound interest is simply the interest on the principal amount, plus whatever interest has already accrued.

Example: You invest $100 into an account that accrues 1% interest each year. After the first year, you will then have $101 ($100*.01 = $1, $1 + $100 = $101).

And if you did not contribute anything else in the second year, you would then add your 1% interest on your current $101. So after year two, you now have $102.01. This would then repeat year after year. 

The simplest way to look at is through the visual below, with some sample numbers.

Compound Interest

As you can see, over time your money growth begins to ramp up exponentially creating a nice upward curve.

Investing Average Returns

Now pending where and what you choose to invest in, most likely the stock market will be a big portion of your portfolio. And when it comes to investing money wisely, this is generally one area you want your retirement money to be. 

So why the stock market?

Even though you’ll face things like stock market corrections, bear markets, and even a recession period — the stock market has historically always recovered. 

The historical average stock market return according to NerdWallet is 10%, but you also can’t forget to factor inflation which drops that return 2-3%. 

While you want to have cash handy, not investing leaves your money vulnerable to inflation. And investing in a high yield savings account might be safer, but your interest rates are likely in the 1-3% range max (or even less than 1%).

Extra: Looking for some interesting data and insights into the stock market? Check out some of these top stock market statistics. You might be surprised at some of the information.

What Is The Best Age to Start Investing?

There is no exact age for when it is best to start investing. Instead, the answer to this is as soon as you possibly can. Meaning, when you have stable income, have an emergency fund built, and are ensuring to pay off any high interest debt. 

However, you can start investing in small amounts with a platform like Acorns or Stash if you are currently working on other financial areas.

These platforms help you get started, even if you do not have a lot of extra income or enough money to invest aggressively. 

Just getting started is key! Additionally, if your employer is offering a 401k with company match, try your best to take advantage of that immediately.  

What Type of Investor Will You Be?

Whether you have been investing money or just getting started, you’ll want to figure out what type of an investor you will be. This includes being a passive investor, active investor, or an automatic investor. 

You might not have all the answers right away, but it’s a good practice to think about this before jumping into the steps to start investing wisely. 

Here are what these three types of investors mean: 

  • Passive investor: The most common type of investor are those who understand the basics and make an effort to consistently invest for their future. Typically, this person will follow a “buy and hold strategy,” focused primarily on the stock market and their retirement accounts. 
  • Active investor: This is the more aggressive investor who loves spending a few hours on their portfolios and looking to take their wealth to the next level. You have way more control on your investment strategy and decisions. Someone who is also probably day trading and looking beyond the stock market to invest. 
  • Automatic Investor: And the other category is an automatic investor, who has no interest in finances other than they know it is good for their future. They rather not spend their time understanding every little thing about investing. This is someone who maybe uses a financial advisor to help guide them or using robo-investing platforms that handle the work.

There is no right or wrong answer for you as it is a personal decision based on numerous factors and interests in your life. Plus, the type of investor you’ll want to be may also evolve over time too. 

But I’d recommend thinking about this to help you make the right investment decisions. 

Tips On How to Invest Money Wisely

While there are plenty of investing tips to consider, I won’t dive into every little thing. 

Especially since investing strategies can get more complex and require much more detail. Instead, the goal here is to give the average person enough knowledge to get started and still be successful! 

Define Your Investing Goals

Once you know the type of investor you’ll be, start creating some investing goals for yourself.

What are you trying to achieve with your investing? How much are you looking to invest over time? How will you reach those investing goals?

Asking yourself questions and answering them will help get your mind in the right place. But it also helps you figure out the foundation you want when it comes to your investments. 

What Do You Want to Invest In? 

Understanding what assets are available to invest your money in is important. It will help you determine how you might want to diversify your portfolio.

A mix of asset classes, or diversification, gives you a well-rounded portfolio that can weather ups and downs of the economy.

Choose the investment allocation based on your goals, keeping it simple is generally best. But as you grow your wealth, you can expand the asset classes you invest in. 

Here are some of the basic assets:


Sometimes referred to as “equities,” these are when you invest and own shares of companies that are on the major stock exchanges. Think companies like Apple, Google, Netflix, etc. Higher risk investments, but potential higher rewards.


A bond is a fixed income investment where you invest money in typically corporate or governmental loans. These loans are repaid with variable or fixed interest rates.  These tend to have lower returns but safer investments. 

ETFs or Index funds:

Some of the best and effective ways to invest are through ETFs or index funds. ETFs can hold various assets like stocks, commodities, or bonds and trade throughout the day.

Index funds allow an individual to “invest” in an index, such as the S&P 500. You get broad exposure, lower fees, and easier to manage. I always recommended looking at Vanguard Index Funds as they are the founders of index investing and have some of the top funds around. 


Additionally, having cash handy is included here too. This is a combination of adding some money in your investment account that sits on the sidelines for any buying opportunities.

Then a larger percentage of your savings or what you saved — should go to a high interest savings account. Most online only banks will have better interest or features.

Bonus: If you want to learn more terminology related to investing, I covered a handful of investing terms that I think will help you further. 

Alternative Investments 

Investing without the stock market is also an option. 

While it is recommended to still be invested in stocks and bonds, alternative investments might be a great additional choice too. This would include real estate, art and collectibles, commodities, digital currencies, etc. 

What you choose to invest in and how much again is based on your personal interests, goals, and your risk tolerance.

The wise move to make is keep your investment portfolio diversified to help protect your returns from any economic downturns. 

Narrow Down Your Investment Accounts 

You’ll probably add more investment account types as you build your interests and start diversifying more. So it’s okay if you don’t open a few at once, just pick the ones that absolutely make the most sense today. 

Always pay attention to fees, minimums, and other important FAQs. These can all impact your future nest egg.

But I put together some tips on what to look for when opening your first investment account if that interests you further.

Here are various investment accounts to consider opening. 

Taxable Accounts

These would be traditional brokerage accounts you open with financial institutions.

When you invest in stocks and bonds in a taxable account, you’ll pay taxes on dividends and any capital gains. These are not sheltered like retirement accounts. 

For those looking to invest beyond traditional retirement accounts. For example, you have an IRA that you max out, but still have money to invest.

You can use a traditional brokerage account to invest in tax-managed funds or even dabble in a few individual stocks. 

And If you are considering day trading, you’ll probably open a taxable account.

Day trading basically means you are buying and selling stocks with the goal to earn short-term profits. It is very difficult to day trade and can take time to learn, and I personally do not recommend it.

But if you are interested in it and dedicated, it can make you money. Only set aside a small amount of money to do this so you don’t wreck your finances.

Here are a few good stock broker options for individual stocks or day trading:

Retirement Accounts

Contributing to your company 401k is one of the first things you should do. Generally, many employers offer a company match up to a certain percent — essentially free money added to your investments. 

If your employer does not offer one, you can open a traditional IRA or Roth IRA. The difference is your contribution levels are much lower with IRA’s than a 401k. 

The tax advantage of a traditional IRA is that your contributions are tax-deductible in the year they are made. The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed.

Also, there are retirement accounts for self-employed individuals as well, so that could be a solo 401k or SEP IRA.  Some financial companies for IRA or Roth IRA would be financial companies like Vanguard, Charles Schwab, Fidelity.


One of the options that sprung up in popularity over the last few years is opening an account with a robo-advisor. Remember above about what type of investor you’ll be? Well for many, becoming an automatic investor is the right option. 

A robo-advisor will give you the options to open a traditional brokerage account or a retirement account. 

You’ll answer a few investment questions and then the algorithm from these companies goes to work in recommending your ideal portfolio.

If you decide to invest, it will also handle the work for you like rebalancing, portfolio adjustments, tax optimization, and more. 

These are some of the best robo-advisors currently to consider:

Micro Investing Accounts

Although this might be similar in that micro investing accounts blend into the robo-advisor category, it is slightly different. Micro-investing platforms remove barriers to investing and help people invest with limited incomes and assets. 

Instead, you can invest in “fractional shares,” which cost much less than a traditional stock price or mutual fund. But you still get a slice. It’s a great way to begin good financial habits with lower income or spare change. 

Some micro investing platforms include:

Additional Accounts to Consider

That’s quite a bit of information to help you invest money wisely, huh? While it’s plenty for you to think about, there are some additional investment accounts to consider as well. 

If you are a complete beginner, these might not need to be on your radar quite yet. But if you are investing somewhat already or have money you want to put to work right now, then you have more options. 


Crowdfunding is the use of small amounts of capital from a large number of individuals to finance investments, businesses, etc. You probably know the familiar names like Kickstarter or IndieGoGo. 

But over the last few years, the SEC updated regulations that allow non-accredited investors to have options to invest like the wealthy. Real estate being one of the top choices, but this created a slew of financial companies to help people diversify their investments. 

While most of the investing insights above relate to the stock market, it’s good to diversify your investments outside of the traditional stocks and bonds too.

Many of these crowdfunding options allow to open individual accounts, IRA’s, trust’s — but generally not 401ks. 

Real Estate Crowdfunding:

Here are two solid options where you can open accounts for free and begin investing when ready. The minimum investment is $500 for both. 

Fine Art:

Art investing was previously tricky, but now you can buy shares of well-known art by the likes of Any Warhol, Claude Monet, and others. The investment is $20 per share of an art piece. Some may have minimum investment requirements.

Peer-to-Peer Lending

You invest in interest-bearing personal loans, where you get a return once the principle and interest is paid back. Not available in all states, so double check your eligibility. 

College Savings

If you have a growing family and young children, you can invest in a 529 plan to help lower the burden of future education costs. You can open one with most financial institutions and invest in various mutual funds and exchange-traded funds (ETF). 

You can learn more about saving and investing for childrens’ college or education costs here.

Keep Investing Simple

How to invest wisely comes down to keeping your investment strategy simple. For most people, buying and holding is going to be the appropriate approach. 

The easiest way to do that via the stock market is to create a three fund portfolio

This is simple using three index funds to create broad diversification that will allow you to stay hands off. It helps you remove constant tinkering and hopefully, stops you from making emotional decisions based on what the market is doing. 

That’s not to say you won’t want to expand or have more control in the future, but it’s a great way to get started.

Too often new investors lose money in the stock market by complicating or making rash decisions early on. 

Use Investing Tools to Help

There are tons of personal finance tools to help you reach your goals. In all sorts of categories which can be beneficial. Of course, how do you know which ones are best for investing? 

Two that I have found valuable include:

  • Personal Capital for net worth and monitoring growth. They have additional financial features and even paid financial advising services if you’d want to do that. Otherwise, Personal Capital is free to use
  • Blooom helps you get recommendations, uncover fees, and advice about your retirement accounts for free. The 401k Analyzer is quite helpful. They also have additional paid services to help your investing further. Sign-up for Blooom for free.

How Can I Invest A Small Amount of Money?

A big misconception is that you need a lot of money to start investing. While a large sum can be beneficial, you can still get started with a small amount of money in fractional share investing. 

These investing apps can help you get started with just a couple of dollars. 

Many financial institutions will let you open a retirement account without needing any account minimum.

And you can buy ETFs at their current share prices which can vary for individual stocks (although individual stock picking is not really recommended as a beginner). 

When Is the Right Time to Start Investing?

That answer is simply right now! Investing may sound intimidating but it’s actually a lot less scary or confusing than you think. There is always some risk when you invest your money, but if you take your time and stick to a strategy, you will fare just fine. 

Teaching yourself personal finance and investing is absolutely possible without formal training or prior education. It’s exactly how I learned!

You just have to want bad enough to make a commitment and make changes. The question is, will you take the leap into investing?

Are you investing money wisely? Or are you just getting started? How is it going so far for you? Let me know or ask any question in the comments below!