Skip to main content

Insights by Cathay

How to Start Investing: 5-Step Guide

Building an investment portfolio can be an excellent way to earn additional cash and fund large purchases. Done correctly, investing can empower you to pursue your short- and long-term financial goals while helping you gain financial stability.

However, many financial consumers are overwhelmed by investing, while others simply don’t know where to start. Let’s take a look at the different investment vehicles available to investors and what steps you can take to build a winning investment strategy.


Different Investment Vehicle Types

Understanding the available investment vehicles will help you determine which investment options are right for your specific financial goals and circumstances.


Potentially Riskier Options With Higher Upside Potential

Investors who are willing to assume more risk can make a number of investments that could deliver higher short- and long-term returns.


The stock market is what many people think about when they consider investing. Stocks are small pieces of ownership in a publicly owned company that independent investors can buy, trade and sell, potentially earning returns based on the performance of the company. There are numerous types of stocks available to investors, including:

  • Large-cap stocks
  • Small-cap stocks
  • Growth stocks
  • Value stocks

While an aggressive investment portfolio might contain large shares of growth stocks (or stocks that are anticipated to make substantial returns), many investors choose to buy shares in highly stable, reliable companies they can trust will deliver a steady return in the stock market.

Mutual Funds

Individual investors can pool their resources in a mutual fund for the purpose of investing larger amounts of capital into vehicles like stocks, bonds, or other assets. A mutual fund gives individual investors access to a much larger resource base than they might otherwise have, which could increase their potential returns.

However, the real value of mutual funds is that they are usually managed by dedicated fund managers at reliable investment firms.

**Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact [Financial Professional name] at [Financial Professional address] or [Financial Professional phone number] to obtain a prospectus, which should be read carefully before investing or sending money.


Lower Risk, More Secure Options

While stocks and mutual funds sometimes dominate casual conversation around investment, there are some more stable investment options that promise a modest return at a much lower risk. These include:

Certificates of Deposit

Similar to a savings account, investors can park money in a certificate of deposit (CD) for a predefined period of time and earn interest on their funds. CDs typically have higher interest rates than ordinary savings accounts, meaning investors could earn a sizable cash sum.

It’s important to know, however, that owners of a CD account can’t access their funds during the entirety of the CD term period, the length of which will depend on the financial institution. Investors should only put money in a CD if they don’t intend to use the funds until after the terms outlined in the agreement have expired.


Bonds are issued by governments (or sometimes private entities) to raise capital. Once a consumer purchases a bond, it will generate interest for the debt holder (the person who purchases or owns the bond) over its lifetime, which is typically between 10 and 30 years.

When the bond reaches maturity at the end of its predefined lifetime, its owner will receive the initial investment plus all accrued interest in return.

Government-backed savings bonds, in particular, are considered among the most reliable and secure forms of investment. While they do take time to mature and returns are relatively low compared to stocks, they can serve as an important part of a long-term investment or savings strategy.

** The (CMO, government bond fund, etc.) is backed by the full faith and credit of the US Government as to the timely payment of principal and interest. The principal value will fluctuate with changes in market conditions. If they are not held to maturity, they may be worth more or less than their original value.


Investment Vehicles Tied to Specific Financial Goals

Some investment vehicles are designed to help consumers achieve specific financial goals, like saving for education or retirement. Common options include:

Education Savings

Consumers can put money away for future educational expenses by opening various types of education savings accounts, including 529 plans and Coverdell education savings accounts (ESAs). Similar to a company 401(K), consumers can contribute money to their education savings account, which will be invested in a series of assets chosen by the account owner.

Education savings accounts are usually tax-advantaged, meaning consumers won’t have to pay taxes on any of the money they earn from their investments. They also won’t have to pay taxes on the cash they eventually withdraw as long as it is used for eligible educational expenses.

**Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.

Retirement Savings

Retirement savings accounts are tax-advantaged investment vehicles that encourage consumers to save for their post-working lives. While a retirement account tends to have some restrictions (mostly around when individuals are permitted to withdraw money), any returns earned from one will not be taxed.

Common retirement savings accounts include:

  • Roth IRA
  • Traditional IRA
  • 401(K)

When building your retirement plan, it’s important to calculate the amount of money you’ll need to live a comfortable life, which will allow you to determine how much you require for retirement. This will help you select the most appropriate types of investment vehicles to add to your retirement savings account.


How to Develop Your Investment Strategy

Building a sound investment strategy requires careful and diligent planning. Follow these five steps to help maximize your chances of successful investing:

1. Assess Your Investment Risk Tolerance

Your risk tolerance is the degree of risk you’re willing and able to assume, which should play a decisive role in the investment option you choose to pursue. If you have a high-risk tolerance, for example, you might be more willing to invest in riskier growth stocks, like for an early-stage tech startup. Government savings bonds, on the other hand, might be more appropriate for those with a lower investment risk tolerance.

Your risk tolerance is more expansive than simply your personal feelings toward risk. It also includes your financial ability to assume risk. If you have large debt holdings, a family to help support, and a relatively low income, your risk tolerance might be a lot lower than someone without those financial obligations and restrictions, even if you’re more willing to invest in riskier stocks.

2. Define Your Financial Goal

Before building your investment portfolio, it’s important to define what you want your investments to achieve. To do this, determine where your investments will fit in with your larger personal finance plan and decide what you hope to fund with any returns you might earn.

Saving for retirement, buying a house, getting an education, starting a business, and increasing your cash flow are all worthy financial objectives, but different types of investment vehicles are best equipped to help pursue each one. You should categorize your objectives into short- and long-term buckets to make it easier to identify the appropriate investment vehicles.

3. Develop a Risk Management Strategy

Although risk can vary depending on the type of investment vehicle in question, there is always an inherent risk when you place your money in the care of others. Stocks can tank, the dollar can tumble, the market can crater, and your personal financial situation could always change unexpectedly.

It’s important you take the time to pinpoint all of the potential risks facing your investment portfolio and put plans in place to mitigate those potentialities and recover if the worst happens. Determine your course of action if your portfolio performs badly, you lose a source of income, or you experience some other significant financial loss.

To offset your risk exposure as much as possible, many financial advisors recommend only investing money you are prepared to lose. It’s also prudent planning to build an investment portfolio that includes at least some stable investments to mitigate the chances of financial disaster.

4. Select Your Investment Vehicles

Once you have the above information in order, you’re ready to explore the market and select the investment vehicles that best match your financial goals and circumstances. Shop around different banks and investment firms to find products, terms, and interest rates that make the most sense for your situation.

If you’re inexperienced or unsure about how best to build a sound investment strategy, you should consider speaking to a qualified financial advisor. They will take the time to understand your financial circumstances and objectives and help you identify appropriate investment vehicles that are right for you.

5. Monitor and Update Your Portfolio As Circumstances Change

Never consider your investment strategy to be a one-and-done project. You need to constantly reassess your investment portfolio to ensure it continues to reflect your goals, risk tolerance, and financial circumstances as they change over time.

While you might be more willing to take greater financial risk when you’re younger and don’t have as many financial obligations, those factors could change once you start a family and buy a home. When those types of life changes take place, you should revisit your investments to ensure they still match your financial circumstances.


Start Investing With Cathay Wealth Management

Before building your investment portfolio, consider speaking to a qualified financial advisor to determine which path is right for you.

At Cathay Wealth Management, our team of financial analysts is ready to help you define your financial goals and point you to the right individual investments to maximize your chances of success.

Reach out to a member of our team to start a conversation today.



Related Links:

This article does not constitute legal, accounting, or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.

* Wealth management services does not assure a profit or protect against loss in a declining market.


Check the background of this investment professional on FINRA’s Broker Check

Registered office: 825 E. Valley Blvd., 2nd Floor, San Gabriel, CA 91776 Tel: 1-877-722-8429

Cathay Wealth Management is a marketing name of Cetera Investment Services. Securities and insurance products are offered through Cetera Investment Services LLC (doing insurance business in CA as CFG STC Insurance Agency LLC), member FINRA/SIPC. Advisory services are offered through Cetera Investment Advisers LLC. Neither firm is affiliated with the financial institution where investment services are offered.

Individuals affiliated with Cetera firms are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

Click here to view Cetera Investment Services Privacy Policy, other Important Information.

This site is published for residents of the United States only. Registered Representatives of Cetera Investment Services LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Investment Services LLC site at

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Investment Services, nor any of its representatives may give legal or tax advice.

Investments are:

  • Not FDIC/NCUSIF insured

  • May lose value

  • Not financial institution guaranteed

  • Not a deposit

  • Not insured by any federal government agency


Share This Article:

Social share image