How to Invest Money: A Guide for Beginners | The Motley Fool (2024)

First of all, congratulations! Investing your money can be an extremely reliable way to build wealth over time. If you're a first-time investor, we're here to help you get started. It's time to make your money work for you.

Before you put your money into the stock market or other investments, you'll need a basic understanding of how to invest your money the right way. Unfortunately, there's no one-size-fits-all answer here.

The best way to invest your money is the way that works best for you. To figure that out, you'll want to consider your investing style, your budget, and your risk tolerance.

How to invest money

  1. Identify your investing style.
  2. Determine your budget for investing.
  3. Assess your risk tolerance.
  4. Decide what to invest your money in.

1. Your style

1. Your style

How much time do you want to put into investing your money?

The investing world has two major camps when it comes to the ways to invest money: Active investing and passive investing. Both can be great ways to build wealth, as long as you focus on the long term and aren't just looking for short-term gains. But your lifestyle, budget, risk tolerance, and interests might give you a preference for one type.

Active investing

Active investing means taking time to research investments yourself and constructing and maintaining your portfolio on your own. In simple terms, if you plan to buy and sell individual stocks through an online broker, you're planning to be an active investor. To successfully be an active investor, you'll need three things:

  • Time: Active investing requires lots of homework. You'll need to research stocks. You'll also need to perform some basic investment analysis and keep up with your investments after you buy them.
  • Knowledge: All the time in the world won't help if you don't know how to analyze investments and properly research stocks. You should at least be familiar with some of the basics of how to analyze stocks before you invest in them.
  • Desire: Many people simply don't want to spend hours on their investments. And since passive investments have historically produced strong returns, there's absolutely nothing wrong with this approach. As Warren Buffett has said regarding passive investing, "It isn't necessary to do extraordinary things to get extraordinary results." Active investing certainly has the potential for superior returns, but you have to want to spend the time to get it right.

It's also important to understand what we don't mean by active investing. Active investing doesn't mean buying and selling stocks frequently, it doesn't mean day trading, and it doesn't mean buying stocks that you think are going to go up over the next few weeks or months.

Passive investing

On the other hand, passive investing is the equivalent of an airplane on autopilot as compared to one flying manually. You'll still get good results over the long run, and the effort required is far less.

In a nutshell, passive investing involves putting your money to work in investment vehicles where someone else is doing the hard work. Mutual fund investing is an example of this strategy. Or you can use a hybrid approach. For example, you can hire a financial or investment advisor -- or use a robo-advisor to construct and implement an investment strategy on your behalf.

Passive investing

More simplicity, more stability, more predictability

  • Hands-off approach.
  • Moderate returns.
  • Tax advantages.

Active investing

More work, more risk, more potential reward

  • You do the investing yourself (or through a portfolio manager).
  • Lots of research.
  • Potential for huge, life-changing returns.

2. Your budget

2. Your budget

How much money do you have to invest?

You may think you need a large sum of money to start a portfolio, but you can begin investing with $100. We also have great ideas for investing $1,000.

Here's the point. The amount of money you're starting with isn't the most important thing. Instead, the big question is whether you're financially ready to invest and to invest frequently over time.

One important step to take before investing is to establish an emergency fund. This is cash set aside in a form that makes it available for quick withdrawal, such as a savings account. Most investments, whether stocks, mutual funds, or real estate, have some level of risk. You never want to find yourself forced to divest (or sell) these investments in a time of need. The emergency fund is your safety net to avoid this.

Most financial planners suggest an ideal amount for an emergency fund is enough to cover six months' worth of expenses. Although this is certainly a good target, you don't need this much set aside before you can invest -- the point is that you just don't want to have to sell your investments every time you get a flat tire or have some other unforeseen expense pop up.

It's also a smart idea to get rid of any high-interest debt (like credit cards) before starting to invest. Think of it this way -- the stock market has historically produced returns of 9% to 10% annually over long periods. If you invest your money at these types of returns and simultaneously pay 25% interest (the average credit card interest rate in December 2023) to your creditors, you're putting yourself in a position to lose money over the long run.

3. Your risk tolerance

3. Your risk tolerance

How much financial risk are you willing to take?

Not all investments are successful. Each type of investment has its own level of risk, but this risk is often correlated with returns.

It's important to find a balance between maximizing the returns on your money and finding a comfortable risk level. For example, high-quality bonds, such as Treasury bonds, offer predictable returns with very low risk, but they also yielded relatively low returns of between 4% and 5% as of late 2023, depending on the maturity term you chose and the current interest rate environment. By contrast, stock returns can vary widely depending on the company and time frame. However, the overall stock market has historically produced average returns of almost 10% per year.

Even within the broad categories of stocks and bonds, there can be huge differences in risk.

For example, a Treasury bond or AAA-rated corporate bond is a very low-risk investment. However, these will likely pay relatively low interest rates. Savings accounts represent an even lower risk but offer a lower reward.

On the other hand, a high-yield bond can produce greater income but will come with a greater risk of default. In the world of stocks, the spectrum of risk between blue chip stocks like Apple (AAPL 1.22%) and penny stocks is enormous.

One good solution for beginners is using a robo-advisor to formulate an investment plan that meets your risk tolerance and financial goals. In a nutshell, a robo-advisor is a service offered by a brokerage. It will construct and maintain a portfolio of stock- and bond-based index funds designed to maximize your return potential while keeping your risk level appropriate for your needs.

Definition Icon


Divesting means getting rid of or reducing your position in an asset. Divestiture can occur at the individual or corporate level.

What should you invest your money in?

What should you invest your money in?

Here's the tough question; unfortunately, there isn't a perfect answer. The best type of investment depends on your investment goals. But based on the guidelines discussed above, you should be in a far better position to decide what you should invest in.

For example, if you have a relatively high risk tolerance, as well as the time and desire to research individual stocks (and to learn how to do it right), that could be the best way to go. If you have a low risk tolerance but want higher returns than you'd get from a savings account, bond investments (or bond funds) might be more appropriate.

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Buy-and-Hold Strategy

A strategy that entails buying stocks or other securities and not selling them for long periods of time, sometimes decades.

If you're like most Americans and don't want to spend hours of your time on your portfolio, putting your money in passive investments like index funds or mutual funds can be the smart choice. And if you really want to take a hands-off approach, a robo-advisor could be right for you.

Related investing topics

How to Invest in Stocks: A Beginner's Guide for Getting StartedAre you ready to jump into the stock market? We've got you.
Investors Like MeWe talk to investors across backgrounds and investing styles.
How to Invest in Index Funds in 2024Index funds track a particular index and can be a good way to invest.
How to Invest in ETFs for BeginnersExchange-traded funds let an investor buy lots of stocks and bonds at once.

The bottom line on investing

Investing money may seem intimidating, especially if you've never done it before. However, if you figure out how you want to invest, how much money you should invest, and your risk tolerance, you'll be well positioned to make smart decisions with your money that will serve you well for decades to come.

How to Invest Money FAQs

How do I invest my money to make money?

There are many different ways you can invest money, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), savings accounts, and more. The best option for you depends on your particular risk tolerance and financial goals.

How do I invest $100?

Even if you're starting with just $100, there are several ways you can get started. You can start an investment account with a robo-advisor, or you can open a brokerage account that offers fractional share investing, which can let you buy shares of several of your favorite companies with just $100.

Where to invest money to get good returns?

Over time, the stock market has produced annualized returns of 9% to 10%, although performance can vary dramatically from year to year. On the other hand, fixed-income investments like bonds historically have generated 4% to 6% per year, but with far less volatility.

How do I invest money in stocks?

In addition to starting a brokerage account and buying stocks directly, there are several ways to invest in the stock market. You can buy ETFs or mutual funds that track a certain stock index or aim to create a market-beating portfolio. Or, you can open an account with a robo-advisor to automate the process and get exposure to stocks without needing a ton of knowledge to get started.

Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

As an investment enthusiast with a deep understanding of financial markets and wealth-building strategies, let me delve into the key concepts presented in the article on investing. My experience in actively managing portfolios and staying abreast of market trends positions me to provide insights into the nuances of investing.

1. Investing Styles: Active vs. Passive Investing The article outlines two major camps in the investing world: active investing and passive investing. Active investing involves hands-on research, analysis, and portfolio management. It demands time, knowledge, and a desire to be deeply involved in the investment process. On the other hand, passive investing adopts a more hands-off approach, relying on investment vehicles where someone else does the hard work. This can include mutual funds, robo-advisors, or a combination of both. The key lies in understanding your lifestyle, budget, and risk tolerance to determine the style that suits you.

2. Budget for Investing The amount of money to start investing is not the most crucial factor. The article emphasizes the importance of financial readiness and the establishment of an emergency fund before venturing into investments. This emergency fund serves as a safety net to avoid forced divestment in times of unforeseen expenses. Clearing high-interest debt is advised before investing, considering the historical returns of the stock market.

3. Risk Tolerance Assessing one's risk tolerance is crucial in determining the appropriate investment strategy. The article explains the risk-return correlation in various investment types, from low-risk Treasury bonds to high-risk stocks. It suggests finding a balance that aligns with your risk tolerance and financial goals. For beginners, using a robo-advisor is recommended as it formulates an investment plan based on risk tolerance and financial objectives.

4. What to Invest In The article acknowledges the absence of a perfect answer to this question and emphasizes that the best type of investment depends on individual goals. It suggests aligning investment choices with risk tolerance and preferences, whether that involves actively managing a stock portfolio, opting for bond investments, or taking a hands-off approach with passive investments like index funds or robo-advisors.

5. Buy-and-Hold Strategy The concept of a buy-and-hold strategy is introduced, emphasizing the practice of holding onto investments for long periods, sometimes decades. This strategy aligns with a passive investing approach, encouraging investors to stay the course for potentially greater returns over time.

In conclusion, investing is a personalized journey that requires consideration of one's style, budget, risk tolerance, and financial goals. Whether you choose an active or passive approach, understanding the fundamentals and aligning your strategy with your unique circ*mstances is key to making informed investment decisions.

How to Invest Money: A Guide for Beginners | The Motley Fool (2024)


What is the rule of 72 Motley Fool? ›

It's a fun math trick that shows how long it will take to double a number. For example, if you expect an investment to grow by, say, 8% annually, divide 72 by eight and you'll get nine — meaning that it will take nine years to double your money at that rate. It works in reverse, too.

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How To Invest $100 To Make $1000 a Day in 20 Ways
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  3. Invest in the stock market.
  4. Start a blog.
  5. Use robo advisors.
  6. Invest in cryptocurrency.
  7. Start an e-commerce business.
  8. Start a dropshipping business.
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How much will I have if I invest $100 a month for 10 years? ›

How $100 a month can help make you wealthy
If you invest $100 a month for this many years......this is how much you'll end up with.
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What is the success rate of the Motley Fool stock picks? ›

Motley Fool Success Rate

As you can see above, the Motley Fool's Stock Advisor's success rate over the last 5 years is 84%. That means 101 of their last 120 stock picks are up.

What is the rule of 69 in investing? ›

What Is Rule Of 69. Rule of 69 is a general rule to estimate the time that is required to make the investment to be doubled, keeping the interest rate as a continuous compounding interest rate, i.e., the interest rate is compounding every moment.

What is Rule 69 in investment? ›

What is the Rule of 69? The Rule of 69 is used to estimate the amount of time it will take for an investment to double, assuming continuously compounded interest. The calculation is to divide 69 by the rate of return for an investment and then add 0.35 to the result.

How to double $2000 dollars in 24 hours? ›

Try Flipping Things

Another way to double your $2,000 in 24 hours is by flipping items. This method involves buying items at a lower price and selling them for a profit. You can start by looking for items that are in high demand or have a high resale value. One popular option is to start a retail arbitrage business.

How to double my $1,000 dollars? ›

One of the easiest ways to double $1,000 is to invest it in a 401(k) and get the employer match. For example, if your employer matches your contributions dollar for dollar, you'll get a $1,000 match on your $1,000 contribution.

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  3. IRA. ...
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What happens if you save $100 dollars a month for 40 years? ›

Your Retirement Savings If You Save $100 a Month in a 401(k)

If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.

What will $10 000 be worth in 30 years? ›

Over the years, that money can really add up: If you kept that money in a retirement account over 30 years and earned that average 6% return, for example, your $10,000 would grow to more than $57,000. In reality, investment returns will vary year to year and even day to day.

What happens if you invest $100 a month for 5 years? ›

You plan to invest $100 per month for five years and expect a 6% return. In this case, you would contribute $6,000 over your investment timeline. At the end of the term, your portfolio would be worth $6,949. With that, your portfolio would earn around $950 in returns during your five years of contributions.

How does the Rule of 72 work? ›

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.

What is the Rule of 72 in trading? ›

The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. Dividing 72 by the annual rate of return gives investors a rough estimate of how many years it will take for the initial investment to duplicate itself.

How many years are needed to double a $100 investment using the Rule of 72? ›

To find the approximate number of years needed to double an investment, divide 72 by the interest rate. In this case, with an interest rate of 6.25%, divide 72 by 6.25, which is approximately 11.52. Therefore, it would take approximately 11.52 years to double the $100 investment.

What does the Rule of 72 predict? ›

The Rule of 72 is a way to estimate how long it will take for an investment to double at a given interest rate, assuming a fixed annual rate of interest. You simply take 72 and divide it by the interest rate number. So, if the interest rate is 6%, you would divide 72 by 6 to get 12.

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