Are you brand new to investing or just looking for a refresher on the basics? This guide will teach you how to learn about investing and make your money work.
Investing in the right places at the right times can pay off tremendously in the long run. This post will cover some of the basics of investing, including what it is and why people do it. This post will also touch on the different types of investments you can make and where to learn more about each one. So if you’re wondering how to learn about investing, you’ve come to the right place.
What Is Investing?
Investing is the act of putting money into a financial asset to gain a future income or profit. People often invest in things like stocks, bonds, and real estate. The goal of investing is to grow your money over time to have more financial security in the future.
People invest for a variety of reasons. For example, some want to save for retirement, while others want to make money to buy a new house or car. Another reason to invest is to create passive income, which is money that you make without working for it.
Do You Have the Best Investment Mindset?
For anyone wondering how to learn about investing, there’s one word you need to become familiar with first — risk.
All investments come with some degree of risk, and it’s essential to understand what kind of risk you’re comfortable taking on before you start investing. For example, buying stocks involves more risk than investing in bonds, but it also has the potential for greater rewards.
There are two ways to think about the risk you assume with your investments.
Some people think about money as finite and take fewer risks. While playing it safe might seem beneficial in the short term, it also leads to less opportunity for gains. This mindset is called a scarcity mindset.
Other people think about investing with an abundance mindset. As you navigate how to learn about investing, you’ll likely find that the abundance mindset is most beneficial. This mindset focuses on the idea that you can always make more money. While this perspective can lead to more risk-taking, it also has the potential for greater rewards.
If you approach your investment journey with an abundance mindset rather than a scarcity mindset and are willing to accept some risk, you’ll be in a much better position to succeed.
Active Investing vs. Passive Investing
Active investing involves beating the market by picking individual stocks or other investments. On the other hand, passive investing involves investing in a broad basket of assets (like an index fund) and holding them long-term.
As you navigate how to learn about investing, you’ll find that most experts recommend passive investing. It’s much easier to achieve success with this approach than with active investing. With passive investing, you don’t have to worry about picking the right stocks — you can invest in a low-cost index fund and let time work its magic.
Start with a passive approach if you’re new to investing. Then, once you better understand how the market works, you can always move on to more active strategies if you want.
What Types of Investments Are There?
Once you’ve decided how much risk you’re willing to take on, you can look at different investment options. Standard options include stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
As you discover more about how to learn about investing, you’ll realize each of these options has its own set of pros and cons. Therefore, it’s essential to do your research before investing. For example, stocks tend to be more volatile than bonds, but they also have the potential to generate higher returns.
A stock is a piece of ownership in a company. When you buy a stock, you become a partial owner of the company and are entitled to vote on corporate decisions and receive dividends (a portion of the company’s profits).
The risks associated with stocks are that their value can go up or down, and they’re subject to market fluctuations. However, as you find more resources on how to learn about investing, you’ll see that stocks also have the best potential to generate high returns over time.
A bond is a loan that an investor makes to a government or corporation. In exchange for loaning the money, the borrower agrees to pay the investor interest over a set period.
The risks associated with bonds are that they may not generate as high of a return as stocks. However, bonds tend to be less volatile than stocks, which means they may be a good option for risk-averse investors.
A mutual fund is an investment that pools money from many different investors and invests it in various securities, such as stocks, bonds, and short-term debt.
Similar to bonds, mutual funds aren’t very volatile.
They also benefit from being managed by a professional, making them a good option for investors who don’t want to manage their investments actively. As you come across more resources on how to learn about investing, many of them will tell you mutual funds are a safe bet.
An index fund is a mutual fund that tracks a particular index, such as the S&P 500. Index funds are passive, which means they don’t require as much hands-on management as other investments.
Index funds benefit from being low-cost and diversified, which makes them a good option for long-term investors.
Exchange-Traded Funds (ETFs)
An ETF is an investment that tracks a particular index, such as the S&P 500. ETFs are traded on stock exchanges and can be bought and sold just like stocks.
ETFs may have trading fees and operating expenses. But as you read more about how to learn about investing, you’ll likely conclude they’re a good option for investors who want to manage their investments actively.
Cryptocurrency is a new and volatile asset, and its value can go up or down. However, cryptocurrency also has the potential to generate high returns over time.
Bank products, such as savings accounts and certificates of deposit (CDs), are relatively low-risk investments. They don’t tend to generate high returns, but they can be a good option for people who want to play it safe.
An annuity is an insurance product you can use as an investment. You make a lump-sum payment to the insurance company when you purchase an annuity. The insurance company then agrees to make periodic payments to you, either for a set period or for the rest of your life.
A commodity is a physical good traded on an exchange, such as gold or oil. Many people use commodities to diversify their portfolios as they can yield high returns. However, commodities are risky because world events such as inflation, weather, and political upheaval can affect their value.
It’s hard to find resources about how to learn about investing that don’t cover the pros and cons of real estate. Property is a popular investment, but it comes with some risks.
Real estate includes land and any structures attached, such as buildings or homes. You can generate high, passive income from real estate by renting out properties or selling them for a profit.
Location is everything, so knowing where to invest for the best return can be difficult. In addition, the value of real estate can go up or down, and it’s subject to market fluctuations. Finally, one bad tenant can create thousands of dollars worth of damage, so choose your tenants carefully.
Retirement accounts, such as 401(k)s and IRAs, are investment vehicles that offer tax benefits to help you save for retirement. However, some retirement accounts are subject to inflation, and should you need to make your funds liquid before retirement, you can count on steep tax penalties. If you’re wondering how to learn about investing, read up on sources that tell you more about retirement.
Saving for Education
Education savings accounts, such as 529 plans, are investment accounts that offer tax benefits to help you save for your child’s education. Unfortunately, 529s are susceptible to market crashes, and some funds yield lower results than others.
Now that you know a little more about the different types of investments, you can think about which ones might be right for you. Remember, there’s no such thing as a perfect investment. The key is to find an investment that aligns with your goals, risk tolerance, and time horizon.
Things You Need to Learn
Here’s a quick and easy checklist of things you need to learn about investing. Don’t worry if you don’t master all of the concepts at once. Keep reading and listening-you’ll catch on sooner than later.
- How to conduct a fundamental analysis
- How to buy shares
- How to budget and establish an emergency fund
- How to make automatic investments with dollar-cost averaging contributions
- Investment terms: market order, limit order, reinvest dividends, minimums, diversifying, liquidity, how the stock market works, past performance, target-date, expense ratio, taxable, REITs
How to Learn About Investing With Apps and Tools
To explore more about each investment option, you can use different virtual tools and resources, like apps, websites, and books.
A robo-advisor is an online investment platform that provides automated, goal-oriented investing advice with little to no human interaction.
Robo-advisors can be a good option for beginner investors because they provide professional guidance without the high fees charged by traditional financial advisors. If you’re just starting out, you may want to consider using a robo-advisor like So-Fi to help you get started.
Personal Finance Apps
There are several apps available that can help you learn about investing.
- Acorns: Acorns is an app that helps people invest their spare change. The app rounds up your purchases to the nearest dollar and invests the difference into a portfolio of ETFs.
- Robinhood: Robinhood is an app that offers commission-free stock and options trading. It’s a good platform for people who want to learn about investing without paying fees.
- Public: Public is an app that allows people to invest in companies they love. It’s a good platform for people wondering how to learn about investing because it provides mini-lessons and informational articles.
- TD Ameritrade: It’s a solid online brokerage where you can keep your investments. If you have an account, you have access to their library of courses. I’ve personally done several of their courses. They’re very thorough and easy to follow.
If you want to learn about investing in a hands-on way, there are many online courses available.
- Udemy: Udemy offers a variety of online courses on investing, including How to Invest in Stocks for Beginners and Introduction to Options Trading.
- Coursera: Coursera provides a variety of online courses on investing, including Financial Markets and Investing for Beginners.
- edX: edX offers a variety of online courses on investing, including How to Invest and Grow Your Money.
In addition to apps, many websites can teach you how to learn about investing.
- The Balance: The Balance is a website that offers financial advice for people of all experience levels.
- Investopedia: Investopedia is a website that provides investment dictionaries and tutorials.
- Motley Fool: Motley Fool is a website that offers stock recommendations and market analysis.
- Morningstar: Morningstar is a website that provides research and analysis on stocks, mutual funds, and ETFs.
Books are an excellent way to start learning. Try reading one book about investments every week. Just 30 minutes a day and you’ll get through more than you realize. Some of my favorites are Rich Dad Poor Dad, the Automatic Millionaire, A Random Walk Down Wall Street, Broke Millennial Takes on Investing, and The Little Book of Common Sense Investing.
The Bottom Line
The best way to learn about investing is to start small and gradually increase your investment amount as you become more comfortable. However, don’t make the rookie mistake of going in big without doing your research first!
By following the tips in this guide, you should be well on your way to becoming an investing pro. With time and experience, you’ll develop the skills needed to make sound investment decisions and build lasting generational wealth along the way.
Theresa is a personal finance blogger. She writes content for busy professional women to take control of their money and investments. She enjoys reading, traveling, cooking, and writing. Her work has been featured on GoBanking Rates, Your Money Geek, Savoteur, the Corporate Quitter, Thirty Eight Investing, and more.