Beginner's Guide to Start Investing: Where to Start and Common Mistakes to Avoid

Someone at some point probably told you that you should be investing. Maybe you've even opened an investment account but the money is just sitting there because you're not sure what to actually do with it. Or maybe you haven't started at all because every time you research investing, you're hit with overwhelming terminology and advice that assumes you already know what you're doing.

Here's what you need to know: feeling unsure about investing is completely normal. Investing feels complicated because it's often explained in a complicated way by people who've been doing it for decades and forget what it's like to be a beginner.

But here's what changes everything: investing isn't about being perfect. It's about starting.

Why does investing matter so much? Three reasons:

1. Inflation is real. Money sitting in a regular savings account loses purchasing power every year. With inflation averaging around 3% annually, $10,000 today will only have about $7,400 of purchasing power in ten years if it's not growing.

2. Long-term growth builds wealth. Historically, the stock market has returned an average of 10% annually over long periods. That means your money can double every seven years when invested, versus slowly losing value when it just sits in savings.

3. Financial independence requires it. Whether that means retiring comfortably, taking a career sabbatical, starting a business, or just having options. Investing is how you build the financial foundation that makes bigger decisions possible.

In this guide, you'll learn where to start with beginner investing, what accounts to open, what to actually invest in, and the most common mistakes to avoid. By the end, you'll have a clear roadmap for how to start investing.

Step 1: Set Up Your Financial Foundation First

Before you start investing, you need to make sure your financial foundation is solid. Investing before you're ready could set you back rather than move you forward.

Here's what you might want to have in place before you start investing:

1. Have a Starter Emergency Fund

You should have at least one month of essential expenses saved in cash, ideally three to six months. This money sits in a high-yield savings account and covers unexpected expenses like car repairs, medical bills, temporary job loss. That way you aren’t forced to sell investments to cover these unexpected expenses.

Why does this matter? If you invest every dollar you have and then your car breaks down, then you won’t have the funds to cover this expense. When you invest your money you should keep it in the market for the long-term.

2. You've Paid Off High-Interest Debt

If you're carrying credit card balances or other debt with interest rates above the 7% or 8% range, then pay those balances before investing. The reason is because you might be paying 20% interest on credit card debt, but your investments might earn 10% annually (based on historical averages). You're losing money on that math.

Focus on eliminating high-interest debt first, then invest the money that you were putting towards your high-interest debt. Lower-interest debt like student loans or mortgages can coexist with investing. You definitely don't need to be completely debt-free to start. Some debt is good to have as you are building wealth with it!

3. You Understand Your Monthly Cash Flow

Before you commit to investing monthly, make sure you know where your money is going. You don't need a perfect budget, but you do need to know roughly what you earn, what you spend, and how much you can realistically commit to investing without creating stress in other areas. You don’t want to start investing more than your budget can handle. If you are investing money that you need to pay your basic bills, then that’s not a good plan.

The Budget → Save → Invest Sequence

This is a natural order to build financial health:

First, budget: Understand your money flow and make intentional choices about spending.

Then, save: Build your emergency fund so you can cover those unexpected expenses that pop up.

Finally, invest: Once your foundation is solid, start building long-term wealth.

Investing is a part of a complete financial system where that works together to build your wealth.

Step 2: Choose an Investment Account

One of the most confusing parts of beginner investing is figuring out which account to open. The good news: for most people, the decision is simpler than you think.

1. 401(k): Your First Stop (If Your Employer Offers One)

If your employer offers a 401(k) plan, this is typically where you start.

How it works: A 401(k) is a retirement account offered through your employer. You choose how much of each paycheck to contribute, and that money is automatically invested according to your selections within the plan.

The employer match: Oftentimes employers match your contributions up to a certain percentage. For example, they might contribute 50 cents for every dollar you put in, up to 6% of your salary. This is free money. Try to contribute at least enough to get the full match. It’s a way to grow your retirement savings even faster!

Pre-tax vs. Roth 401(k):

• Pre-tax (Traditional) 401(k): Contributions reduce your taxable income now, but you'll pay taxes when you withdraw in retirement

• Roth 401(k): Contributions are made with after-tax money, but grow and are withdrawn tax-free in retirement

Oftentimes for young professionals early in their careers, Roth options are often more beneficial because you're likely in a lower tax bracket now than you will be later.

Start here if: Your employer offers a 401(k), especially if there's a match. This is the easiest first step into investing.

Each year the IRS assigns a contribution limit for each tax advantaged retirement account.

Visit the IRS website here to check the latest contribution limits by account type.

2. IRA: Individual Retirement Account (Roth vs. Traditional)

An IRA is a retirement account you open independently, not through your employer. You can open one at Fidelity, Vanguard, Schwab, or other major brokerages.

Roth IRA: Contributions are made with after-tax dollars, but all growth and withdrawals in retirement are tax-free. There are income limits so if you earn too much, you can't contribute directly to a Roth IRA. Visit the IRS website directly for information about income limits.

Traditional IRA: Contributions may be tax-deductible now, but you pay taxes on withdrawals in retirement.

Why Roth IRAs are great for young professionals: If you're early in your career and in a lower tax bracket, paying taxes now (Roth) is often smarter than paying taxes later (Traditional) when you might be in a higher bracket.

Start here if: You've gotten your employer 401(k) match and want to invest more, or your employer doesn't offer a 401(k) at all.

Each year the IRS assigns a contribution limit for each tax advantaged retirement account. Visit the IRS website here to check the latest contribution limits by account type.

3. Taxable Brokerage Account: Use After Retirement Account Contributions Are Maxed Out

A taxable brokerage account has no special tax treatment, no contribution limits, and complete flexibility. You can withdraw money anytime without penalties (though you'll owe taxes on gains).

Start here if: You've maxed out your 401(k) and IRA contributions and want to invest even more, or you're saving for a goal that's more than 7-10 years away but before retirement (e.g., a house down payment in 15 years).

The Simple Priority Order for Beginner Investing

1. Contribute to 401(k) up to employer match

2. Max out Roth IRA (or Traditional IRA)

3. Go back and increase 401(k) contributions toward the max

4. Open a taxable brokerage account if you still want to invest more

This priority order maximizes tax advantages and free money from employer matches.

Step 3: What Should You Actually Start Investing In?

This is where people often freeze. You've opened the account, but now you're staring at thousands of investment options and have no idea what to choose.

Here's the thing … you don't need to pick individual stocks (and it’s probably even best if you don’t pick individual stocks). AND you also don't need to choose 15 different investments. You need diversified, low-cost funds which you then need to leave them alone and let them grow.

1. Index Funds

An index fund is a type of mutual fund that tracks a specific market index, like the S&P 500 (the 500 largest U.S. companies) or a total stock market index (essentially every publicly traded company in the U.S.).

When you buy an index fund, you're buying tiny pieces of hundreds or thousands of companies all at once. This is instant diversification.

Why index funds work: They're low-cost, broadly diversified, and historically, they outperform the majority of actively managed funds over long time periods.

2. ETFs (Exchange-Traded Funds)

ETFs are similar to index funds but trade like stocks throughout the day. For beginner investors, the difference between index funds and ETFs is minimal as both offer low-cost, diversified investing.

3. Target-Date Funds

Target-date funds are designed to automatically adjust in risk as you get closer to retirement. You choose a fund based on approximately when you plan to retire. For example, a 2060 fund if you plan to retire around 2060.

The fund starts aggressive (mostly stocks) when you're young, then gradually becomes more conservative (more fixed income like bonds) as you near retirement.

Why target-date funds are great for beginners: They're a one-fund solution. You don't need to think about rebalancing or adjusting your allocation over time because the fund does it for you.

Why Diversification Matters

Diversification means spreading your money across many types of investments instead of putting it all in one place. If you own a single company's stock and that company fails, you lose everything. If you own an index fund with 500 companies and one fails, it has a minimal impact on your overall investment portfolio.

Diversification reduces risk without sacrificing long-term returns.

Listen to this Podcast Episode on Diversification: Risk Less, Gain More: The Diversification Trick

How Much Should You Invest as a Beginner?

This might not be the answer you want to hear, but there is no dollar amount that you should start with. It’s really about just starting to invest with whatever you have available even if it’s $25 a month! Yes, you can really start investing with just $25 a month. 

You want to build the habit of investing, then increase the dollar amount over time as you are able to. Just like with exercise … if you are lifting weights you wouldn’t just go to the heaviest weights first. You start with a lower weight, then increase the weight as your muscles develop! Same thing for investing. Start with a small dollar amount, then increase as your finances develop!

Automate Your Contributions

Set up automatic transfers from your paycheck or checking account to your investment accounts. Treat investing like a bill that gets paid first, not something you do with leftover money at the end of the month.

When investing is automated, it happens whether you're motivated or not.

Increase Contributions With Raises

Here's a powerful strategy to consider: every time you get a raise, increase your investment contributions by at least half of the raise amount.

If you get a 4% raise, increase your 401(k) contribution by 2%. You still benefit from higher take-home pay, but you also accelerate your investing with minimal effort.

This is how you avoid lifestyle inflation which is the tendency for spending to increase every time income does. Instead of spending the entire raise, you invest part of it and build wealth faster.

Common Beginner Investing Mistakes to Avoid

Learning what not to do is just as valuable as learning what to do. These are the mistakes that trip up beginners and cost them time, money, and confidence.

Mistake 1: Waiting for the "Perfect" Time to Start

There will never be a perfect time. The market will always feel too high, too volatile, too uncertain. If you wait for the perfect moment, you'll never start.

One of the most important investment principles: time in the market beats timing the market. Being invested for long periods matters SO MUCH more than trying to buy at exactly the right moment.

Start now with whatever amount you can. The compounding growth you gain from starting early far outweighs any short-term market timing you might achieve.

Mistake 2: Contributing Money But Not Actually Investing It

This is an incredibly common mistake. You opened your 401(k) or IRA. You're contributing money. But you never selected investments, so the money sits in cash or a money market fund earning almost nothing.

Opening the account and contributing money is step one. Actually investing that money into funds is step two. Both are required.

After every contribution, confirm your money is actually invested, not just sitting in cash.

Mistake 3: Overcomplicating Investing

Beginners often think they need 10-15 different investments to be properly diversified. They obsess over news headlines. They constantly second-guess their choices.

This is exhausting and unnecessary. A simple portfolio of one to three low-cost index funds is sufficient to start. More investments doesn't mean better returns.

Keep it simple. Check your accounts quarterly at most. Tune out the daily market noise.

Mistake 4: Ignoring Old 401(k)s From Previous Jobs

If you've changed jobs and left a 401(k) behind at a former employer, don't ignore it. Old 401(k)s create clutter, may charge higher fees, and make it harder to see your complete financial picture.

Roll old 401(k)s into your current employer's plan or into an IRA. Consolidation makes management easier and often reduces costs.

Read this post on How to Roll Over a 401(k): Step-by-Step Guide

Mistake 5: Stopping Contributions When the Market Drops

Market volatility is normal. There will be years when your investments decline. This is not a reason to stop investing, but rather it's actually an opportunity.

When the market drops, your regular contributions buy more shares at lower prices. This is called dollar-cost averaging, and it's one of the most powerful tools beginner investors have.

Keep contributing through market downturns. Future-you will be grateful when those cheaper shares grow in value as the market recovers. Think of the down days like a big sale like Amazon Prime Day!

What Investing Actually Does for Your Future

Let's shift from the tactics of investing to why it matters for your life.

Investing isn't about becoming rich or retiring early (though those might be side effects). Investing is about building options and flexibility for your future self.

Investing creates choices: The ability to take a career break without financial panic. The freedom to switch industries even if it means lower pay initially. The option to start a business or work part-time if you want.

Investing reduces stress: Knowing you're building long-term financial security removes that constant background anxiety about the future.

Investing supports financial independence: Whether that means traditional retirement, working on your own terms, or simply not being dependent on any single paycheck, investing moves you toward independence.

Investing helps you become the CFO of your own life: You're actively managing your money, making strategic decisions, and taking control rather than just hoping things work out.

The Power of Compound Growth

Let's look at a simple example of how monthly investing grows over time.

If you invest $500 per month starting at age 28, assuming average market returns of 10% annually, here's approximately what you'd have:

• By age 38 (10 years): $99,900

• By age 48 (20 years): $359,000

• By age 58 (30 years): $1,031,000

• By age 68 (40 years): $2,775,000

You contributed $240,000 over 40 years ($500 × 12 months × 40 years), but compound growth turned it into $2.8 million.

That's the power of starting early and staying consistent.

Final Thoughts: You Don't Need to Know Everything to Begin

Here's what I want you to take away from this guide: investing isn't about being an expert. It's about being consistent.

The people who build wealth over time aren't the ones who know the most about the stock market or who can explain complex financial concepts. They're the ones who start, automate, and stay the course through market ups and downs.

You don't need to understand everything before you begin. You need to understand enough to take the first step and then trust the process.

Resources & Tools

• Investing Made Simple Guide - Beginner-friendly investing fundamentals

• Money Style Quiz - Discover how you naturally approach money

• Deeply Invested Podcast - Investing Goals: Building a Portfolio That Fit

Want Even More Money Guidance?

Want to feel more confident with your money and actually enjoy the process?

Join the Your Money Style Newsletter for weekly tips, motivation, and simple tools to help you build a financial life that feels aligned, not restricted.