How to Invest Money in 2022? +5 Tips How to Invest Money as a Beginner

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Acorns

Invest your spare change in a diversified portfolio built by experts

Expect up to 7.5% annually returns with plans starting from $3 a month

Earn bonus investments from 350+ Acorns Earn partners

Fundrise

Invest in real estate properties with a $10 minimum initial investment

Historical annual return varies from 8.8% to 12.4% (2019 – 9.47%)

Low annual fees: advisory – 0.15%; management fee – 0.85%

Public App

Manage your portfolio of stocks, ETFs, and crypto investments – all in one place

Over 5000 stocks and ETFs to choose from (dividend stocks available)

Follow other investors, see their portfolios, and exchange ideas

Why Should You Invest Money?

Inflation can seriously affect the value of your cash savings over the medium to long-term. This means the $1,000 in your savings account most definitely will be worth much less in 10 years from now.

On the other hand, investing your money has the potential to increase in value and generate even more money. In fact, investment is an important strategy to reach your financial goals.

When Should You Invest Money?

The answer to when should you invest money is pretty simple – the time is now. 

If you’re somewhere around 30, or older, you might want to consider investing towards your retirement. However, you might prefer other investment strategies that are suitable for you and your individual financial goals.

Where Should You Invest Money?

Now that you know why and when to invest, you might be wondering where to invest money to get good returns. I’ve listed the best investing options sorted from least risky investments.

High-yield Savings Accounts

(APY: 0.5%)

Ally Bank Summary

• $0 adivsory fees on investment portfolios
• 0.5% annual percentage yield for savings
• No withdrawal fees at over 55,000 ATMs
• 24/7 customer support also available

Putting your money into a high-yield savings account is a smart way to invest money, as there’s no risk of losing your money.

But savings accounts usually offer pennies as an interest at your brick-and-mortar bank. 

Luckily, there are online banks like Ally Bank, which offer high-yield savings accounts with fewer overhead costs. 

What’s more, you can access your account on your smartphone and quickly transfer your funds to your primary bank. Ally Bank even provides you with access to over 43,000 ATMs so you can withdraw your money without any fees.

CDs (Certificates of Deposit)

(APY: 0.20% – 0.85%)

Certificates of deposit, or CDs, is a kind of savings account that usually offers higher interest rates than savings accounts. 

But unlike a regular savings account, you’re opening CDs account for a specific period of time. Accordingly, you can’t withdraw your funds until the maturity date of your account. 

Let’s break down how CDs work in simple steps:

1. You open a CDs account, deposit your money, and choose a specific maturity date (it can be from several weeks to several years).
2. You let your money sit in the CDs account until its maturity date.
3. Finally, at the end of the maturity date of your account, you’ll get back your original principal back, plus any accrued interest. 

Opening a CDs account is perhaps one of the best ways to invest money when you don’t need your savings immediately, rather prefer to get higher interest on your money.

CDs are issued by banks, credit unions, and online banks. Consider checking out Ally Bank, since they provide one of the highest rates on CDs accounts. Let’s see what they have to offer:

Pro tip: Shop around and check out your options to sign up for the best APY rates.

Retirement Accounts

(Average annual return: 7% – 10%)

Rocket Dollar Summary

• Low monthly account fees from just $15
• 30-day money back guarantee policy
• Invest in over 7 different asset classes
• No minimum initial investment sum required

If you’re new to investing and want to invest for your retirement, opening a retirement account is the best way to invest money long term.

Let’s review different types of retirement accounts:

401(k)

A 401(k) account with an “employer match” is a great retirement account option. This “match” means that for every dollar you contribute to your retirement account yourself, your employer will fund the same amount into your account.

Traditional IRA

What makes Traditional IRA attractive is that your contributions in this account may qualify for a deduction on your tax return.

Roth IRA

Roth IRA is perhaps one of the best retirement accounts you can open. Your contributions in a Roth IRA are after-tax and your money has the potential to grow tax-free while you save.

Rollover IRA

Rollover IRAs are created by rolling over another account – often company-funded 401(k). So for example, when you’re leaving your current job, you can open the Rollover IRA to move your retirement money into a new account.

Pro tip: Consider checking out Rocket Dollar as it offers a convenient way to invest in all different retirement accounts.

Bonds

(Average annual return: 5%)

If you’re new to the investing world, you’d be wondering what bonds are. 

A bond represents an investor’s loan to a borrower and is a fixed income instrument. Bonds are typically corporate, governmental/municipal, or treasury.

In other words, when you invest in bonds, your money goes into financing companies, local projects, or even the US government.

Worthy Bonds are probably one of the best, low-risk investments out there. You can invest $10 in each Worthy Bond and get a fixed rate return of 5%. 

The money you invest in Worthy Bonds is to fund well-vetted American businesses 

Moreover, each Worthy Bond has a term of 36 months and the interest is paid weekly.

Stocks

(Start investing with as little as $5)

Acorns Summary

• Low account fees from just $3 per month
• Get $5 in your account for referrals
• Low minimum starting investment amount
• High average return on investments of 7.5%

Stocks are one of the good ways to invest money. In fact, if done right, stocks can become a valuable part of your investment portfolio. 

So what happens when you invest in stocks? By buying stocks, you’ll basically be owning a piece of the company you’ve invested in. So when the company in your portfolio profits, you’ll get dividend income out of it.

In general, investing in stocks costs quite a lot. Luckily, there are brokerages like Acorns and Stash that let you start investing in fractions of stocks with as little as $5.

ETFs

(No account minimums required)

Webull Summary

• 5 different instrument types to trade
• Invest in fractional shares from just $5
• Access to full extended hours trading
• 3 trading interfaces and 24/7 support

ETF stands for an Exchange Traded Fund and is a type of security that involves collecting securities like stocks. The most popular example of ETFs is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index.

What differentiates stock investments from ETFs is following:

1. When you invest in stocks, you own the fraction or share of a specific company
2. On the other hand, ETFs are like a collection, or “basket” of individual stocks, bonds, or other investments. So when you invest in an ETD, you’re buying a share of an ETF and own a fraction of that pool of investments.

Real Estate

(Average annual return: 7% – 19%)

Fundrise Summary

• Low minimum starting investment of $10
• High historical returns of 8.8% to 12.4%
• 0.15% advisory 0.85% management fees
• Diverse portfolios of up to 16 investments

Real estate has always been the most lucrative (and attractive) assets for many investors. Investing in real estate means you’re investing in a property, that’s projected to increase in value over time and give you a profit – return on your investment.

There are multiple ways you can profit from your real estate investment:

1. Rent it out for short or long-term
2. Flip houses – renovate and resell properties for profit

While these are the major ways to make money with real estate, they require you to purchase a house. And purchasing a house will most likely be an expensive investment many people can’t afford. 

Fortunately, there are crowdfunding platforms like Fundrise and Roofstock that let you start investing with lower amounts of money. This way, you’ll own a fraction of those properties, getting dividend income.

P2P Lending

(Average annual return: 5.99% – 29.99%)

Lending your savings is another great option to get a significant return on your investment. And P2P or peer-to-peer lending is a type of investment that lets you as an investor contribute to one’s lending request. 

For example, people who don’t want to take a loan from the bank, often turn to other options of borrowing money. And one of the most popular options is crowdfunding. 

So let’s say a person needs to borrow $30,000 – he’d request it through a crowdfunding platform like PeerForm. On the other hand, you as an investor could contribute to their loan and invest just $1,000. In exchange, you’d get the principal money you’ve invested, plus the interest at the end (when the lender pays off his loan).

5 Steps to Invest Money for Beginners

1. Save Up Money

While there are investment options that require a minimal initial investment, you still need to save some money up first.

However, don’t worry if you’ve never been a saver. You can start by saving just $10 each week, or more, depending on what amount you feel comfortable with. Whether you prefer online savings accounts or DIY boxes for your money, you can do it either way.

2. Give Your Money a Goal & Set a Deadline 

Making a decision to invest money starts with determining your financial goals. Ask yourself how much money do you want to have in a specific time period? According to what you answer, you should set short or long-term goals.

• Short-term goals: For example, it may be the next year’s vacation, a car, or a house you want to buy next year.
• Long-term goals: Most common long-term goal is retirement. However, you can also set a long-term goal of purchasing your dream vacation home in 10 years. Or to put aside money for your children’s college tuition.

The best way to invest money short-term is to put it into a savings or high-yield savings accounts.

3. Choose Investments That Match Your Preferences & Tolerance for Risk

In the first section of this article, I’ve reviewed the best investment opportunities. And once you’ve saved up some money to invest and set yourself financial goals, now it’s time to choose investments that match your preferences. 

The answer to where you should invest your money highly depends on your personal preferences, goals, and willingness to take a certain level of risk in exchange for higher potential rewards.

4. Pick an Investment Account

After you’ve decided on where to invest your money, you should pick an investment account that meets your needs. 

In this article, you can see the best platform to open your investment account depending on your preferred investment. You can also do your own research to find the investment platform that you like the most.

5. Consider Letting a Robo-advisor Invest Your Money for You

Betterment Summary

• Transparent fees of just 0.25% per year
• Insured by SIPC for up to $500,000
• 7+ pre-built portfolios to choose from
• Start investing from as little as $10

Robo-advisors make investing simple and accessible for everyone, especially for beginner investors. They basically take all the guesswork out of investing, so you don’t need investing experience to get started.

The way robo-advisors work is they ask a few simple questions to determine your financial goals and risk tolerance. After that, they diversify your money into low-cost portfolios. They also use algorithms to continually rebalance your portfolio and optimize it for taxes.

The only downside to robo-advisors is its cost – they charge an annual fee, a percentage of your balance. On average, most robo-advisors charge about 0.25%. So if you invest $10,000, you’ll be paying a $25 fee a year. That’s not a lot, but it adds up when you start investing hundreds of thousands of dollars.

To sum it up, robo-advisors are a great option for when you are a beginner and need a little bit of guidance to get started.

Let me list some of the best robo-advisors you can consider:

Is Investing Money a Good Decision?

Even though all types of investment carry a certain amount of risk, investing is still an essential part of building long-term wealth.

While opening a savings account is more than enough for short-term goals, considering investing to reach your long-time financial goal is a good idea. 

The main reason investing your money is a good decision is because inflation can seriously affect the value of your cash savings over the medium and long-term.

Unlike cash, the stock market, real estate, or cryptocurrency have the potential to bring you a return on your investment and generate even more money for you.

Investing vs Paying Out Your Debt

If you’ve got debt, you’re definitely not alone. But don’t let debt turn down your long-term financial goals.

In fact, with right money management skills, you can pay out your debt and invest cash simultaneously.

I would recommend you don’t overcommit to either investing or paying out your debt, rather diversifying your budget to commit to both. Maybe you won’t be left with much money after you’ve paid off all your expenses, plus your debt, but investing extra money will get you to your financial goals in the long term.

Note that not paying out your debt on time could lead you to paying a penalty, or increased interest over time.