Many advisers, in the current record-breaking market rally, recommend people wanting to take advantage of volume and volatility in the markets begin investing as soon as possible, rather than waiting for another opportunity. But where and how does any would-be investor begin?
12 Investment Ideas for Beginners
1. Interest Income from Certificates of Deposit
Often, columns such as this jump right in to tell people where they can put their investment money for the fastest growth. But realistically, the best place to start investing is at your local bank -- to let the money you have and keep there make money by allowing the bank to use it -- which banks do anyway, and why they used to pay significant interest even on deposit or savings accounts.
Since The Great Recession of 2008-09, banks essentially stopped paying interest on savings accounts, or reduced it to practically nothing. As a result, many people interested in investing don't even know about ways to gain greater interest on savings they don't want to draw on right away.
A Certificate of Deposit, or CD, is a debt instrument issued by banks and other similarly qualified financial institutions to people who want to invest their savings and earn interest income. When a depositor, or saver, purchases a CD from their bank, the depositor or saver has become an investor, by lending money to the bank for a pre-determined length of time. The bank, in return, promises to repay the invested amount upon maturity, with interest. Often, higher yields accompany longer-held CDs. For banks insured by the Federal Deposit Insurance Corp., the bank's promise to return your initial CD investment is covered up to $250,000. That means even if the bank dissolves, the CD owner will get their investment returned. The bank makes money by lending money -- yours -- to borrowers, and charging borrowers higher interest than what it pays you for the use of your money.
With a CD, you decide how long you want your money tied up, and receive interest at a rate quoted for your CD's existence. Depending on the type and terms of the CD you purchase, your interest income will be distributed to you on a monthly, quarterly or annual basis. Often, you can also just have it add to the value of your CD, allowing you to claim that much more at the CD's maturity.
Some larger brokerage firms now allow customers to buy CDs in their brokerage or retirement accounts, such as in a Rollover or Roth IRA. One advantage is that you can hold CDs issued by different institutions in a convenient place, and still enjoy FDIC protection.
2. Interest Income from Money Market Accounts or Funds
Another popular way to generate interest on savings is by investing in money market accounts or funds.
Money market accounts are FDIC insured, and tend to pay higher interest rates than a regular savings or deposit account, but they have limits on withdrawals.
Money market funds, known also as money market mutual funds, are not FDIC insured, but are mutual funds that hold investments such as Treasury bills and CDs.
3. 401(k) or 403(b)
As you can see, there are a couple of options open to you to start investing even at your local bank. But there is more good news for would-be investors and savers interested in making more money from what they save.
That is usually part of a longer-range goal of saving for things like retirement or college. Another place to begin turning your savings into investments is your employer-sponsored retirement plan. Employers that offer these plans frequently match the employees' contribution with their own contribution, as varying rates. If you're a young investor with lots of other demands on your paycheck, you may want to look to see if your employer might help match a contribution to your retirement account. A plan like the 401(k) or 403(b) also has a diversity of options in which to put your contributions, as well as your employer's contribution, including a host of other investments.
4. Roth IRAs
If you don't have access to an employer-sponsored retirement plan, consider opening a Roth individual retirement account, or Roth IRA. You can invest in most things via a Roth IRA, including exchange traded funds and mutual funds, and your investment will grow tax-free. However, because it is intended as a vehicle for retirement savings, pre-retirement access to your money is severely limited. There are penalties for using the funds before you reach a certain age, and the money you invest is not tax-deductible as with a regular IRA. However, you won't have to pay taxes on the money when withdraw it in your retirement, so Roth IRAs are considered by many a good place to put your first long-range investments.
5. Low-Cost Index Funds
These investments have become more popular as indexes have risen to records faster than in the past, when they tended to not move as quickly. For instance, the S&P 500's rate of average return over the past 15 years was 8.4%, while the Vanguard 500 Index Fund (VFINX) - Get Report has nearly matched it at 8.27%. Shares in market indexes, which use a list set of stocks to track the general health of certain sectors or the economy as a whole, don't really exist. Instead, investors find a low-cost index fund that tracks an index that appears to relatively accurately reflect a sector or the economy. Index funds are actually baskets of stocks attempting to mirror a particular stock market index.
6. Target-Date Funds
As much of investing is actually planning for the future, like index funds, target-date funds are designed for retirement savers. A number of large investment firms offer target-date funds, which, rather than tracking an index, aim to make the most of your investments by a target date -- usually when you intend to retire. The portfolio allocation is taken care of by the funds' managers, as are technical details such as when to rebalance the portfolio based on market conditions. Because the target date is usually based on retirement planning, many 401(k) employer-sponsored retirement plans offer target-date funds as well as index funds to employees.
7. Balanced Funds
A balanced fund aims to do just as it says: balance allocations or target risk to increase earnings and minimize as best as possible risk of losses. They maintain a set allocation of stocks and bonds indefinitely. Because they balance risk between fixed-income (bonds) and stocks, they tend to be more conservative than even target-date funds for younger investors, and more aggressive (greater risk) than target-date funds for older individuals. But they are far less volatile than just investing in individual stocks or even a portfolio of stocks.
The goal of a balanced fund is to provide solid returns while minimizing risk of losses.
8. Exchange-Traded Funds (ETFs)
You can invest in ETFs whether you have $10 or $10,000. Unlike mutual funds, an exchange traded fund is traded on stock exchanges -- much like individual stocks. The only minimum investment in an ETF is the share price -- which frequently is far lower than minimum investments for a mutual fund. ETFs are designed with diversification in mind, like a mutual fund, but trade like an individual stock. ETFs are available for every sector, and there are even index-fund ETFs.
9. No-Transaction Fee Funds
Most large investment firms, and particularly Charles Schwab, (SCHW) - Get Report offer no-transaction-fee funds. Meaning, with such investments, you can purchase ETFs and mutual funds without having to pay a trading commission. This is a great way to begin investing if you don't have a lot of money to start with. Saving on transaction fees, which often can be in the range of 7%, preserves more of your capital to begin with -- usually another investment goal.
10. Robo Advisers
Robo advisers are digital investment platforms -- they use computer algorithms to manage and curate an investment portfolio for their clients. The algorithms are actually based on information most financial advisers ask for from clients: financial goals and level of risk tolerance. A portfolio matching these is calculated for your individual needs. Most cost little, or nothing, in terms of minimum investment requirements, and charge lower fees than human counterparts. Some even offer automatic investments -- withdrawals from your bank, like automatic payments -- each month. That helps with investing the same way an employer's 401(k) plan does when your company takes your contribution out of your check.
11. A Financial Adviser
If, like a lot of people, you are reluctant to haul off a chunk of your savings and just invest, you might want to consult an actual human financial adviser. Investing with a trusted adviser makes the finding of such an adviser itself a good investment, as you will likely benefit from having an expert who can help you keep track of how your investments are doing, and whether or not they are the best for your needs, expectations or concerns. Having such an expert help you can pay off in more ways than even just investing in any of the vehicles mentioned before this. Look for an adviser who is a fiduciary, that is, someone who works for your benefit, and doesn't work on commission.
12. Investment Apps
On the other hand, if you already have or think you have a fair handle on where you'd like to put your money so it can grow, there are a number of investing apps available online to help make it easy and convenient for you. A pair often recommended are Acorns and Stash. You need a $5 minimum to use either.
Acorns rounds up your purchases on debit or credit cards linked to it, and invests the change in ETFs, working like a robo-adviser in that it manages your portfolio for you. Acorns has no minimum. The company charges $1 a month for a standard investment account and $2 a month for an IRA.
Stash, on the other hand, charges 0.25% on balances above $5,000 per year, while Acorns charges a flat fee. Similar to Acorns, Stash lets investors build their own portfolio of ETFs and stocks.
Other highly recommended investing apps include M1 Finance, Robinhood, Vanguard, E*Trade, Fidelity, and Axos.
It's never too late - or too early - to plan and invest for the retirement you deserve. Get more information and a free trial subscription toTheStreet's Retirement Dailyto learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? EmailRobert.Powell@TheStreet.com.