How to start investing: A guide for beginners

Investing is a smart way to build wealth. You can start with a small amount and gain confidence as you go. A one-time deposit gets your money growing. With steady contributions, you can help your money grow even faster. Even if you’re starting with $500 or $1,000, making small, consistent contributions can really add up over time.

In this guide, you’ll learn how to start investing with confidence so you can take your first step toward growing your money in a way that works for your life.

Why should I start investing?

When it comes to investing, “the most important thing to remember is starting matters more than the amount,” says Sarah Sealey, Manager, Navy Federal Investment Services.

Time is your biggest advantage. The sooner you start investing, the more time your money has to grow. Returns and compounding can grow your money meaningfully. When you invest, your money can earn returns. Over time, those returns can earn returns of their own. It’s a snowball effect that builds as it rolls.

This table shows how time and steady contributions can change your results.

Note: Figures are estimates for illustration only. Returns are not guaranteed and may vary.

“The biggest advantage younger investors have is time,” Sealey says. “The earlier you start, the more you can benefit from compounding—where your money earns money, and then that money earns more money. That said, no matter your age, starting sooner rather than later can make a big difference.”

Learning about investing is important, but taking that first step is where real progress begins. Making a few key decisions now will help you build a strong foundation. The steps below will walk you through what to focus on first so you can start investing with confidence.

Step 1: Set your financial goals

Before you put a single dollar into an investment account, it helps to know why you’re investing. Your goals will guide how much to invest, what to invest in and how much investing risk makes sense for you to take on. 

Think about the goals that matter most to you, like:

• investing for retirement
• saving for a down payment in the next 5 years
• building a financial cushion for your family

Your goal matters because your time horizon depends on whether your goal is short term or long term. Short-term and long-term goals usually require different investing approaches. Goal-based investing can help you shape your strategy and build a plan that fits your goals.

Your goals should be specific. For example, “I want to retire comfortably” becomes “I want $1.5 million by age 65.” Because the goal is more specific, you can estimate monthly contributions and your time horizon. You can calculate how much you need to invest each month to achieve your goal.

Step 2: Decide how much to invest

One of the biggest myths about investing is that you need a lot of money to get started. You don’t! What matters more than the amount of money you invest is the habit of investing consistently over time, even in small amounts. That’s what helps to build real wealth.

So how much should a beginner invest? There’s no single right answer. Many people aim to invest around 10%-15% of their income. If that’s not realistic for you right now, start with whatever amount you can afford. Even $25 or $50 a month is a meaningful start. Add investing to your budget and schedule a transfer so you stick with it.

Why increasing contributions matters 

Here’s a simple representative example that shows why it’s important to keep increasing your investment over time as your budget allows. This assumes monthly compounding and an average 7% annual return:

• If you start investing $100 a month at age 30, you’d have about $122,000 by age 60. 
• If you start investing $100 a month at age 30, then increase your monthly contribution by 5% each year, you’d have about $211,000 by age 60. 

Small increases in your monthly contribution can make a big difference over time.

Step 3: Understand your risk tolerance

All investing involves risk. Generally speaking, investments with higher potential returns also come with higher potential losses. Risk tolerance is how comfortable you are with your investments moving up and down. It’s an important part of building an investment approach that works for you. Your risk tolerance can change as you get older.

A few things shape your risk tolerance, like:

• having time to recover from market dips
• knowing your comfort level with losses 
• planning for goals that are coming soon

Understanding how much risk you’re comfortable with is an important part of building an investment strategy that works for you. A few factors shape your risk tolerance, and it can change over time. Your current age plays a big role. If you’re younger and won’t need your money for many years, you typically can afford to take on more risk because you have some time to recover from market dips. As you get closer to retirement, it often makes sense to shift toward more conservative investments to help protect your nest egg.

Your personality matters, too. For example, if the idea of watching your portfolio drop 20% in a bad market would keep you up at night, then a more conservative approach might be the right fit for you, regardless of how old you are.

Step 4: Choose the right investment account for your goal

Once you know your goals and risk tolerance, it’s time to pick the right type of account for your investments. The account you choose can have a big impact on how your money grows, particularly when it comes to taxes.

Investing for retirement

If you’re investing for retirement, a good place to start is a tax-advantaged account like a traditional IRA, Roth IRA or 401(k). The table below gives you a quick look at how these 3 popular retirement accounts work. It breaks down how you put in money, how your savings can grow, how taxes may show up when you take money out and a few other things to keep in mind.

Investing for other goals

A taxable brokerage account can give you flexibility for goals outside of retirement, like building wealth or saving for a large purchase. You can invest in stocks, ETFs, mutual funds, bonds and more. You can contribute as much as you want and take your money out at any time. Taxes may apply to dividends and capital gains.

Step 5: Build your investment portfolio

Now, you get to decide how to put your money to work. You can make smart investing decisions without being a market expert. Many beginner-friendly investment options make it easy to build a diversified portfolio and start investing with confidence right away.

You can choose investments across different asset classes, like stocks, bonds and cash. Many beginners start with funds because they help spread risk across many companies.

Funds: Investing in many companies at once

Index funds, mutual funds, money market funds and exchange-traded funds (ETFs) are a great starting point for most beginners. Funds pool money from many investors to buy a broad collection of stocks or bonds. This can give you built-in diversification and often broad exposure. Past performance is not a guarantee of future results. Investing in an S&P 500 index fund, for example, gives you exposure to 500 of the largest U.S. companies in a single investment.

“With a smaller amount, it can make sense to look at professionally managed, diversified investments like mutual funds or ETFs,” the investment services manager Sealey says. “These usually invest in many different companies at once, sometimes even hundreds. That helps spread out risk, because if one investment struggles, others may help balance it out. Many of these options also let you start with smaller amounts and can be easier and more cost-effective than buying individual investments on your own.”

Stocks: Owning a piece of a single company

Stocks let you buy a small ownership stake in a specific company. They carry more risk than broad funds since your investment is tied to one company’s performance, but they can also offer higher returns. If you buy individual stocks, consider buying across several companies and industries. Some investors include smaller company stocks for higher growth potential.

You can research different stocks and decide which ones you want to buy shares of in your investment accounts. Remember to diversify your stock portfolio. One way to do that is to spread your money across multiple companies and industries.

Bonds: Helping balance your investments

Bonds are generally lower risk than stocks and can help balance out your portfolio. They’re essentially loans you make to a company or government in exchange for regular interest payments.

Step 6: Invest consistently and be patient

Picking your investments is a big milestone on your wealth-building journey, but it’s not the finish line. Staying consistent with your investments is a smart way to build significant wealth over time. Once your portfolio mix is set, focus on steady behavior.

One of the simplest ways to stay on track is to automate your investments. Set up recurring transfers to your investment account so money moves automatically on a schedule that works for you. When investing happens in the background, you’re more likely to stick with it.

“It may sound simple, but it’s true: time in the market matters more than timing the market,” Sealey says. “Trying to guess the ‘perfect’ time to get in or out almost never works. You’d have to be right twice, and that’s really hard to do. Staying invested, even when things feel shaky, has historically worked much better than trying to jump in and out. Investing is more about patience than perfection.”

Dollar-cost averaging (DCA) is an investing strategy where you invest the same amount of money on a regular schedule, regardless of market conditions. Over time, this approach averages out the highs and lows and takes the guesswork out of deciding when to invest.

Keep in mind that using this method won’t guarantee profits or make you immune to losses during downturns. This is a slow, steady investment strategy. It’s designed to ease the effects of market ups and downs and lower your average per-share cost over time. You’ll still need to diversify your investing dollars among a variety of companies, industries and sectors to lower your risk and increase the likelihood of earning returns.

The Rule of 72: How time helps your money grow

Small, consistent investments may not feel dramatic at first, but over time they can grow in meaningful ways. The Rule of 72 is an easy formula that helps you estimate how long it might take to double your money based on your rate of return. It shows how time and rate of returns work together as your money grows.

It’s simple math: divide 72 by your expected rate of return to get a rough estimate of how many years it might take to double your money. Keep in mind that this is not a guarantee of return. Actual investments will fluctuate with the rate of return.

This table shows how different average rates of return can affect how quickly an investment might double in value.

The Rule of 72

Understanding how long‑term growth works can help you stay motivated and focused on the bigger picture.

Your path to building wealth starts here

Navy Federal is here to help you take steps that can help you build your wealth. You can decide if you want to manage your investments yourself or take advantage of automated investing services. Our Digital Investor tool lets you start investing in minutes with as little as $1. You also can connect with a Navy Federal Investment Services advisor to discuss your situation so you can take your first step toward a stronger financial future.