When inflation is bordering on ridiculous, many traditional investments range from slightly less useless than holding cash to a complete joke.
According to a recent report from the U.S. Bureau of Labor Statistics, the consumer price index (CPI) jumped by 8.2% in September relative to the same time in 2021. This means that a basket of goods that cost a hundred bucks last year now costs $108.2.
Which makes a high-interest yield account that gives you 3% APY a complete joke. Might as well rename it the “lose a bit less money account.” Whether or not you see the financial system as a complete fraud, it’s important to think about how you can preserve your capital no matter how big it is.
Whether you’ve been investing for a while or just starting out, it’s important to choose the right direction. Not all popular investments are good for you. Because the current state of uncertainty is confusing to everyone from complete newbies to seasoned pros. Nobody knows what’s going to happen but we can do our best to take steps to secure a better financial future for ourselves and our loved ones.
In this article, we’ll discuss some of the best investment options for beginners. You’ve probably heard the old “stocks, bonds, ETFs” thing. It is still true to an extent but has almost become a bit of a cliché by now because bonds give very low returns and stocks and ETFs are down. Or maybe if they are down that’s a good thing because we can buy the dip? Let’s get into it — what’s the best way to invest for beginners in 2022?
9 Best Investment Options for Beginners
We’ll discuss some passive investment ideas for beginners as well as some active ones, and passive doesn’t mean bad. Ideally, you should aim to spend as little time as possible on your investments while making sure you get the desired result. Also, investors tend to like to feel like they are in control.
It has to be said that before you start considering different investing ideas for beginners, you need to have good financial discipline. That’s why ideally every beginner investment portfolio should start with an emergency fund — something like 3-6 months’ worth of your normal expenses, so you can survive if you suddenly lose your income or have something like a medical emergency.
Some people jump into investments way, way too soon and end up cashing out and the wrong time — not when they’ve made gains but when they need money. This way they may end up losing money on their investments, which is even worse than just keeping it in cash.
High-yield savings accounts
Considering the crazy inflation these might as well be called low-yield savings accounts. But they are high-yield in comparison to normal savings accounts because the interest rates on them are almost non-existent. Here you will usually lock your money up for a certain period of time but you’ll still have access to it.
This may be good for your emergency savings, i.e. the money you keep in cash for a rainy day or saving for a purchase at some point in the near future.
Certificates of deposit
A similar option is certificates of deposit. CDs may give you a better interest rate than a high-yield savings account, but you’ll have to lock your savings for a specific time like 6 or 12 months up to even 5 years. With CDs, you usually can’t access the money before the certificate matures (i.e. the agreed period passes) or you’ll have to pay a penalty.
CDs are one of the safest types of investments if you really have nothing else to do with your money but if the inflation continues at around 10% a year (20% on some things), you’ll just be losing money a bit less slowly.
401(k) and other retirement plans
401(k) plans are a good option for those in regular employment and are a common first-time investment for beginners. Although it’s just a type of tax-advantaged account and not an investment in itself, the key benefit is that many employers will match an employee’s contribution up to a certain percentage, typically 50% on the first 6%.
So it’s a decent option to prepare for retirement because it’s basically free money, although you won’t be able to use it until you’re 59½ years old. But then who knows if the dollar will exist at all by that time. 401(k) provides a limited menu of investment options, but this may be a good start to building up good financial discipline. Check with your employer to find out what types of investments they have.
It’s a similar story with other retirement investment plans like traditional IRA and Roth IRA, which let you invest a certain amount tax-free and pay tax later when making withdrawals (traditional IRA) or contribute after-tax without having to pay tax later in retirement (Roth IRA). These are individual plans and don’t come with employer matching but the investment options are much more flexible.
Mutual funds and ETFs
Mutual funds and ETFs are some of the best investments for beginners who want to invest but don’t know which stocks to buy. The most basic investment here is the S&P 500 index fund, which tracks the general market and is cheap.
Mutual funds tend to be more managed and come with higher fees. Not surprisingly, anything that comes with management fees means your profits may be lower unless the fund manager is doing something extraordinary — he/she probably isn’t. And by the way, according to science, most active funds underperform passive funds that just track the market.
Ok, here’s every Reddit kid’s favorite and there are a bunch of reasons why it’s at number six. But now even the 18-year-old investment gurus of 2020-2021 are catching on to the fact that when there’s no bull run they don’t actually know which stocks to buy.
Many tech stocks are 80% down. Is it the perfect time to buy because it’s a dip and it’s about to go back up? Is everything going to go down another 80%? Nobody knows because the situation in the world is so uncertain.
If you’re a beginner investor you might benefit from purchasing a couple of blue-chip shares like Apple and Google more as a learning process rather than to get big gains. Companies like these are unlikely to be affected by volatility as much as other companies and have very firm positions on the market. But don’t expect to guess which companies will grow or to time the market. This is a sure way to lose more than you gain.
Thematic Trading Fractional (TTFs)
TTFs are thematic stock collections that are unique to Gainy. These let you invest in diversified portfolios usually of 10-15 stocks each that are optimized for long-term growth. They are usually based around a theme or a cause, like EVs or cannabis but can also be based around an investment strategy like Inflation-proof or Monthly dividend portfolios.
Read more about the philosophy behind TTFs, how they can let you invest on autopilot and give you a new perspective on the stock market.
While it almost sounds like some alternative kind type of investment, it’s a very good option for times when you need additional safety and may be one of the smartest money investment ideas for beginners in the current market.
The rent you’ll get will provide a steady income in virtually any economic environment whether the stock market is in the bull or bear phase.
While of course you’ll need a considerable sum of money to buy your own property, investing in real estate investment trusts or REITs may be the next best thing to access real estate. REITs are companies that generate income from properties that are legally required to distribute 90% of after-tax income to shareholders.
You can buy them just like other shares, which makes them very accessible in our days of fractional trading, and some of these companies even pay monthly dividends.
Crypto is a questionable investment and a lot depends on how much you personally believe in it as the future of money and to what extent you’re prepared to wait through all the volatility and crypto winters. HODLing and trading are not the only ways to make money on crypto. You can buy stablecoins like USDT or USDC that are usually tied to the dollar and don’t fluctuate like other cryptocurrencies. You can earn rewards by staking your coins or providing liquidity.
Exchanges like Binance let you effortlessly get something like 10% APY by subscribing to one of their earning options without doing fancy stuff like decentralized exchanges, cold wallets, and so on. Doing something like this may be one of the smart investments for beginners. These days you don’t really need trad-fi like CDs and bonds where your annual yield won’t even outperform the inflation.
What to Invest in as a Beginner and Why?
There is no one-size-fits-all solution because everyone is different. What can be a perfect type of asset for one type of investor can be of no use to someone else.
Everyone’s approach to investing is different and you need to learn a bit about yourself. Part of that is asking yourself the right questions, and part of that is investing small amounts into different assets to see how they perform and how you personally feel about them.
One of the most important questions is how much risk you can take. This will depend on how old you are, how much spare cash you have, your income, and your psychology.
As a rule of thumb, if you’re younger you can take more risk as you still have plenty of time to make mistakes. As you get closer to retirement, you’ll want to take less risk and rebalance your portfolio for secure long-term growth.
We've made a simple investment calculator to help you work out what results you can expect from regular contributions.
How Much Money Do I Need to Start Investing?
With the advent of fractional trading and investing from $1 on platforms like Robinhood, the entry barriers to investing have become very low. While some traditional investments may require a minimum sum and some brokers may require a minimum deposit, this question has become more and more irrelevant. What’s more important is to find some good investments for beginners. If you’re investing for the first time, it’s better to start with little money than with too much. Smart investing is more important than how much money you throw at an asset.
How Gainy Can Help
We had two ideas in mind when we created the concept of TTFs. One was that many young investors don’t really like too much risk and don’t want to spend too much time on research. This is a generation of amateur investors who would rather spend their time on something else and invest in something they are passionate about and something that will give them long-term growth rather than ups and downs every day.
That’s why we think Thematic Trading Fractional collections may as well be the best investment for beginners starting out in this market environment.
Of course the list of investment options for beginners doesn’t end here. There are lots of other options and the only way to find out what’s good for you is to try. Some of these will work for you, and some of them won’t. If you don’t try, you’ll definitely lose most of your money to inflation if you keep it in cash.
Before you start thinking about investment ideas for beginners, you should build up good financial discipline like having an emergency fund.
Another way to look at it is to invest in yourself and your skills. Buying some books about investing may be one of the best investments at a time when the market is going sideways. But let’s hope the next bull run is coming soon. When investing money, don’t only look for easy investments. In times of crisis, some of the best investment ideas for beginners may be some of the most unexpected ones. A smart approach is collections of stocks around a theme that you believe in that get automatically rebalanced. Sounds like magic? We call them Thematic Trading Fractionals.
Still wondering how to invest? Read some other articles on our blog and find out more about each type of investment before you decide what’s right for you.
What should a beginner invest in first?
It depends on what you’re looking for in your investments. A market where everyone is scared may be the best time to invest. If tech stocks are down that means that if and when they recover you’ll get even higher returns. If you’re looking for safe investments, one place to start is an S&P 500 ETF.
Should you invest in stocks now?
If you’re a beginner that may not be the best idea to only focus on stocks. But if you are investing for the first time, buying a couple of stocks of companies you like may be a good way to learn to invest.
Is it a good idea to keep money in cash?
If you know what to invest in and you’re waiting for a good time while you’re looking at different ideas and considering your options, it may be a good strategy. However, just keeping money in cash means you’re losing a considerable sum of money every year.
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