Key Takeaways
Choose your investing style (active or passive), determine your budget, and assess your risk tolerance.
Passive investing offers simplicity and long-term stability, while active investing gives more control—but requires more time and knowledge.
You can start with any amount—even $100—and grow your portfolio steadily over time.
Why Is Investing Important?
There are countless reasons why investing matters, but here are three of the most important:
Build Wealth: Historically, the stock market has provided strong long-term returns, making it one of the most reliable tools for growing your money.
Achieve Financial Freedom: Investing enables you to plan for retirement, handle life’s unexpected expenses, and live on your own terms.
Stay Ahead of Inflation: Money that sits idle—whether in cash or low-interest accounts—loses value over time. Strategic investing helps maintain or increase your purchasing power.
Step 1: Choose Your Investing Style
How much time and energy are you willing to spend managing your investments? Your answer will help determine whether you’re better suited to active or passive investing.
Active Investing
Active investing means you're in the driver's seat. You research, analyze, and make trades on your own. This style can potentially yield higher returns, but it requires:
Time: Ongoing research and market monitoring.
Knowledge: A solid grasp of how to evaluate stocks or other assets.
Desire: The interest and discipline to stay involved long-term.
Contrary to popular belief, active investing doesn't mean day trading. It means you’re hands-on—but focused on building long-term wealth.
Passive Investing
If you prefer a more hands-off approach, passive investing may be for you. This method relies on vehicles like index funds, ETFs, robo-advisors, or managed mutual funds. It offers:
Less time commitment
Consistent long-term performance
Simplicity and tax advantages
As Warren Buffett famously said, “It isn’t necessary to do extraordinary things to get extraordinary results.”
Step 2: Set Your Budget
You don’t need a fortune to start investing. You can begin with as little as $100—or even $1 on some platforms.
Before you begin:
Establish an emergency fund (aim for $1,000 minimum; six months of expenses is ideal).
Pay off high-interest debt, especially credit cards.
Why? Because the average annual stock market return is 9–10%, while credit card debt can carry rates north of 24%. Paying off debt often yields better returns than investing.
Step 3: Understand Your Risk Tolerance
Every investment carries some risk. Your job is to find the sweet spot between reward and peace of mind.
Low-Risk Options: Treasury bonds, savings accounts, and high-quality corporate bonds offer predictable returns, but limited growth.
Moderate-Risk Options: Diversified ETFs and mutual funds provide a balance of stability and growth.
High-Risk Options: Individual stocks, high-yield bonds, and cryptocurrencies offer high upside—but also more volatility.
If you’re not sure where to start, a robo-advisor can help design a diversified portfolio aligned to your risk tolerance and financial goals.
Step 4: Decide What to Invest In
There’s no “one-size-fits-all” portfolio, but here are the most common investment types:
Individual Stocks: Great for active investors who want to research and select companies.
Bonds & Bond Funds: Better for conservative investors seeking lower risk and steady income.
Index Funds & ETFs: Ideal for beginners who want low-cost, diversified exposure to the market.
Robo-Advisors: A hands-off solution that builds and rebalances your portfolio automatically.
Your choices should reflect both your financial goals and how much time you’re willing to spend managing your portfolio.
The Bottom Line
Investing doesn’t have to be complicated.
If you understand your financial situation, your goals, and how much risk you’re comfortable taking, you’re already ahead of most people. Whether you start with $100 or $10,000, the most important thing is to start—and stay consistent.
Time in the market beats timing the market. So take the first step now.
Your future self will be glad you did.