Investing can be a great way to get ahead by—it’s one of the best ways to grow your money. But there are a few things to know, to make sure you choose the right types of investments for you. Here’s what you need to know to invest successfully, so you can create a plan that works for your lifestyle and financial goals. 

Start saving

Saving is the first step toward investing. First, set aside money for necessary expenses like your mortgage or rent, and any other short-term goals. After that, you can invest some or all of the rest you’ve saved. This money should be considered a longer-term play, for goals like retirement or future investments in property.

Investing always carries some risk, but the upside is potential for far greater returns than if you just park it in a savings account. 

Identify your goals

Now that you’re ready to invest, think about what those long-term goals are. Do you want to buy a house? Are you saving for retirement? Once you have your goals outlined, decide how much money you’d like to save for each goal.

Types of investments

If your employer offers a 401K or other retirement plan, that’s another great—and low-risk—way to get started with investing. With a 401K, money is taken out of each paycheck (pre-tax) and often matched by your employer. Matching funds your employer contributes are ‘free money’ so you’ll definitely want to take advantage of that.

Investing in the stock market has the potential to give you the best long-term return on your money. The average stock market return is about 10% a year. Here are a few ways to get started:

  • Stocks are basically ownership in a company. If you’re interested in buying individual stocks, you’ll need to do a fair amount of research. (Also remember that with the stock market you’re taking on more risk than with other investment strategies.) When and if stock prices increase, you can sell your shares for a profit. Remember to consider short-term gains—a much higher than normal income tax rate that your returns will be subject to if you hold the stock for less than a year before selling.
  • Mutual funds are an easy way to get started with investing in the stock market. A mutual fund is a portfolio of stocks, bonds, and other securities. This type of fund provides you with lots of different stocks in a single transaction. That’s great from a diversification standpoint; it spreads your risk across multiple companies, so that if one or two don’t perform well you’re still likely to offset your losses with others that do.

If you’re looking for a lower risk investment to start with, consider bonds. These are loans you provide to a government or corporation, and they pay you back at a specified interest rate. You can buy individual bonds or bond funds  through a bond broker.

When to invest

The earlier the better! The longer you invest, the more you can potentially earn. Instead of being concerned with the right time to invest, focus more on how long your money will be invested the market—that’s the metric that really matters.