Table of Contents
Key Takeaways
Investing is a smart way to take charge of your financial future and steadily build your wealth over time.
To create a stronger financial foundation in 2025, focus on boosting retirement savings, exploring investment funds, balancing short-term gains with long-term goals, and staying informed.
You can begin your financial journey with as little as $1. Starting early and being consistent often matters more than the amount you invest at first, thanks to the power of compound interest.
Jumping into investing might feel intimidating at first, but it’s actually one of the smartest ways to grow your money over time. Sure, market dips can be nerve-wracking—but unlike savings accounts, investing has the power to beat inflation and increase your long-term wealth.
That’s why investing is a game-changer for Americans of all ages who want to build financial stability and a brighter future.
As the new year begins, it’s the perfect time to take control of your finances. Whether you’re new to investing or ready to grow your portfolio, starting now could pay off in a big way. Make 2025 the year you invest in your future—and watch your money work for you.
How to start investing:
1. Look into retirement accounts
When it comes to investing for your future, one of the most effective and accessible starting points is your employer-sponsored retirement plan—most commonly, a 401(k). If your workplace offers one, it’s a great first step to start building long-term financial security.
A 401(k) allows you to invest a portion of your paycheck before it’s taxed, and that money grows tax-deferred until you retire and begin making withdrawals. Even better, many employers offer a matching contribution—essentially free money—to encourage employees to participate. That match can significantly boost your investing returns over time.
There are two main types of 401(k) plans, each with unique tax benefits:
Traditional 401(k): Contributions are made pre-tax, reducing your taxable income today. You’ll pay taxes only when you withdraw the money during retirement.
Roth 401(k): Contributions are made with after-tax income, but your withdrawals in retirement—including any investment gains—are completely tax-free.
Choosing between these options depends on your current tax situation and your expectations for the future. Both are powerful investing tools, especially when combined with employer contributions. You can also use online tools like Bankrate’s 401(k) calculator to estimate how your investments might grow throughout your career.
For those new to investing, especially recent graduates or those who’ve never participated in a retirement plan, the mechanics of a 401(k) might feel a bit overwhelming. Fortunately, help is often available. Your employer’s HR team or the plan provider—such as Fidelity, Vanguard, or Charles Schwab—typically offers educational tools and investing resources to guide you through your options and build your confidence.
If you don’t have access to a 401(k) through your job or want to invest beyond your employer’s plan, consider opening an Individual Retirement Account (IRA). These come in two varieties:
Traditional IRA: Similar to a traditional 401(k), this allows pre-tax contributions, which grow tax-deferred and are taxed at withdrawal.
Roth IRA: Funded with after-tax dollars, but like a Roth 401(k), qualified withdrawals are completely tax-free.
Self-employed individuals also have retirement investing options tailored to them, such as SEP IRAs or Solo 401(k)s. It’s important to understand that the IRS sets annual contribution limits for each type of account:
For 2025, you can contribute up to $23,500 to a 401(k) (not including employer matches), and up to $7,000 to an IRA.
If you’re over 50, you’re allowed an extra $7,500 in catch-up contributions to your 401(k), and $1,000 more to an IRA.
No matter your employment status, starting early and staying consistent with your investing strategy can make a big difference in reaching your retirement goals.
2. Use investment funds to reduce risk
Before diving into the world of investing, one of the most important steps is understanding your risk tolerance. When the stock market takes a dip—like it did in 2022—many people panic and sell. But smart, long-term investors often view these dips as golden opportunities to pick up quality stocks at lower prices.
Those who stick with their investments during tough times are more likely to benefit from the market’s historical average return of about 10% annually. However, staying invested during volatility requires confidence and patience.
To manage your risk effectively, diversification is key. When you’re younger and retirement is far off, you can afford to take more risks and invest more heavily in stocks. As you get closer to the time you’ll need your money, it’s wise to shift towards a more conservative investment strategy.
Gradually adjusting your asset mix reduces the impact of sudden market drops and helps protect the wealth you’ve built. Diversifying your portfolio becomes more critical as your goals come into focus.
Here are two easy ways to build a diversified portfolio and lower your risk when investing:
Index Funds: Rather than picking individual stocks, index funds give you exposure to a broad range of companies by tracking a market index. This helps spread out your risk, and they’re commonly available in 401(k) plans.
Target-Date Funds: These “set-it-and-forget-it” options automatically adjust your investments to become more conservative as you near retirement. Over time, they shift from stocks to bonds, making them ideal for long-term investing strategies.
3. Understand your investment options
Opening a brokerage account opens the door to a world of investing opportunities. Whether you’re aiming to build long-term wealth or create a steady income stream, here are the main types of assets you can invest in—and how they work.
1. Stocks: Building Wealth Through Ownership
When you invest in stocks, you’re buying a slice of ownership in a company. This makes you a shareholder, giving you the chance to benefit from the company’s growth. Over time, investing in stocks is one of the most powerful ways to grow your wealth. However, stock prices can be highly unpredictable in the short term. For the best results, plan to hold your stocks for at least three to five years—or longer. Understanding how the stock market works can help you become a more confident investor and improve your long-term investing strategy.
2. Bonds: Generating Steady Income with Lower Risk
Bonds are a more stable investment option compared to stocks. When you buy a bond, you’re essentially lending money to a government or corporation, and in return, you receive regular interest payments. Bonds are perfect for those who prefer more predictable income and lower risk. While the potential returns are usually smaller than stocks, bonds can help balance your portfolio and reduce volatility. Incorporating bonds into your investing plan can create a well-rounded and safer approach to managing your money.
3. Mutual Funds: Simple Diversification for Investors
A mutual fund pools money from many investors to buy a diversified mix of stocks, bonds, or both. This built-in diversification helps reduce risk and is ideal for those new to investing. You purchase shares in the fund, and the fund manager takes care of choosing the investments. Mutual funds are a convenient way to access the stock and bond markets without needing to research each asset individually. If you’re looking to start investing with less stress and more stability, mutual funds are a solid option.
4. ETFs: Flexible and Low-Cost Investing
Exchange-traded funds (ETFs) are similar to mutual funds in that they include a variety of assets like stocks or bonds. However, ETFs often come with lower management fees and offer the flexibility to trade like individual stocks throughout the day. This makes them a popular choice for both new and experienced investors. With ETFs, you can diversify your investments, keep costs down, and stay liquid. They’re a smart addition to any investing portfolio aiming for growth and efficiency.
4. Balance long-term and short-term investments
When it comes to investing, your time horizon plays a crucial role in determining which types of accounts and assets make the most sense for you.
Short-Term Investing Strategies:
If you’re planning to use your money within the next five years, it’s best to focus on safer, short-term investing options. Money market accounts, high-yield savings accounts, and certificates of deposit (CDs) are ideal for these situations. These financial tools are typically FDIC-insured, offering peace of mind that your funds will be there when you need them. While the returns are generally lower compared to long-term investing, they provide stability and security in the short run.
Long-Term Investing Approaches:
For goals that are years—or even decades—away, long-term investing in the stock market can offer substantial growth. Whether you’re planning for retirement, a future home purchase, or saving for your child’s college education, there are a variety of investment vehicles to consider. Index funds, mutual funds, and exchange-traded funds (ETFs) give you access to diversified portfolios of stocks, bonds, or both—helping you build wealth steadily over time.
Starting Your Investing Journey Has Never Been Easier:
Thanks to online brokerages, getting started with investing is now simpler and more affordable than ever. Many platforms have eliminated trading commissions and offer low-cost options for investors at every level. You can even use a robo-advisor to automate your investment choices based on your goals and risk tolerance—all for a small management fee.
Whether you’re new to investing or refining your portfolio, understanding how your timeline aligns with your investment strategy can make a big difference. Choose wisely, stay consistent, and let time work in your favor.
5. Don’t fall for easy mistakes
One of the most frequent mistakes beginners make with investing is being too hands-on. Studies consistently show that passive investing strategies often outperform active trading over time. If you resist the urge to constantly monitor or adjust your portfolio, your investments are more likely to grow steadily—and you’ll enjoy greater peace of mind.
Another trap is not using your accounts for their intended purpose. Investment tools like 401(k)s and IRAs are designed specifically for retirement and come with powerful tax benefits. But if you use them for anything else, you could face unexpected taxes and steep penalties that eat into your returns.
For instance, while you can technically borrow from your 401(k), doing so can hurt your investing progress. That money misses out on potential growth, and unless it’s for a home purchase, you must repay the loan within five years—or face a 10% penalty on what’s left unpaid. There are some exceptions, but they’re limited.
Ultimately, your retirement accounts should be reserved for retirement goals. If you’re thinking about tapping into them early, pause and consider if the expense is truly worth the long-term cost to your investing journey.
6. Keep learning and saving
Investing is one of the smartest and most reliable ways for Americans to build wealth and prepare for major life goals like retirement, funding college, buying a home, and much more.
The earlier you start investing, the more you can benefit from the power of compound growth — a key strategy that allows your money to increase faster over time. Compounding means you earn returns not just on your original investment, but also on the returns it generates.
Think of investing like pushing a snowball down a snowy hill. As it rolls, it picks up more snow and gets bigger. Similarly, if you invested just $1,000 in the S&P 500 — which historically returns around 10% annually — that money could grow to over $45,000 in 40 years.
In simple terms, your investments can generate earnings that continue to grow without extra effort. The goal of smart investing is not just to match inflation but to beat it, so your money grows in real value. By doing so, you’re boosting your future financial security and improving your long-term purchasing power.
Why investing is so important
Although softening brown sugar might seem like a kitchen trick, the idea behind it is surprisingly useful for accumulating wealth in America. Softening your financial habits by investing early makes long-term financial goals—like retirement, college tuition, or home ownership—much more attainable, much like softening sugar makes it easier to use in recipes.
Your money has more time to “soften” and grow through compounding if you start investing early. Similar to softening brown sugar, this process produces a more manageable and satisfying end product with a little attention to detail and perseverance. Simply reinvesting your profits to ensure they continue to yield even higher returns over time is known as compounding.
Picture compounding as a snowball gathering size as it rolls down a hill. What begins as a small investment—say $1,000 in the S&P 500, which has historically averaged around 10% annual returns—can expand to over $45,000 in 40 years. Just like a sugar lump slowly becoming soft and usable, that initial investment multiplies without requiring ongoing effort.
In essence, your money starts working for you while you focus on life. The goal is to have your investments not only match inflation but outpace it, strengthening your financial foundation. When your returns grow faster than inflation, your real purchasing power increases—and much like the ease of cooking with softened brown sugar, managing your finances becomes smoother over time.
How much money do I need to start investing?
Think you need thousands to get started with investing? Think again. These days, you can begin your investing journey with as little as $1. Thanks to modern brokerage platforms offering fractional shares and zero-minimum accounts, the barrier to entry has never been lower.
Before you dive in, though, take a moment to look at your overall financial health. It’s important to have a solid emergency fund, control any high-interest debt, and ensure your monthly expenses are under control. Investing works best when your foundation is strong.
When planning for retirement, the smart move is to start early—even if you’re only contributing small amounts. Experts suggest setting aside 10% to 15% of your income for long-term growth. For short-term or non-retirement investing, make sure you’re financially secure and comfortable with the risk that comes with investing.
FAQs
How much do I have to invest to make $1,000 a month?
To generate $1,000 per month in retirement (using a 5% annual withdrawal rate), you’d need about $240,000 invested. How quickly you reach that depends on when you start, how long your money grows, and your rate of return.What are good stocks to invest in today?
While some high-performers in 2024 included Palantir Technologies, Vistra, and Nvidia, past performance doesn’t guarantee future results. A better approach is diversification—consider holding a broad mix like ETFs or mutual funds rather than individual stocks .How can I turn $100 into $500?
Achieving a 400% return (e.g., turning $100 into $500) typically takes time and patience. With the S&P 500’s historical average of ~10% per year, it would take over 16 years. Higher returns are possible but involve higher risk.
The Bottom Line
Starting small, knowing your objectives, and being consistent can put you on the path to long-term financial success even though investing may seem scary at first. Starting early and remaining dedicated are crucial, regardless of whether you choose low-risk index funds or investigate robo-advisors. Investing can be one of the most effective ways to increase your wealth over time if you have the proper plan and take a disciplined approach.
