How long should I invest for?

The time horizon of your investment depends on your goals. For example, if you plan to use the money to put your kids through college in a few years, you'll have a different length than if you're investing for retirement in a few decades.

How do I invest my money to make money?

There are many ways you can invest money, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), savings accounts, and more. The best option for you depends on your particular risk tolerance and financial goals.

How much cash should you save before investing?

Experts generally suggest having an emergency fund equal to six months of expenses in a readily accessible savings account. However, you don't necessarily need to have it all in place before investing. The key is to have enough saved to cover most unexpected expenses (such as car repairs or unplanned medical bills) before investing money.

How to Invest Money: A Guide to Getting Good Returns

How to Invest Money: A Step-by-Step Guide to Getting Good Returns

By Matthew Frankel, CFP – Updated Sep 2, 2026 at 3:08 PM EST | Fact-checked by Frank Bass

Key Points

Investing starts by identifying style, budget, and risk tolerance to guide investment choices.
New investors can begin with $100 using vehicles like index funds or ETFs.
Balancing return expectations with comfortable risk levels is crucial in investment decisions.

Investing is the practice of allocating your money to an asset with the goal of generating a return. To name a few examples, buying stocks, investing in a rental property, and even putting money into a certificate of deposit at your bank are all forms of investing.

When done right, investing can be an extremely reliable way to build wealth over time. But how should you get started? What is the best way for you to put your money to work? Whether you're a new investor or an experienced one who wants to invest better, we're here for you. It's time to make your money work for you.

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Before you put money into the stock market or other investments, you'll need a basic understanding of how to invest money the right way. Unfortunately, there's no one-size-fits-all answer here.

The best way to invest your money is the way that works best for you. To determine this, you'll want to identify your investing style, budget, and risk tolerance. So, let's briefly take those one at a time.

Why is investing important?

There are more reasons why investing is important than we can realistically list here. But to name some of the most important:

Build wealth: Investing, especially in the stock market, can be an extremely reliable way to grow your money over the long term.
Achieve financial freedom: Investing can help you be prepared for whatever life throws your way and retire on your own terms.
Preserve spending power: If you put your money in a low-paying savings account, it will be worth less over time due to inflation. There are low-risk investments that can reliably help you keep up with or even outpace inflation.

How to invest money in 4 steps

To invest money, identify your investing style, set a budget you can maintain consistently, assess your risk tolerance, and then choose investments that match all three. New investors can start with as little as $100 (or even less) by using index funds, ETFs, or a robo-advisor.

Here are the steps, followed by what you should know about each one:

Identify your investing style.
Determine your budget for investing.
Assess your risk tolerance.
Decide what to invest your money in.

1. Identify your investing style

The investing world is divided into two major camps: active and passive investing. Neither is a clear winner.

Both can be great ways to build wealth as long as you focus on the long term and aren't just looking for short-term gains. However, your lifestyle, budget, risk tolerance, and interests may lead you to prefer one type over another.

Active investing

Active investing involves taking the time to research your investments and to construct and maintain your portfolio independently. For example, if you plan to buy and sell individual stocks through an online broker, you're planning to be an active investor. To successfully be an active investor, you'll need three things:

Time: You'll need to research stocks, perform some basic investment analysis, and keep up with your investments after you buy them.

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It's also important to understand what we don't mean by active investing.

Active investing doesn't mean buying and selling stocks frequently.
It certainly doesn't mean day trading.
It doesn't mean buying stocks because you think they will go up over the next few weeks or months.

Passive investing

Passive investing is akin to an airplane on autopilot. You'll still achieve good results over the long run with minimal maintenance. Passive investing involves putting your money to work in investments where someone else does the heavy lifting.

Mutual fund investing is an example of passive investing, as are exchange-traded funds (ETFs). Alternatively, you can hire an advisor or use a robo-advisor to design and implement an investment strategy on your behalf.

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2. Determine your investing budget

You may think you need a large sum of money to start a portfolio, but as we mentioned earlier, you can begin investing with $100 (or even less). We also have great ideas for investing $1,000. With that in mind, here are some key points to consider when it comes to your budget:

The amount of money you're starting with isn't the most important thing. It's whether you're financially ready to invest and to continue investing over time.
Establish an emergency fund before you begin investing. You never want to be forced to sell investments when an unexpected expense arises.
Get rid of any high-interest debt (like credit cards) before investing.

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An infographic outlining how to choose the right amount to invest according to your lifestyle. — Image source: The Motley Fool.

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3. Assess our risk tolerance

Not all investments are successful. Each type of investment has its own level of risk, but this risk is often correlated with long-term returns. Here are some key points to consider when evaluating your risk tolerance:

It's essential to strike a balance between maximizing your investment returns and finding a comfortable risk level.
High-quality bonds, such as Treasury bonds, offer predictable returns with very low risk. By contrast, stock returns can vary widely depending on the company and time frame, but have historically averaged about 10% per year.
There can be huge differences in risk, even within the broad categories of stocks and bonds.
Savings accounts offer lower risk but lower rewards.
One effective solution for beginners is to utilize a robo-advisor to create an investment plan tailored to your risk tolerance and financial objectives.

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4. Decide what to invest your money in

This is a challenging question; unfortunately, there is no perfect answer. The best investments for you depend on your goals and risk tolerance. But with the guidelines discussed above in mind, you should be far better positioned to decide what to invest in.

For example, if you have a relatively high risk tolerance and the time and desire to research individual stocks (and learn how to do so effectively), that could be the best approach. If you have a low risk tolerance but want higher returns than you'd get from a savings account, bond investments (or bond funds) might be more appropriate.

If you're like most Americans and don't want to spend hours managing your portfolio, investing in passive assets like index funds or mutual funds can be a smart choice. And if you really want to take a hands-off approach, a robo-advisor could be right for you.

There are numerous other investment options beyond stocks, bonds, index funds, and mutual funds. Just to name a few examples, you can choose to invest in:

Savings accounts -- These can be a great way to invest your emergency savings or money that you might need at any given time.
Certificates of deposit (CDs) -- A CD can allow you to lock in a specific yield for a period of time, with no risk of losing your principal.
Treasury securities (Treasuries) -- Treasury securities come in maturity lengths ranging from one month to 30 years, and can be excellent fixed-income alternatives to corporate bonds or bond funds.
Real estate -- If you're willing to be more hands-on, buying investment properties can be a great way to build wealth and generate income.
Cryptocurrencies -- Digital assets like Bitcoin (BTC -0.09%) are a relatively new type of investment, but can be a wise addition to a diversified investment strategy.

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Investing and taxes: what new investors should know

There are some important tax rules involving investing, but there are two considerations that are especially important for new investors to know:

Capital gains: When you sell an investment at a profit, the gains can be taxable (unless you sell the investment in a retirement account). This is known as capital gains tax. Long-term capital gains, which occur when you sell an investment you've owned for more than a year, are taxed more favorably.
Dividends and interest: Many stocks distribute some of their profits to investors as dividends or interest. Other types, like bonds and CDs, pay interest. Dividends and interest income can be taxable. Most stock dividends get favorable tax treatment if they meet the IRS definition of qualified dividends.

How to track your investments

First, you don't need to check your investments every day. One of the biggest rookie mistakes is paying too much attention to your long-term investments and making emotional decisions based on short-term performance.

According to several studies, the average investor underperforms the market. A key reason is that they react on impulse instead of leaving investments alone.

Having said that, tracking your investments (reasonably often) is an important part of the journey. Your brokerage app or website should allow you to view your entire investment portfolio and set up alerts. For example, I get a push notification on my smartphone if any of my stocks move up or down by more than 5% in a single day.

Common myths about investing

Before we go any further, let's take a moment and address some of the common misconceptions about investing:

You need a lot of money to get started investing. With the emergence of zero-commission brokers and fractional shares, it is easier than ever to start investing with minimal capital. In fact, it's possible to construct a diversified investment portfolio with as little as $100 or even less. The key is adding to it consistently over time.

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The bottom line on investing money

Investing money may seem intimidating, especially if you're new to it. However, if you figure out how you want to invest, how much money you should invest, and your risk tolerance, you'll be well-positioned to make smart decisions with your money that will serve you well for decades to come.

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How to invest money FAQ

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About the Author

Matt Frankel, CFP®, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

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@MattFrankelUSC

Matt Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

How to Invest Money: A Step-by-Step Guide to Getting Good Returns

Key Points

Why is investing important?