Investing isn’t a one-size-fits-all activity, so there are a few things to consider before you invest, as well as a few investing questions to ask (such as financial goals and feelings toward risk) that can help guide your overall strategy.
Once you’re ready, here are three ways to start investing.
The simplest way to start investing, if it’s available to you, is through an employer-sponsored retirement plan (a 401(k), IRA or 403(b)). Contributions are directly withdrawn from your paycheck, typically with pre-tax dollars, and many employers match contributions, up to a certain amount.
These types of plans often include a selection of mutual funds. Mutual funds are large, professionally managed investment funds that offer a broad exposure to different stocks and bonds. You’ll have the option of choosing your own investment mix or selecting a target date fund, which is a mix of investments based on your expected retirement year. Target date funds are broadly diversified and automatically adjust as your targeted retirement year approaches.
If you don’t have access to an employer-sponsored retirement plan or are looking for tax diversification, you may want to consider an investment retirement account, or IRA.
Most people are eligible to open and contribute to a traditional or Roth IRA, you’ll have thousands of investment options and, unlike an employer-sponsored plan, it’s exclusively yours. There are even IRAs specifically for self-employed or small business owners.
Read 4 benefits of an IRA to learn more.
Retirement accounts come with annual contribution limits, so if you’ve maxed out your contribution or have other goals you want to work toward, you may want to consider one of these additional investment options:
Brokerage and robo-advisor accounts provide a bit more flexibility when it comes to how and when you access your money. While any earnings are subject to capital gains tax, these types of accounts don’t have any restrictions on when you can make withdrawals.
Read more about non-retirement investment options.
Once you start investing, you may want to factor in other criteria that will help you finetune your investment selections, such as your financial goals, risk tolerance and time horizon (the number of years you have until retirement).
A financial professional can help make sure your investment choices are aligned with your age, goals and tolerance for risk. Keep in mind not every investment decision fits into a flow chart, and you don’t have to choose a single path. After all, you may have multiple objectives, and your goals could – and should—change as you age.
Read more about investment strategies by age.