Where You Can Put Your Money to Invest

The main places to invest depend on what you own and what account you use

You can invest through a brokerage account, a retirement account like an IRA or 401(k), or directly with a company. Each route has different rules about what you can buy, how much you can put in per year, and what happens to your money when you withdraw it. Most people start with a brokerage account at a bank or investment firm, because there are no contribution limits and you can access your money anytime — though you may owe taxes on gains when you sell.

The account type matters as much as where you open it. A 401(k) through your employer lets you contribute pre-tax dollars, but you cannot touch the money until age 59½ without a penalty. An IRA (Individual Retirement Account) you open yourself has lower contribution limits but more flexibility about which investments you choose. A regular brokerage account has no restrictions on contributions or withdrawals, but you pay taxes on any profit when you sell.

Key Takeaways

• Brokerage accounts at banks and investment firms let you buy stocks, bonds, mutual funds, and ETFs with no contribution limits and no age restrictions on withdrawals.
• Retirement accounts like 401(k)s and IRAs offer tax advantages but restrict when you can withdraw money and how much you can contribute each year.
• You can also buy individual stocks directly from a company's investor relations website, or buy bonds directly from the U.S. Treasury through TreasuryDirect.
• The best place to start depends on whether your employer offers a 401(k) match, how much you have to invest, and when you might need the money.

Brokerage accounts at banks and investment firms

A brokerage account is the most common way to invest. You open one at a bank, an online brokerage like Fidelity or Charles Schwab, or a robo-advisor like Betterment. You fund the account with your own money, then buy and sell investments through that account. There are no limits on how much you can contribute in a year, and you can withdraw money whenever you want — though you will owe capital gains tax on any profit when you sell.

Most brokerages charge a commission per trade or a monthly fee, though many now offer commission-free stock and ETF trades. Some charge advisory fees if you use a financial advisor. You can buy stocks (shares of individual companies), bonds (loans you make to companies or governments), mutual funds (baskets of stocks or bonds managed by a professional), and ETFs (exchange-traded funds, which are like mutual funds but trade like stocks).

The main trade-off is that you pay taxes on gains in the year you sell, even if you do not withdraw the money. This makes brokerage accounts best for money you might need in the next few years, or for investors who want complete control over when to buy and sell.

Employer 401(k) plans

If your employer offers a 401(k), this is often the best place to start investing. You contribute money directly from your paycheck before taxes are taken out, which lowers your taxable income for the year. Many employers also match a portion of what you contribute — for example, they might add 50 cents for every dollar you put in, up to 3% of your salary. That match is information programs, and it is one of the only may provide returns on an investment.

You choose how to invest the money from a menu of options your employer's plan offers — usually mutual funds or target-date funds (funds that automatically shift from stocks to bonds as you get closer to retirement). You cannot withdraw the money before age 59½ without paying a 10% penalty plus income tax on the withdrawal, with a few exceptions like hardship withdrawals or loans against your balance.

For 2024, you can contribute up to $23,500 per year to a 401(k) (the limit changes yearly). If you are 50 or older, you can contribute an additional $7,500. The money grows tax-free until you withdraw it in retirement, when you pay income tax on the full amount.

Individual Retirement Accounts (IRAs)

An IRA is a retirement account you open yourself, not through an employer. You can open one at any bank or brokerage. There are two main types: a Traditional IRA and a Roth IRA. With a Traditional IRA, you may be able to deduct your contributions from your taxes in the year you make them (the deduction phases out if you earn above a certain amount and have access to a 401(k) at work). The money grows tax-free, and you pay income tax when you withdraw it in retirement.

With a Roth IRA, you contribute money that has already been taxed, but the money grows tax-free and you pay no tax when you withdraw it in retirement. Roth contributions also have income limits — if you earn above a certain amount, you cannot contribute directly to a Roth (though you may be able to use a "backdoor Roth" strategy). The advantage of a Roth is that you can withdraw your contributions (not the earnings) anytime without penalty, and you have more flexibility in retirement.

For 2024, you can contribute up to $7,000 per year to an IRA (Traditional or Roth combined), or $8,000 if you are 50 or older. You can invest the money in stocks, bonds, mutual funds, ETFs, or even some alternative investments depending on the brokerage. You cannot withdraw earnings before age 59½ without penalty, except in specific cases like a first-time home purchase (up to $10,000 lifetime for a Roth).

Direct stock purchase plans and Treasury bonds

You can buy shares of individual companies directly without using a brokerage. Many large companies offer Direct Stock Purchase Plans (DSPPs) through their investor relations website. You set up an account, link your bank account, and buy shares directly from the company. This cuts out the middleman and can save on fees, though some plans charge a small transaction fee. You receive dividends directly and can reinvest them automatically.

For bonds, you can buy U.S. Treasury bonds, notes, and bills directly from the federal government through TreasuryDirect (treasurydirect.gov). You do not need a brokerage account. You buy them at face value with no commission, and the government pays you interest. Treasury securities are backed by the full faith and credit of the U.S. government, making them one of the safest investments available. You can hold them until maturity or sell them before maturity on the secondary market.

These routes work best if you want to invest in a specific company or government bonds and want to avoid brokerage fees. However, they do not offer the same range of investments as a full brokerage account.

Robo-advisors and managed accounts

A robo-advisor is an online investment service that builds and manages a portfolio for you based on your age, risk tolerance, and goals. Companies like Betterment, Wealthfront, and Vanguard Personal Advisor Services use algorithms to choose a mix of stocks and bonds, then automatically rebalance your portfolio as markets move. Most robo-advisors charge an annual fee of 0.25% to 0.50% of your account balance, though some offer lower-cost options.

Robo-advisors are useful if you do not want to pick individual investments yourself or do not have enough money to hire a traditional financial advisor (who typically requires $50,000 to $100,000 minimum). They handle the day-to-day decisions and tax-loss harvesting (selling losing investments to offset gains). The trade-off is that you have less control over exactly what you own, and you pay a fee even in years when the market does not move much.

How to choose where to invest

Start by asking whether your employer offers a 401(k) with a match. If yes, contribute enough to get the full match — this is the best return you will get. If your employer does not offer a 401(k), or you want to invest more than the 401(k) limit allows, open an IRA next. Choose a Traditional IRA if you want to lower your taxable income now, or a Roth if you expect to be in a higher tax bracket in retirement.

Once you have maxed out your 401(k) and IRA contributions (or if you do not have access to either), open a regular brokerage account. This gives you unlimited contribution room and flexibility to withdraw money anytime. If you want hands-off management, a robo-advisor is a good choice. If you want to pick your own investments, open an account at a brokerage with low or no trading fees.

If you want to invest in a specific company or U.S. Treasury bonds, you can do that directly, but most investors benefit from spreading their money across many investments through a brokerage or retirement account.

Frequently Asked Questions

Can I have both a 401(k) and an IRA at the same time?

Yes. You can contribute to both in the same year. However, if you have a 401(k) at work and your income is above a certain level, you may not be able to deduct Traditional IRA contributions on your taxes. A Roth IRA has its own income limits. Check the IRS website or ask a tax professional about your specific situation.

What is the difference between a mutual fund and an ETF?

Both are baskets of stocks or bonds managed by a professional. The main difference is that mutual funds are priced once per day after the market closes, while ETFs trade throughout the day like stocks. ETFs often have lower fees and are more tax-efficient. For most investors, either works fine — it depends on the specific fund and your brokerage's fees.

Do I need a lot of money to start investing?

No. Many brokerages have no minimum deposit, and you can buy fractional shares of stocks and ETFs for as little as a few dollars. Some robo-advisors have minimums of $500 to $1,000. Start with whatever you can afford — the key is to start early so your money has time to grow.

What happens to my investments if the brokerage goes out of business?

Your investments are protected. Brokerages are required to hold your securities in your name, separate from the firm's own assets. If the brokerage fails, your investments transfer to another firm. Cash in your account is insured up to $250,000 per account type through SIPC (Securities Investor Protection Corporation).

Can I invest if I have bad credit?

Yes. Opening a brokerage account or IRA does not require a credit check. You will need to provide your name, address, Social Security number, and employment information for tax reporting, but your credit score does not matter.