How to Invest Money: Choosing the Best Way To Invest for You

Learning how to invest money might seem scary, but it's easier than you think, and you can start no matter how much you have saved.

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Investing money in the stock market is the No. 1 Americans build wealth and save for long-term goals such as retirement, but figuring out the best way to invest that money can feel daunting. This doesn't have to be the case.

Everyone has a unique financial situation. The best way to invest depends on your personal preferences along with your current and future financial circumstances. It's important to have a detailed understanding of your income and expenses, assets and liabilities, responsibilities and goals when building a sound investing plan.

Here's a five-step process that can help you figure out how to invest your money right now:

And here are the details on how to put your cash to work in the right way, right away.

» Ready to start investing? Read

Figuring out how to invest money starts with determining your investing goals, when you need or want to achieve them and your comfort level with risk for each goal.

In this post, we're largely focusing on long-term goals. We'll also touch on how to invest with no specific goal in mind. After all, the aim to grow your money is a fine goal by itself.

Money for short-term goals generally shouldn't be invested at all. If you need the money you're saving in under five years, check out our .

» Curious about buying stocks? Learn .

Once you know your goals, you can dive into the specifics about how to invest (from picking the type of account to the best place to open an account to choosing investment vehicles). But if the DIY route doesn't sound like it'll be your cup of tea, no worries.

Many savers prefer having someone invest their money for them. And while that used to be a pricey proposition, nowadays it's quite affordable — cheap, even! — to hire professional help thanks to the advent of automated portfolio management services a.k.a. robo-advisors.

These online advisors use computer algorithms and advanced software to build and manage a client’s investment portfolio, offering everything from automatic rebalancing to tax optimization and even access to human help when you need it.

» Need help investing? Learn about

If you'd rather do it yourself, let's continue.

To buy most types of stocks and bonds, you'll need an investment account. Just as there are a number of bank accounts for different purposes — checking, savings, money market, certificates of deposit — there are a handful of investment accounts to know about.

Some accounts offer tax advantages if you're investing for a specific purpose, like retirement. Keep in mind that you may be taxed or penalized if you pull your money out early, or for a reason not considered qualified by the plan rules. Other accounts are general purpose and should be used for goals not related to retirement — that dream vacation home, the boat to go with it or a home renovation down the line.

Here's a list of some of the most popular investing accounts:

» View our roundup of the

If you're investing for another goal:

With the exception of a 401(k) — which is offered through your employer — you can open these accounts at an online broker.

» View our roundup of the

Now that you know what kind of account you want, you need to choose an account provider. There are two major options:

Don't worry if you're just getting started. Often you can open an account with no initial deposit. (See our lineup of .) Of course, you're not investing until you actually add money to the account, something you'll want to do regularly for the best results. You can set up automatic transfers from your checking account to your investment account, or even directly from your paycheck if your employer allows that.

» Curious about buying stocks? Learn .

Figuring out how to invest money involves asking where you should invest money (see our full list of the). The answer will depend on your goals and willingness to take on more risk in exchange for higher potential investment rewards. Common investments include:

If you have a high risk tolerance and can stomach volatility, you’ll want a portfolio that contains mostly stocks or stock funds. If you have a low risk tolerance, you’ll want a portfolio that has more bonds, since these tend to be more stable and less volatile. Your goals are important in shaping your portfolio, too. For long-term goals, your portfolio can be more aggressive and take more risks — potentially leading to higher returns — so you’ll probably want to own more stocks than bonds.

Whichever route you choose, the best way to reach your long-term financial goals and minimize risk is to spread your money across a range of asset types. That’s called . Then within each asset class, you’ll also want to diversify into multiple investments.

Building a diversified portfolio of individual stocks and bonds takes time and expertise, so most investors benefit from fund investing. Index funds and ETFs are typically low-cost and easy to manage, as it may take only four or five funds to build adequate diversification.

Now you know the investing basics, and you have some money you want to invest. Feel like you need more information? The below posts dive deeper into some of what we discussed above.

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