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A beginner's guide to investing: 4 basic concepts

What we'll cover

  • Key investment terms to know

  • How to get started investing

  • Best practices for new investors

If you're new to investing, starting small, even with just a few dollars, can help you build your portfolio. Investing can be a long-term way to pursue your financial goals — we're talking years or even decades. If you start learning the basics now, you'll be navigating the investing world before you know it.

1. Know the types of investments

A typical portfolio might include a mix of high- and low-risk investments. As a newer investor, you will likely start by investing in some of the following basic securities (rather than physical investments, such as gold and real estate, or more advanced investments, such as options):

  • Stocks: These tradeable assets (meaning you can buy and sell them on an exchange like the New York Stock Exchange) allow you to purchase a share of ownership in a publicly traded company.

  • Bonds: When you buy a bond , you essentially lend money to a borrower (the government or a corporation) with the expectation that you'll receive that money back after a certain amount of time, plus interest.

  • Mutual funds: These baskets of securities pool together money of investors to invest in different securities. If you own a share of a mutual fund , you own a fraction of all the securities within the fund.

  • ETFs: Exchange-traded funds (ETFs) are similar to mutual funds in that they are baskets of securities. But they trade throughout the day on an exchange, much like a stock.

2. Understand diversification and asset allocation

Investing in a variety of different types of securities and sectors (aka building a diverse portfolio ) can help you reduce risk and overexposure to one security or market segment.

A typical portfolio might include a mix of high- and low-risk investments.

Over time some securities may make greater returns, while others might lose value. Leverage rebalancing to ensure the allocation of your assets within your portfolio stays in line with your goals. With these two strategies, you're better equipped to make more strategic and thoughtful investments.

3. Research, monitor and manage

Before investing in a company (or ETF, mutual fund, etc.), analyze its financial statements. It's also important to pay attention to market trends and industry outlooks. With an Ally Invest Self-Directed Trading account, you can access research tools and expert insights to help you evaluate an investment.

Once you're invested, keep a close eye on your portfolio to evaluate performance, which can help inform possible rebalancing. Staying informed about market trends and economic indicators will help you make smart and successful investing decisions.

And get help where you can either through a personal financial advisor for more active investing or if you prefer a more automated approach, a robo advisor .

4. Manage risk and emotion

Risk is part of investing, so it's important to determine your risk tolerance level and adjust your strategy accordingly. While it can be easy to get swept away by your emotions, successful investing needs clear-eyed, logical thinking. Never invest impulsively without thinking it through.

Enter the market with confidence

For many, the hardest part of investing is getting started because it can be nerve-wracking to put your money toward something you don't know a lot about. Once you take that first step of opening account, start small and put your newfound knowledge into action — and watch the power of investing come to life.

Before you invest, you should carefully review and consider the investment objectives, risks, charges and expenses of any mutual fund or exchange-traded fund (ETF) you are considering. ETF trading prices may not necessarily reflect the net asset value of the underlying securities. A mutual fund/ETF prospectus contains this and other information and can be obtained by emailing .

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