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How to Start Investing: A Short Guide
Containing Investing Basics
In this guide, we'll discuss the basic principles of Investing and different options that fit your goals based on your starting capital, your timelines for investment goals and the amount of risk you're willing to take.
Investing

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Get started investing as early as possible
Investing when you’re young is one of the best ways to see solid returns on your money. That's thanks to compound earnings, which means your investment returns start earning their own return. Compounding allows your account balance to snowball over time.

How that works, in practice: Let's say you invest $200 every month for 10 years and earn a 6% average annual return. At the end of the 10-year period, you'll have $33,300. Of that amount, $24,200 is money you've contributed — those $200 monthly contributions — and $9,100 is interest you've earned on your investment.

There will be ups and downs in the stock market, of course, but investing young means you have decades to ride them out — and decades for your money to grow. Start now, even if you have to start small.

If you're still unconvinced by the power of investing, use NerdWallet's inflation calculator to see how inflation can cut into your savings if you don't invest.
Years Future Value (4% Interest Rate Yearly) Total Invested Added Monthly
0 $1,000.00 $1,000.00 $200
5 $14,215.83 $13,000.00 $200
10 $30,294.90 $25,000.00 $200
15 $49,857.55 $37,000.00 $200
20 $73,658.51 $49,000.00 $200
25 $102,616.02 $61,000.00 $200
30 $137,847.25 $73,000.00 $200
35 $180,711.43 $85,000.00 $200
40 $232,862.26 $97,000.00 $200
Decide how much to invest
How much you should invest depends on your investment goal and when you need to reach it.

One common investment goal is retirement. If you have a retirement account at work, like a 401(k), and it offers matching dollars, your first investing milestone is easy: Contribute at least enough to that account to earn the full match. That's free money, and you don't want to miss out on it.

As a general rule of thumb, you want to aim to invest a total of 10% to 15% of your income each year for retirement — your employer match counts toward that goal. That might sound unrealistic now, but you can work your way up to it over time. (Calculate a more specific retirement goal with NerdWallet's retirement calculator.)

For other investing goals, consider your time horizon and the amount you need, then work backwards to break that amount down into monthly or weekly investments.
Open an investment account
If you don't have a 401(k), you can invest for retirement in an individual retirement account, like a traditional or Roth IRA.

If you're investing for another goal, you likely want to avoid retirement accounts — which are designed to be used for retirement, and thus have restrictions about when and how you can take your money back out — and choose a taxable brokerage account. You can remove money from a taxable brokerage account at any time.

A common misconception is that you need a lot of money to open an investment account or get started investing. That's simply not true. Many online brokers, which offer both IRAs and regular brokerage investment accounts, require no minimum investment to open an account, and there are plenty of investments available for relatively small amounts (we'll detail them next).
Understand your investment options
Whether you invest through a 401(k) or similar employer-sponsored retirement plan, in a traditional or Roth IRA, or in a standard investment account, you choose what to invest in.

It’s important to understand each instrument and how much risk it carries. The most popular investments for those just starting out include:
Stock Market / Mutual Funds
As a beginner you may find this asset class involves little risk when compared with other investment options. As and when you get more knowledge on it you can gradually develop way to invest risk free into stock market or mutual funds as well.

Indian markets are way more ahead in returns when compared with other world markets. Generally it is understood that stock market or mutual fund investment can assist you to reach 20-25% returns averagely in long run. For example: Consider any stock may be Infosys / Lupin / Asian Paints / Tata Motors / Sun Pharma / ITC / TCS and compare the price traded a decade back with current price. You will get fair idea of returns you can expect from this type of investment class.

Mutual funds let you purchase small pieces of many different stocks in a single transaction. Index funds and ETFs are a kind of mutual fund that track an index; for example, a Standard & Poor’s 500 fund replicates that index by buying the stock of the companies in it. When you invest in a fund, you also own small pieces of each of those companies.
Cryptocurrency
When it comes to crypto currencies, one of the biggest challenges for investors is not getting caught up in the hype. Digital currencies have quickly risen to a place of prominence in the portfolios of many retail and institutional investors. At the same time, analysts have continued to caution investors about their volatile nature and unpredictability.

If you've decided to invest in the cryptocurrency market, as with any other investment, it's important to do your research before you hand over any money. No matter what, cryptocurrency should occupy only a very small part of your portfolio. Exactly how much is completely up to you. But you should be wary of investing more than 10% or even 5%. Understand that cryptocurrency isn't an investment in the same way a stock is.

Much like investing in gold and silver, it doesn't pay interest or dividends. To the degree that cryptocurrency will be a good investment all depends entirely upon its price increasing significantly – and staying there for a while.

Right now, the largest cryptocurrency is Bitcoin. It's also the crypto that's drawing the most attention and investment dollars. In a very distant second position is Ethereum, and there are others like Zcash, Dash, and Ripple.
Commodites (Gold / Silver / Other Precious Metals)
For investors, commodities can be an important way to diversify their portfolio beyond traditional securities. Because the prices of commodities tend to move in opposition to stocks, some investors also rely on commodities during periods of market volatility.

Generally it is observed that whenever stock market falls, price of the precious metal rises and vice versa this is because of shift of investment from one class to another class. One should also consider investment into precious metals as well in order to diversify investment and to reduce volatility and risk on portfolio hits.

Most popular advantage of investing in gold or silver or any precious metal is that they can be converted into liquid or cash form very easily and quickly (mostly in 1 day time frame) than any other asset class. It is noticed that stock / mutual funds takes 2-3 days whereas fixed deposits, bonds takes 3-6 days to get converted into cash or liquid form. In the past, commodities trading required significant amounts of time, money, and expertise, and was primarily limited to professional traders. Today, there are more options for participating in the commodity markets.
Debts / Government bonds / Fixed Income Deposits
Debts / Government bonds / Fixed income deposits rewards fixed income on your invested amount year on year. For example, you might buy a 10-year, $10,000 bond paying 3% interest. Your town, in exchange, will promise to pay you interest on that $10,000 every six months, and then return your $10,000 after 10 years.

This type of asset class also involves little risk but gradually with increase in knowledge you can find the risk free ways to invest your money. There is always a marginal risk involve in any type investment since we have noticed in past years that government too are filing bankruptcy. But in general belief, debts or Government bonds or fixed income investments can achieve you returns between 5-9%.

When you compare the returns with growing inflation rates it may feel as not best investment option. So it is recommended that you should only invest small fraction of your investment into government bonds or debts or corporate bonds or Fixed income deposits as a part of your diversified investment plan to minimize risk on your portfolio hit.

If you're the risk-averse type who truly can't bear the thought of losing money, bonds might be a more suitable investment for you than stocks.
Real Estate Investment
If you have a huge amount picked for investment then investing in real estate may be good option for you. This type of asset class are categorised as low risk with high returns investment. If you are planning to invest in real estate you can expect to get around 10-15% capital appreciation year after year. If you dont know about trading or other investment then this is the best ways to invest your money. Most popular disadvantage of real estate investments are:
  • It takes months or sometime years to convert investment back into cash / liquid form.

  • Minimum investment amount is huge and if you are planning to invest via home loan then your return on investment will decrease and may not look attractive any more.
Pick an investment strategy
Your investment strategy depends on your saving goals, how much money you need to reach them and your time horizon.

If your savings goal is more than 20 years away (like retirement), almost all of your money can be in stocks. But picking specific stocks can be complicated and time consuming, so for most people, the best way to invest in stocks is through low-cost stock mutual funds, index funds or ETFs.

If you’re saving for a short-term goal and you need the money within five years, the risk associated with stocks means you're better off keeping your money safe, in an online savings account, cash management account or low-risk investment portfolio. NerdWallet outlines the best options for short-term savings here.

If you can't or don't want to decide, you can open an investment account (including an IRA) through a robo-advisor, an investment management service that uses computer algorithms to build and look after your investment portfolio.

Robo-advisors largely build their portfolios out of low-cost ETFs and index funds. Because they offer low costs and low or no minimums, robos let you get started quickly. They charge a small fee for portfolio management, generally around 0.25% of your account balance.

Credit:
NerdWallet.com
Investopedia.com
Investing.com
STEPS
1
Get started investing early
2
Decide how much to invest
3
Open an investment account
4
Understand your options
5
Pick an investment strategy