Investing for beginners can seem like a difficult and daunting road to navigate.

But, as with roads, there are many different approaches you can take when investing. You can take the highway, investing aggressively – or you can take a side road, choosing less volatile investments.

Once you understand some basic investing concepts, you’ll be able to figure out what strategy is right for you as well as what investment vehicles will suit your journey.

No, this won’t make you an investing expert. But it will give you some tools so you can start planning.

Investing For Beginners: What’s Your Goal?

Investing without a goal is like driving around without a specific destination in mind.

Sure, it can be fun for a while but as soon as you hit a bump in the road – or worse, a crash – you’ll start asking yourself why you bothered.

Having a goal can motivate you to stick to your contribution plans and, just as importantly, push through the inevitable times of uncertainty.

Good, common investing goals include the following two.

Retirement

Among people who invest – 61% of adults over 35 and 52% under (1) – retirement is a common motivation.

There are good reasons for this, not the least of which is the fact that retirement is on the distant horizon for many people, providing an opportunity to capitalize on the time value of money at its full potential.

Saving For A House

A house is likely the single most expensive purchase you’ll make in your life.

As such, many people rely on investing to help them gather money for a down payment (or even buy the house outright) faster than they’d be able to with simple saving.

Investing For Beginners: What’s Your Timeline?

Timeline matters because your risk tolerance (and the investment vehicle appropriate for you) changes depending on how soon you’re going to need your money.

If you’re retiring next year, for example, you’ll be hard-pressed to find an expert that recommends you dump all of your savings into the stock market.

To help you understand this better, let’s take a look at the two most common traditional investment vehicles and discuss the timelines experts generally recommend for them.

Investment Vehicle #1 – The Stock Market (Long Term, Aggressive)

This includes strategies such as investing in mutual funds, index funds, ETFs or individual stocks.

The S&P 500, which is what people are talking about when they refer to the U.S. “stock market,” rises at an average rate of 10% annually. (3)

That’s pretty good – but it’s also stretched out over a period of about 100 years.

On the smaller scale of a single year, things can be a lot more unpredictable and volatile.

You could make 18% one year, as was the case in 2017 (4), or you could lose 20%.

This short-term volatility is why experts generally recommend investing in the stock market for a period of years or decades as opposed to months or a year.

To keep things simple, you can buy an S&P 500 ETF like $SPY, which will provide you exposure to the stock market without you having to go through the risk and trouble of choosing individual stocks.

Investment Vehicle #2 – Bonds (Short Term, Conservative)

Buying a bond involves loaning a sum of money to an issuer (which can be a corporation or the government) for a set amount of time.

The issuer will, in exchange, pay you interest and return your full capital to you once the pre-agreed-upon date arrives.

This is different from investing in the stock market in that, for the most part, you (in the majority of scenarios) can’t lose any of your principal investment if you hold the bond to maturity.

If you need to sell early, you may make or lose money based on the bond’s current market value.

Because bonds are a stable investment that won’t make you rich but also won’t decimate your savings, experts generally recommend them for those who wish to take a conservative approach, perhaps due to a shorter time horizon.

Summary

While investing can seem like a daunting task, it becomes a lot simpler when you carefully consider (perhaps with the help of a financial advisor) your goals and timelines.

While the investment vehicles we explored in this article (stock market investments and bonds) aren’t the only classes that matter, understanding them and how they fit into the bigger picture is key before moving onto investment vehicles like options and real estate.

Happy investing!