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4 steps to picking your investments

Key takeaways

  • After opening an investment account and funding it, the next step is to pick your investments.
  • Some options include individual stocks and bonds, ETFs, and mutual funds. Choose what's right for you according to your risk tolerance and your goal's time horizon.
  • Review your investments regularly. As your life changes, so can your risk tolerance and goals.

Opening and transferring money to an investment account means that you've taken a big step toward making your financial goals a priority. But there's another step you don't want to miss: selecting, then buying your investments. If you don't, your money will sit in cash or a default money market account—and won't have an opportunity to grow as much as it could.

Follow these 4 steps to picking your investments and making sure they work for you over time.

1. Create a game plan

Investing works best with a plan. Begin creating yours by asking yourself two questions:

How long do I plan on staying invested? This is known as your time horizon. Generally, the longer you invest, the more time your money has to potentially grow (and recover from dips in the market)—meaning you may be able to take on more risk.

How much risk am I willing to take? This is also called your risk tolerance, or how comfortable you are with the idea of losing money. Market ups and downs are normal, and all investing involves some risk. So there's no right answer. Knowing both your willingness and ability to accept risk can make it easier to stick with your investing plan in order to hit your goals.

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2. Choose your investments

With your time horizon and risk tolerance in mind, it's time to look at your investment options. Here are some of the most common:

Stocks: Stocks represent a piece of ownership, or a share, in a public company. Stock prices go up and down all the time, depending on a number of factors, including company performance and the news. So while investing in stocks can be very rewarding, they're also considered a riskier option. Before buying individual stocks, do your research, and avoid putting all your eggs in one basket.

Bonds: Investing in bonds is like giving out loans companies or governments that agrees to pay you back with interest. Bonds are typically considered lower risk compared with stocks and are assigned grades, so you can better understand the risk that the issuer will default on their promise to repay you.

ETFs: Buying an exchange-traded fund (ETF) means that you're investing in a group of securities, such as stocks or bonds, at once. They're like an investment bundle and are often created to follow a theme or category—such as a sector or market index (for example the S&P 500© Index or Nasdaq composite index). Thanks to this diversification, ETFs are considered less risky than buying individual stocks.

Mutual funds: Mutual funds pool money from many investors to buy a collection of stocks, bonds, or other investments. Like ETFs, mutual funds spread out your money across a mix of investments and can be categorized according to the underlying investments. Often, mutual funds are actively managed by a team of pros. Also, unlike ETFs and stocks—which can be bought or sold throughout the trading day—mutual funds trade only once a day, at the end of the day. So you'll see the prices change only after the market closes.

3. Buy your investments

After deciding what to invest in, make sure to buy those investments. Use your cash (or the money in your default money market account) to purchase the investment option.

4. Check in

As your life changes, your risk tolerance, time horizon, and goals probably will too. Don't be afraid to adjust your investment plan when necessary. And remember that we're always here for you. You might be investing on your own, but you're not investing alone. Contact us anytime.

Take the first step toward investing

To get started, open a brokerage account.

More to explore

This information is intended to be educational and is not tailored to the investment needs of any specific investor. Investing involves risk, including risk of loss. Diversification and asset allocation do not ensure a profit or guarantee against loss. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. Exchange-traded products (ETPs) are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value (NAV) (or indicative value in the case of exchange-traded notes). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions. In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities). Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Lower-quality fixed income securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Foreign investments involve greater risks than U.S. investments, and can decline significantly in response to adverse issuer, political, regulatory, market, and economic risks. Any fixed-income security sold or redeemed prior to maturity may be subject to loss. The S&P 500 ® index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. S&P 500 is a registered service mark of Standard & Poor’s Financial Services LLC. Sectors and industries are defined by the Global Industry Classification Standard (GICS).

Nasdaq Composite Index is a market capitalization–weighted index that is designed to represent the performance of NASDAQ stocks.

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