Stocks are riskier than bonds are, but historically have higher returns. First, think about when you might need the money. "Over time" can mean different things to different people - do you need to use that money in 3 years, or 30? Be honest with yourself about how much risk you can stomach. "If next week my investments tanked and I'm down 40%, would I sell out of my position? Or would I be okay to wait and recover?" For example, I personally don't need my retirement money for another 30-40 years, so it would not matter to me; I could just wait out the storm. But if instead, I need that money to replace my car next year, it's suddenly a different story.
If you're just getting started and you have a long timeframe, consider investing in ETFs that are based on the stock market, rather than stocks directly. The reason is that a stock always has the potential to go to zero, but a market never will. Even when the markets are bad and you're pulling your hair out, remember that: markets will never go to zero, they're positive way more often than they're negative, and you've got time on your side.
If you're young and you're eligible for a Roth 401k or Roth IRA, do that over a regular 401k or IRA. When you have decades to go before you need to touch that money, you would rather pay the taxes on the bit going in, because that bit could triple, quadruple, maybe even more - and you won't have to pay taxes on any of that growth.
Emily recommends the following next steps:
- Open a Roth IRA. If you're a minor, you might be able to open a minor Roth IRA.
- Research some ETFs.
- If the investment you're looking at pays dividends and you don't need that cash, sign up for automatic dividend re-investing.