In the world of stocks, the spectrum of risk between blue chip stocks like Apple (AAPL -0.28%) and penny stocks is enormous. The amount of money you’re starting with isn’t the most important thing.

Bond values will decline as interest rates rise and bonds are subject to availability and change in price. “Trading around a core position’s an important basic strategy that everyone can use, even those of you who find the notion of trading totally abhorrent, because it’s less trading and more a supplement to investing.” There are also specialized retirement accounts for self-employed workers.

Here are some basic investing concepts that can help you plan your investment strategy. Select an account to trade in

This lists the accounts that allow you to choose and manage your own investments—meaning you can buy and sell investments directly in the account. It’s generally not a good idea to invest in the stock market on a short-term basis, because five years or less may not be enough time for the market to recover if there’s a downturn. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. It’s a good idea to learn the concept of diversification, meaning that you should have a variety of different types of companies in your portfolio.

Your Credit Union (“Financial Institution”) provides referrals to financial professionals of LPL Financial LLC (“LPL”) pursuant to an agreement that allows LPL to pay the Financial Institution for these referrals. This creates an incentive for the Financial Institution to make these referrals, resulting in a conflict of interest. The Financial Institution is not a current client of LPL for brokerage or advisory services. As an investor, you need guiding principles to help you navigate changing markets and different financial decisions in your life journey. Schwab’s Investing Principles are seven clear steps we believe are foundational to successful investing.

You can also seek out a financial planner who will work with you to set financial goals and personalize your journey. As you search for an advisor, you want to look for one who is looking out for your best interest. Ask them questions about their recommendations, confirm that they are a fiduciary acting in your best interest and make sure you understand their payment plan, so you’re not hit by any hidden fees. Stocks give you a fractional ownership stake in a business, and they’re one of the best ways to build long-term wealth for you and your family. But in the short term, they can be tremendously volatile, so you need to plan to hold them for at least three to five years — the longer, the better. Here’s how stocks work and how you can make serious money by being a stock investor. Investing in the financial markets might sound like one of the scariest parts of managing your finances, but it’s also potentially the most rewarding.

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Once you have a preference in mind, you’re ready to shop for an investment account. For the hands-on types, this usually means a brokerage account. For those who would like a little help, opening an account through a robo-advisor is a sensible option. It’s prudent to begin with a conservative approach, focusing on stocks or funds that offer stability and a good track record.

Investing can look different across demographics and tax brackets. Determining how much you should be investing starts by taking stock of your unique financial situation and then figuring out an investment strategy that works for you and your budget. The first common mistake new investors make is being too involved. Research shows that actively traded funds usually underperform compared to passive funds. Your money will grow more and you’ll have peace of mind if you keep yourself from checking (or changing) your accounts more than a few times each year. If you want to invest in individual stocks, you should familiarize yourself with some of the basic ways to evaluate them.

Whichever route you choose, the best way to reach your long-term financial goals and minimize risk is to spread your money across a range of asset classes. That’s called asset diversification, and the proportion of dollars you put into each asset class is called asset allocation.

Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly. For additional information, please see Schwab.com/IndexDefinitions.

Step 3: Open the account and put money in it

In the most straightforward sense, investing works when you buy an asset at a low price and sell it at a higher price. Earning returns by selling assets for a profit—or realizing your capital gains—is one way to make money investing.

If you’re comfortable with more short-term ups and downs in your investment value for the chance of greater long-term returns, you probably have higher risk tolerance. On the other hand, you might feel better with a slower, more moderate rate of return, with fewer ups and downs. Companies sell stock to raise money to fund their business operations. Buying shares of stock gives you partial ownership of a company and lets you participate in its gains (and the losses). Some stocks also pay dividends, which are small regular payments of companies’ profits. Vanguard recommends international stocks make up as much as 40% of the stocks in your portfolio.

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We believe everyone should be able to make financial decisions with confidence. Once you’ve decided how and where to invest, you’re ready to take the plunge, and the next step is setting up and funding your account. If you receive dividends, you may also end up with a regular tax bill each year you own the stock. With fractional shares, you don’t have to commit to buying a whole share. Instead, you choose either what percentage of a stock share you want to buy or how much money you want to put into that particular stock. Needless to say, even if you have the time and understand intellectually that stocks will eventually snap back, you still need to think carefully about how much risk you are really willing to take on. We adopt a truly global perspective as we invest across a wide range of asset classes.

If you plan to trade frequently, check out our list of brokers for cost-conscious traders. Some platforms offer tiered subscription levels, supplying more features or lower margin rates at higher subscription rates. As you would with Hulu or your favorite online magazine, you’ll want to keep an eye on how much you’re taking advantage of what you’re paying for.

As a Vanguard client, you have access to dozens of these ETFs, and our product comparison tools can help you select the right funds for you. Investment funds are generally classified based on risk, from conservative to aggressive. The riskier the investment, the more potential for growth or loss. If you have more time before you need your investments, you may be able to withstand more risk. The closer you are to retirement, the less able you may be to tolerate risk. For both, you choose, based on predetermined limits, how much to deposit. With both, you may decide how you want to allocate your investments (see below).

Also again, these gains came, in essence, from bringing forward future returns—raising prices and thereby lowering the yields later investors could expect from dividend payouts and corporate profits. The cost was therefore more modest prospects for the next generation. You can buy mutual funds through a brokerage account or directly from mutual-fund companies themselves. You can start your research by looking at funds’ one- or two-page fact sheets, and get more in-depth information from a fund’s prospectus. Alternatively, research firms like Morningstar publish independent, in-depth research and rankings on thousands of funds.

That’s because there are plenty of tools available to help you. One of the best is stock mutual funds, which are an easy and low-cost way for beginners to invest in the stock market.

Investments are not guaranteed to hold or increase their value over time. You may earn larger dividends if your investments grow in value but you also risk losing some or all of your money if your investments drop in value. If you’re a beginner, there are a few things you need to do before you start investing.