5 Best Investments For New Investors

Do you need to know the 5 best investments for new investors?  You’ve come to the right place.  If you’re tired of not having an investment portfolio and want to begin building wealth, it’s important to know how to do it right.  Here are five investments that’ll put you on the track to a well rounded portfolio.

1. Build an emergency reserve account. Before investing dollars into variable accounts it’s important to build reserves to use during emergencies.  Start a money market account at a reliable bank or credit union and use direct deposit to funnel money to this account monthly until you’ve accumulated three to six month’s worth of expenses.
2. Build a Roth IRA. “For any parents trying to straddle the college-retirement line—a Roth IRA is a no-brainer,” writes financial guru Jean Chatzky.  We like a Roth regardless of children because it’s a Swiss army knife tax shelter:  money grows tax free if used for retirement, may be withdrawn for college, and principal may be used in emergency situations without penalty.
3. Use your 401k plan at work. This is a great place for a new investor to save for retirement, especially if your company provides a match.  In a 401k plan money is invested pre-tax, making it ideal as a tax shelter, and is invested in a number of fund choices (these will depend on your company’s plan).  Most plans feature literature and risk charts that help a new investor pick a good starting mix and online access to review from time to time.
4. Find a stock you like, research it, and invest a small amount. There is no way to learn about stock and bonds better than jumping into an investment. Peter Lynch, a successful mutual fund manager, recommends making a list of companies you admire or whose products you purchase. Request an annual report, become comfortable with their products and how they earn a profit, then invest a small amount.
5. Buy an asset allocation mutual fund.  These are sometimes called target funds or lifestyle funds.  They’re pre-diversified and come with either a risk level or target withdrawal date to fit the appropriate investor.  The Alliance for Investor Education likes these funds because “they are designed to help investors avoid some of the most common investment mistakes.”

References:

Chatzky, Jean Sherman, and Arielle McGowen. "Money 911: Your Most Pressing Money Questions Answered, Your Money Emergencies Solved." Harper, 2010. 

Lynch, Peter, and John Rothchild. "One up on Wall Street: How to Use What You Already Know to Make Money in the Market." Simon & Schuster, 2000. 

The Investor's Clearinghouse from the Alliance for Investor Education