How Do I Start Investing?
A 101 guide for what to know about investing.
Whether you’re curious about investing, need a refresher course or want to share a how-to guide with a beginning investor, you’re in the right place.
You’ll find some basics for investing, including helping you understand those pesky jargon terms everyone uses (but no one explains), what to consider before choosing investments and where to go from here.
What Is Investing?
Investing involves buying assets—such as mutual funds, exchange-traded funds (ETFs), stocks or bonds—that have the potential to increase in value and yield returns.
Some may wonder how investing differs from saving. Two significant differences are risk and growth potential. While saving may feel safer, we believe it's best to do both.
Saving is putting aside money—usually in a lower-risk account—for something you need soon. Investing is putting your money to work so it can potentially grow for your future. Learn more about the differences between the two. Saving Vs. Investing
Why Do People Invest?
People invest primarily to achieve their long-term financial goals, such as buying a home, funding a child’s education or retiring comfortably. While investing does come with risks, it also offers the opportunity for higher returns than traditional savings accounts. Here are a couple of other reasons why investing is essential for long-term goals:
Stay Ahead of Inflation
Over time, inflation can decrease your purchasing power (meaning your dollar will buy less than before). Investing may help your money grow faster than inflation—find out how.
Build Wealth
Even small, regular investments can grow over time through compound interest and market growth. While past performance doesn't guarantee what happens in the future, investing, especially in the stock market, has historically paid off for investors. Learn how compounding helps.
5 Concepts Every Investor Should Know
As an investor, there are a few foundational concepts that can help you make informed decisions and avoid common pitfalls when selecting investments. They can also help you understand the financial jargon you may hear along the way.
Risk and Reward
Every investment carries some level of risk. Generally, the higher the potential return (the rewards), the higher the risk. For example, stocks can offer higher return potential but are more volatile, while bonds are typically more stable and offer lower return potential.
Diversification
Diversification means spreading your money across different types of investments to reduce risk. Instead of putting all your money into one stock fund, you might invest in a mix of stock and bond mutual funds or ETFs. This way, if one investment performs poorly, others may balance it out.
Sometimes misunderstood, get the truth about diversification
Asset Allocation
Asset allocation is how your portfolio is divided across diversified asset classes (a collection of investments with similar characteristics and market performance.) Your asset allocation should be based on you goal, risk tolerance and timeline.
Explore the difference between asset allocation and asset classes
Risk Tolerance
Risk tolerance refers to the level of investment risk you are willing to take. Knowing your risk comfort level can help you pick investments that are well-suited for your financial goals.
Learn more about risk tolerance and what it means for your portfolio
Time Horizon
Your time horizon is how long you plan to keep your money invested before you need it. Longer time horizons allow you to take on more risks, since you have time to recover from market dips. Shorter time horizons usually call for more conservative investments.
What Are the Different Types of Investments?
When you're just starting out, the world of investing can seem overwhelming. But most investments fall into a few basic categories. Understanding these will help you decide where to put your money based on your goals, risk tolerance and time horizon.
Individual Stocks
Buying a stock makes you a shareholder of a company, and you can benefit from its growth. Stocks can offer higher returns but are also more volatile.
Individual Bonds
Bonds are loans to governments or corporations. In return, they commit to pay you interest and return your principal at maturity. They are generally considered more stable than stocks but offer lower returns.
Mutual Funds and ETFs
These are bundled stocks, bonds or other assets. They are more diversified than a single stock or bond, but not as diversified as a collection of stock and bond funds or ETFs.
Active or Passive Mutual Funds and ETFs—What’s the Difference?
Mutual funds and ETFs can be actively managed, meaning an investment professional selects the assets within the mutual fund or ETF and manages them regularly with the goal of outperforming their benchmark. A benchmark is the standard or index used to measure a fund’s performance and risk.
Passive mutual funds and ETFs employ a strategy designed to achieve the same return as a specific index, such as the S&P 500®.
Other types of investments include real estate, precious metals (such as gold and silver), commodities (physical products), and digital assets (including cryptocurrencies). As with any type of investment, these come with their own set of risks and considerations.
How Do You Start Investing?
Now that you know some key concepts about investing, you’re ready to get started. Here are three steps you won’t want to pass up. They are just highlights, and you can learn more about what to know before choosing investments.
1. Set a Goal
Your goal should include what you are investing for, how much money you will need and how long you have to invest. These elements can help you choose the right account (retirement, non-retirement, or college-specific), determine how much you may need to invest regularly and identify which investments may be suitable.
Choose the Right Account Type
Here’s a quick overview.
How Much Do You Need to Invest to Reach Your Goal? Our savings calculator can help based on how much you need and how long you have to invest.
Do I Have Enough Money to Invest? Many people think they don’t have enough money, but what they may actually have is a lack of a budget. Budgeting can help you see where your money is going and give you an opportunity to free up funds to invest for your future goal.
2. Determine Your Risk Level
You can figure out how much risk you want to take with a personal risk assessment, or work with a professional. Things you’ll want to consider are how much money you’re willing to lose if the markets take a dip and how long you have to invest.
Take our personal risk assessment to determine how much risk you may be comfortable with.
3. Know Your Investing Style
One more step before you start choosing investments: Determine your decision-making style. From do-it-yourself to do-it-for-me, we all have our preferred way to make important life decisions. Knowing your own personal style can help you determine the next step for your investment portfolio.
Here are three ways to choose investments with American Century.
Choose from our wide variety of mutual funds to build a diversified portfolio. Explore Mutual Funds
Select an already diversified portfolio that’s managed by our professionals. Review Our Portfolios
Choose a one-time consult or in-depth planning and advice, with portfolio oversight. Discover Advice Options
What Else Should I Know Before I Start Investing
There are a few other important elements to consider as you start and throughout your investing life cycle.
Fees Matter
Many look to past performance and ratings to choose investments but also consider fees. Active investments managed by professionals typically have higher fees. The published returns you see should account for fees.
Volatility Happens
Even if you know markets move up and down, watching your investments fall may feel scary and tempt you to pull your money out of the market. Historically, investors who have stayed invested have been rewarded. A good indicator of this is the performance of the S&P 500 since 1957, which has had an annual average return of 10.51%.2
Debt and Investing
You may want to consider whether paying off debt or investing is your priority. The amount you could save by paying off a high-interest credit card first may be more beneficial. And it can free up more for you to invest later on.
Investing and Your Finances
Investing is one part of managing your finances. There are several other considerations when it comes to your overall financial picture. Learn more about managing your finances.
Ready to Start Investing for Your Goals?
You can contact us for more information or go for it now.
What Is the Average Stock Market Return? Nerdwallet.com, July 2025.
Source: S&P 500 Average Returns and Historical Performance, Investopedia.com, December 2025.
Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns.
American Century's advisory services are provided by American Century Investments Private Client Group, Inc., a registered investment advisor. These advisory services provide discretionary investment management for a fee. The amount of the fee and how it is charged depend on the advisory service you select. American Century’s financial consultants do not receive a portion or a range of the advisory fee paid. Contact us to learn more about the different advisory services. All investing involves the risk of losing money.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Generally, as interest rates rise, the value of the bonds held in the fund will decline. The opposite is true when interest rates decline.
Diversification does not assure a profit nor does it protect against loss of principal.
IRA investment earnings are not taxed. Depending on the type of IRA and certain other factors, these earnings, as well as the original contributions, may be taxed at your ordinary income tax rate upon withdrawal. A 10% penalty may be imposed for early withdrawal before age 59½.
Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.
Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.
You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
©2026 Standard & Poor's Financial Services LLC. The S&P 500® Index is composed of 500 selected common stocks most of which are listed on the New York Stock Exchange. It is not an investment product available for purchase.
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