Best Way to Invest: 5 Steps to Get Started in 2025

Written by Andrea Coombes
Fact-checked by Dayana Yochim
Edited by Carolyn Kimball, John Bringans

January 13, 2025

Nothing beats investing for building wealth over time. And while there are some steps you’ll have to take to get started, here’s the good news: It is not rocket science.

The first step to investing is figuring out exactly why you want to do it. The why informs the how. In this article, I'll help you figure out that "why." I'll also give you the tools and know-how to get started investing, all in five quick steps.

1. Decide on your investing goals

Understanding what you want your money to do for you is crucial for figuring out the best way for you to invest. Your financial goals inform when you’re going to need the money, which determines where (choosing the best stock broker for your financial goals) and how you invest your money.

Maybe you want to invest for your child’s college education, for your own retirement, or because a TikTok finance influencer said investing is the best way to earn money on your money (in this case, the influencer is right!).

Here are some examples to get you thinking about your goals:

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I want to invest because everyone else is doing it

Great! Investing is a smart way to grow wealth over time. There are different ways to approach this goal:

Write up a plan for your money. What’s your long-term goal with investing? What’s the maximum amount of money you want to put into the markets? Check out our guide that covers how to invest in stocks for beginner investors to learn more about active investing.

Start simple. Take a small amount of money and open a brokerage account, pick an investment, and see what happens. These days, fractional shares, which allow you to purchase a portion of a company’s stock, make it easy to access high-priced company shares with as little as $1. You can also try paper trading (also known as virtual trading). Paper trading allows you to practice trading and investing without risking any real money. Check out our guide to the best brokers for paper trading.

Explore passive investing. Create a set-it-and-forget-it investment portfolio, where the power of compounding builds your wealth over time. Take a look at some of the simple portfolios we describe in the article "Investing for Retirement: A How-to Guide." You can use the same portfolios for any investment that’s at least 10 years out (if you choose a target-date fund, pick the fund named for the same year you’ll need the money). If you let your earnings sit and grow — thus earning money on those earnings and reinvesting any dividends so they can grow too — you’ll be harnessing the magic of compounding.

I want to invest for retirement

Retirement is exactly the type of long-term goal for which investing in a diversified mix of stocks and bonds makes a lot of sense.

Choose a retirement account. Since the government offers tax breaks that can supercharge your retirement-savings dollars, consider investing for retirement within a workplace plan like a 401(k) or a 403(b), if you’ve got access to one, and/or in an individual retirement account, or IRA. You can open an IRA at almost any of the best stock brokers. Read our guide to retirement to figure out which retirement account is best for you, and check out our picks for the best brokers to open an IRA.

I want to invest for my wedding/a trip to Fiji/some other two- to five-year goal

If the financial goal you’re looking to reach is less than five years away, investing probably isn’t the best plan of action. Why? Because that’s a fairly short time frame. If the market goes into freefall and doesn’t recover before you need to withdraw your money, you could end up losing your hard-earned savings.

Consider a high-yield savings account. You can also look into a money market account, a Certificate of Deposit (CD), or the cash option in a brokerage account, so you can earn as high an interest rate as possible without putting this short-term money at risk of losing value.

thumb_upQuick Tip: Investing is risky!

The value of your portfolio will drop at times. But remember: You only lose money if you sell when the value has dropped. If you have a long-term outlook such as retirement, wait for the value of your shares to rise again before selling. When your goal for withdrawing the money is in five years or less, consider shifting into less volatile investments. Or, if you’re an active investor with a shorter-term outlook, don’t forget that you’ll lose money if you need to sell when the market is down.

2. Choose an account type

Now that you know your goals for this money, you can figure out which account is the best type for you.

A brokerage account gives you flexibility — you can take money out when you need it and you’ll have access to any type of investment you’ll need, from stocks to mutual funds, bonds to ETFs. Here’s our round-up of best brokers for beginners.
A traditional or Roth IRA, opened at a brokerage, gives you tax benefits to encourage you to save and invest for retirement. (Ditto a 401(k) or other workplace plan.) Here’s our round-up of best brokers to open an IRA on StockBrokers.com. Also, see how to choose the best retirement account for you.
Similar to a retirement account, a 529 college savings plan gives you tax breaks for saving for college costs.
If you have a health savings account (HSA) and plan to invest that money and pay for health-care costs out of savings, then consider opening your HSA account at a brokerage.

3. Assess your risk tolerance

Your risk tolerance is a measure of how comfortable you are with risk (e.g., the stock market’s inevitable ups and downs). Understanding your appetite for risk helps guide your asset allocation, which, put simply, is how much money you put in stocks vs. bonds vs. cash.

Investing is a classic example of the relationship between risk and reward: The more risk you’re willing to take, the higher the potential payoff. For example, stocks promise the highest returns over time compared to less volatile assets like bonds, but the stock market also comes with a higher risk that you’ll lose money.

Meanwhile, investing your money in, for example, a very low-volatility bank savings account does have at least one big risk of its own: Inflation will eat into your purchasing power.

4. Choose your investments

You know your goals, the account type you’re going to use, and you have a sense of your risk tolerance. It’s time to pick your investments.

Active investing

If you want to be an active investor, taking a role in picking individual stocks and other investments, and timing your trades in and out of those investments based on market conditions and other factors, then you’re going to need to start doing research. You may benefit from using tools like stock screeners or trading journals.

Passive investing

Generally, passive investors with a long-term outlook invest using index mutual funds or ETFs, which make it easy to invest in thousands of companies with the purchase of just one investment.

Index funds track a set index, which is essentially a list of companies organized around a theme. For example, the S&P 500 index tracks the stock-market performance of 500 large U.S. companies. Index funds are essentially on autopilot — that means they tend to be very low-cost because a manager isn’t actively running the fund.

When investing in individual stocks, there’s generally no fee other than the trading fee, which these days is usually zero in the U.S. With mutual funds and ETFs, there are fees to watch for, including the so-called expense ratio (essentially a management fee), plus front-end and back-end loads and 12b-1 fees (essentially marketing fees).

Actively managed funds can have expense ratios north of 1%, and you might see front-end or back-end loads and 12b-1 fees added on. This is why we love index funds. They have much, much lower expense ratios. For example, the expense ratio for Charles Schwab’s Total Stock Market Index Fund is 0.03%. Vanguard’s Total Bond Market Index Fund’s expense ratio is 0.05%.

hotelLazy portfolios

With just two to five index mutual funds, an investor can be highly diversified, all while investing in a very low-cost portfolio. “Lazy portfolios” are designed around this very idea; read more about lazy portfolios on the Bogleheads website (Bogleheads are named after John Bogle, founder of the Vanguard Group, who is credited with inventing the index fund).

5. Stay the course

If you’re a passive investor in it for the long haul, it’s best not to get too caught up in the day-to-day ups and downs of the market. It’s OK to ignore the daily headlines as the market gyrates — and gyrate it will.

Still, you don’t want to ignore your finances entirely.

First, once a year or so you want to look at your asset allocation (remember: That’s essentially the way you’ve divvied up your money between stocks and bonds, and different types of stocks and bonds). Market moves can shift your asset allocation out of whack over time, so once a year or so check to make sure you’re still in that 80/20 portfolio, or whichever allocation you chose for yourself. You might need to shift your investments a bit to get your portfolio back to where you want it.

Second, you want to revisit your overall financial goals once a year or so and confirm that you’re doing what you can to meet them. Obviously, most of us are dealing with limited resources to some degree — we can’t do absolutely everything we want to do because we don’t have enough money — so check that your money is working toward your most important money goals — including both shorter-term goals like that trip to Southeast Asia, and longer-term goals like retirement.

For active investors who might have a shorter timeframe than passive investors, the crucial to-do is to keep a close eye on your investing plan: What were your original goals for picking the investments you’re in, are those goals still in play for you, and are those particular investments the right tools to get you there?

FAQs

How do beginners invest in stocks?

The first step for a beginner to invest in stocks is to open a brokerage account at a highly rated broker, such as Charles Schwab, Fidelity, Vanguard, Robinhood, etc. Check out our roundup of the best brokers for beginners.

Next, pick your investments. The best investments for you will depend on your goals, time horizon and risk tolerance. Put simply, you can invest in stocks directly, by buying shares of a company, or you can invest in many companies at once through an ETF (exchange-traded fund) or mutual fund, both of which pool investors’ money to purchase shares of many companies.

A couple of simple ideas to get started:

Purchase a total stock market ETF or mutual fund. Because a total stock market ETF or mutual fund invests in every publicly traded company, this type of investment gives you a highly diversified portfolio in one easy purchase.
Pick a company you want to invest in, such as Apple, Amazon or any one of the thousands of publicly traded companies in the U.S. If one share of that company’s stock is too expensive for you, find a broker that offers fractional shares.

Don’t forget that if you’ve got a retirement plan at work that you’re participating in, then you’re already investing. Pat yourself on the back.

What is a robo-advisor?

Robo-advisors are low-cost, automated investment advisors that reduce costs by harnessing the idea that a handful of investment portfolios are well-suited for most long-term investors. Many brokerage firms now offer a robo-advice component, where you pay a small fee and they invest your money in a preset portfolio. Robo-advisors can be a useful low-cost alternative for people who want to invest but are afraid to take the first step, or prefer not to spend the time researching and monitoring their own investments.

What is a stock?

Companies issue shares of stock to raise money for a variety of goals, such as paying off debt, expanding operations, launching new products and more. Company stock is also called equity, and its value can rise and fall based on the company’s situation as well as broader market conditions.

When you buy a share, you become a part owner in that company. You become eligible to receive dividend payouts (if the company offers those). You get to vote at shareholder meetings. When you visit HQ, go ahead and grab a stapler on your way out the door. Or depending on the company’s market cap, maybe just a staple.

Stocks come in different flavors:

Growth stocks are expected to grow — increase in value — faster than other types of companies.
Value stocks are seen as a good deal for the money — their price-to-earnings ratio is low and they’re undervalued by the market.
Income stocks pay a sweet and steady dividend.
Small-cap stocks are companies that have a small market capitalization (market cap is the price of the stock multiplied by all outstanding shares), while large-cap stocks have a — you guessed it — large market capitalization.

What is a mutual fund?

A mutual fund is an investment product that lets a group of investors pool their money to expand their purchasing power. So everyone puts money in, and the fund manager goes out and buys shares in companies (or buys bonds) as per that fund’s investing objectives.

For example, a total U.S. stock market fund will buy shares of all publicly traded companies in the U.S. If you didn’t have access to that total stock market mutual fund, assuming you’re not a wealthy person, it would be extremely challenging to invest in every single company on your own — there are literally thousands.

There are actively traded mutual funds and index mutual funds. Actively traded funds have managers buying and selling based on their insights into how to beat the market. Index funds track a specific index with the aim of matching that index’s returns.

What is an ETF?

An ETF, aka exchange-traded fund, is a type of mutual fund, but, as its name suggests, an ETF’s shares are traded on an exchange, just like stocks are. That allows for intraday trading, unlike traditional mutual funds, which trade once per day only.

ETFs are often — but not always — cheaper than traditional index mutual funds, and there may be tax advantages, too. Plus, now that most brokers offer free trades, you don’t have a trading fee to worry about.

You can find mutual funds and ETFs that offer exposure to the exact same investments. Choosing between them comes down to comparing costs: Does the broker charge a trading fee on either investment? What is the expense ratio for each investment?

What is an index fund?

An index fund is a mutual fund or ETF that tracks a specific index. An index is essentially a list of companies. For example, the S&P 500 is an index of 500 large U.S. companies. Charles Schwab, one of the major mutual fund providers, has an index mutual fund that tracks the S&P 500, and Vanguard, another fund provider, offers an ETF that tracks the S&P 500.

The very frequently cited Dow Jones Industrial Average, aka DJIA or the Dow, is an index of 30 major U.S. companies. There’s an ETF that tracks it: the SPDR Dow Jones Industrial Average ETF Trust.

Index funds offer investors an extremely low-cost path into the stock and bond markets because, unlike actively managed funds, index funds aren’t paying a fund manager to try to outperform the market. Instead, an index fund is set to mimic an index by investing in the companies listed on that index.

What is a bond?

A bond, aka fixed-income security, is issued by a company as a means to borrow money. When you buy a bond, you’re loaning money to the borrower — which could be a company, the federal government, or a state or local municipality — and the borrower is promising to pay you back with interest.

The borrower owes the lender (that would be you, if you buy a bond) both the stated interest and the face value of the bond. That face value gets paid back at the bond’s stated maturity, that is, when the loan comes due. Bonds offer investors both steady income from the interest payments as well as the promise of getting the bond’s face value back in full at the end of the term.

References

Bogleheads

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About the Editorial Team

Andrea Coombes has 20+ years of experience helping people reach their financial goals. Her personal finance articles have appeared in the Wall Street Journal, USA Today, MarketWatch, Forbes, and other publications, and she's shared her expertise on CBS, NPR, "Marketplace," and more. She's been a financial coach and certified consumer credit counselor, and is working on becoming a Certified Financial Planner. She knows that owning pets isn't necessarily the best financial decision; her dog and two cats would argue this point.

Dayana Yochim is a former Senior Writer/Editor at Reink Media Group who has written about personal finance and investing for more than 20 years. Her work has appeared in outlets including HerMoney.com, NerdWallet and the Motley Fool, and has been syndicated nationally. Dayana has also been a guest expert on "Today" and Good Morning America.

Carolyn Kimball is a former managing editor for StockBrokers.com and investor.com. Carolyn has more than 20 years of writing and editing experience at major media outlets including NerdWallet, the Los Angeles Times and the San Jose Mercury News. She specializes in coverage of personal financial products and services, wielding her editing skills to clarify complex (some might say befuddling) topics to help consumers make informed decisions about their money.

John Bringans is the Managing Editor of StockBrokers.com. An experienced media professional, John has a decade of editorial experience with a background that includes key leadership roles at global newsroom outlets. He holds a Bachelor’s Degree in English Literature from San Francisco State University, and conducts research on forex and the financial services industry while assisting in the production of content.