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Beginner Investing: Best Investment Types for Newbies

Investing is one of the best tools that can help you achieve financial stability down the road. But with so many investment types, beginner investors might feel overwhelmed and discouraged to expand their investing knowledge further.

However, understanding which investment vehicles are ideal as a newbie is essential. This understanding can ensure that you maximize your returns and mitigate your risk. To help guide first-time investors to success, we’ve rounded up some of the best investment vehicles for newbie investors.

Savings Accounts

One of the easiest and safest investments available to everyone is opening a savings account. A savings account pays a little interest over time. Still, it allows you to access your funds easily — and due to this liquidity, you might not be able to stretch your money that far. However, a savings account is a great vehicle to put your emergency funds, short-term savings goals, or extra surplus cash that you don’t have anywhere to put.

One thing to keep in mind is that the interest for savings accounts varies depending on the bank. Indeed, Wall Street Journal advises that when opening a savings account, check what smaller, local institutions and online banking companies offer, as their savings accounts may offer high-interest rates to entice customers further.

Value Stocks

There are three different categories of stocks: growth stocks, value stocks, and income stocks. For beginners, value stocks might be the best option, as they carry the least amount of risk. Simply put, value stocks are stocks that are undervalued and have more actual value than their current price. This definition means that these kinds of stocks are shares of a company traded at a lower price due to various operational or business-related issues. So, be sure to do your due diligence and research thoroughly to spot the value stocks offered on the stock market.

It might also be good to start investing in stocks and companies that are already in high-reward industries, such as big tech, e-commerce, energy, and communication.

ETFs

In a nutshell, exchange-traded funds (ETFs) are investments that pool money from a group of investors and put it in a basket of securities that include stocks, bonds, and other investment vehicles. The great thing about ETFs is that you can choose whether you want to invest in a portfolio of securities or only focus on one, like in gold ETFs.

ETFs are ideal for newbie investors as they hold many benefits such as high liquidity, low expense ratio, a sheer amount of investment choices, low investment threshold, and instant portfolio diversification. You can also trade ETFs through online brokerages in the after-hours market ⁠, making it perfect for newbie investors who are only starting to learn to invest in their free time.

Mutual Funds

Like ETFs, mutual funds also work by pooling money from different investors and investing it in portfolios with stocks, bonds, and other investment vehicles. But unlike ETFs that are mostly passively managed, mutual funds are more actively managed by portfolio managers to leverage the market and provide investors with a quick profit.

As the mutual funds increase in value, the investors receive a higher profit distribution. Investors can then use this profit to reinvest and make higher returns. When choosing which mutual funds to invest in, be sure to look at the track record, look for low turnover rates, and check how much the extra expenses and fees are.

To ensure that you make the most out of your investment capital, beginner investors should only put their money in investments that fit their budget, have relatively lower risk, and don’t have a ton of extra fees. As you learn the ropes of investing in safe and comfortable investment vehicles, you can prepare yourself to handle more complex investments with higher possible returns.

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