Investing with confidence: A guide to the fundamentals

Investing with confidence means feeling comfortable with your ability to create an investment plan, select assets to purchase that align with your goals and make decisions for your portfolio with the aim of building wealth.

If you’re not confident in your investing skills, you are not alone. According to the Federal Reserve’s Economic Well-Being of U.S. Households report (2025 edition), 53% of adults surveyed said they are not comfortable or are only slightly comfortable choosing and managing investments.

The good news is that you can learn how to be a confident investor. By understanding the fundamentals like when to start investing, how to get invested, which assets are right for your portfolio, how to align your portfolio with your goals, and creating an overall investment plan around your time horizon and risk tolerance, you may be able to build long-term wealth.

What ‘investing with confidence’ really means

No one can predict the stock market, and you don’t need to in order to be a confident investor. You just need to understand how investing basics work, practice smart investing techniques and feel comfortable doing it.

Confident investors often take careful, calculated risks to potentially earn better returns. They understand that the stock market can be volatile, returns are never guaranteed and temporary losses don't necessarily mean there’s a problem. Confident investors may also invest regularly and stay invested for the long term in an effort to reach their goals.

Becoming a confident investor means understanding what you want your investments to do for you – and how you can position yourself to potentially achieve that outcome without trying to predict what happens next. Once you understand that, it’s time to create and implement a plan.

The investing basics that matter most

Understanding investment fundamentals is key to increasing your confidence. If you know just a few important principles of investing, you may be able to make informed choices and feel confident that you’ve made the right decisions for your portfolio and goals.

Here are some of the basic building blocks of investing that can help you become a confident investor.

Time horizon and risk tolerance

When you invest, you should have a clear objective and a desired time to achieve it. For example, most people invest for a specific purpose, like paying for expenses in retirement.

Your timeline should determine your risk tolerance, or the amount of risk you’re willing to assume to potentially earn higher returns. The shorter your investing timeline, the less risk you may want to take on. Assets with a higher chance of loss can result in a missed goal if you need the money soon.

For example, if you are investing with the goal of building up a down payment for a house in two years, you may want to invest in safer assets to ensure you have enough funds in that amount of time. If you invest in riskier assets, you could end up having less money after two years and may even miss your down payment goal.

Diversification

Diversification is also an important investing principle because it may help reduce your risk.

Diversification means you don’t put all your money into the same investment, or even into the same type of investment. For example, if you invest 100% of your money in Company A, and Company A goes bankrupt, you lose everything. Another example would be if you invested all your money in a specific sector. If that sector performs poorly, your portfolio may also perform poorly.

If you invest in a mix of different kinds of companies across different sectors, across various geographies and via different kinds of assets – such as stocks, bonds, mutual funds, exchange-traded funds (ETFs) and certificates of deposit (CDs) – there may be a lower chance that all your assets will perform poorly.

Compound growth

Compound growth is another essential concept to understand.

Here’s how compound growth works. For this hypothetical example, let’s say you invest $100. If you earn a 10% annual return rate, your $100 becomes $110 after one year. Now you have $110 invested to earn returns for you. If you earn that same 10% annual return, your investment earns $11, and now you have $121. Over time, your returns compound, helping your investment grow to an even larger amount.

The more money you invest, and the longer your investing timeline, the more compound growth may work for your investments. The key to compound growth is to invest early and to stay invested.

The difference between saving and investing

Both saving and investing are important for increasing your financial security. But they are not the same.

Saving can be for emergencies and for short-term expenses and goals. You may not want to take on a lot of risk with your savings, and it may be wise to keep the funds relatively accessible. A savings account or a money market account, for example, could be a good place to keep your emergency fund.

Investing involves taking on more risk with the primary goal of growing wealth. You might put assets into the stock market, real estate or bonds, depending on your risk tolerance. The goal is to take a calculated or reasonable risk, with the understanding that you could lose the money – but also that you might earn a higher rate of return than if those funds were in a fixed-income vehicle (like a savings account).

A few tips to start investing confidently

So, how can you start investing with confidence? Here are a few tips to help you begin.

Set your goal and timeline

The first thing you need to do is understand what you are investing for and what your timeline looks like. Knowing this will help you decide what kind of accounts to use and what kind of investments to buy. Some common examples of things to invest for include retirement, the purchase of a house or college expenses.

You may also want to have a specific timeline, so you know how much to invest each month to achieve your goal. For example, if you’d like to retire in 30 years, you can calculate how much to invest each year to have your desired nest egg by your chosen retirement date.

Choose the right account for your goals

Individual retirement accounts (IRAs) and 401(k)s are common retirement savings vehicles. If you’re investing for a child’s future college expenses, a 529 plan may be the right fit. Individual brokerage accounts can offer more flexibility with regard to what the funds can be used for, and they have no annual contribution limits. And health savings accounts (HSAs) may be an option if you’re looking to save and invest for future medical expenses while also saving money on taxes.

It's important to explore the different investment accounts available to you and then decide which ones are the right fit for your financial plan. A financial professional may be able to help you understand how each account works before you decide.

Build a portfolio

Once you’ve opened an account, you can start building your portfolio by investing in assets. You can purchase many different types of investments, and some investments may help you align your portfolio with your goals.

For example, you could choose a target date fund with a timeline of 30 or 40 years. You could also pick a low-cost broad U.S. equity index fund – such as a mutual fund or ETF that tracks a U.S. stock index, like the S&P 500.

Just be sure to review the fund fact sheet and prospectus to understand how fees work, if you decide a fund is right for your investment strategy.

Automate contributions

Consistent investing is key to building wealth, so if you make the process automatic, you may be more likely to invest regularly. For example, you could set up automatic contributions to your IRA and regularly invest for retirement. This could help you take advantage of strategies like dollar-cost averaging.

When you know your investing timeline and the amount you need invested, you can use online calculators to determine how much to invest each month and then contribute that amount automatically. And if you come into an unexpected large sum of money – perhaps from a tax refund, an annual bonus or an inheritance – you may be able to invest that to achieve your wealth goals faster.

Review and rebalance annually

Finally, consider reviewing your investments once or twice a year to ensure your portfolio still tracks with your initial allocations. If you find your portfolio is overconcentrated in certain sectors after market volatility, it’s wise to rebalance. And as you get older or hit major life milestones like retirement, you may want to adjust your investment mix to account for any reduced risk tolerance.

How to stay confident when markets get volatile

Markets go up and down, which is a normal part of investing. Sometimes markets will go up and down on a day-to-day basis, and other times the market will hit several highs in a row just before a sell-off or correction. This too is normal, as different economic reports, geopolitical events and other external factors can influence companies and investors. One good way to handle the ups and downs is to stay the course with your plan and rebalance when necessary. And with diversification, you may be better positioned to weather the volatility than if you were invested in just one sector or asset.

Tools and habits that build confidence over time

As you get started investing, you can build more confidence over time with some simple tools and processes, such as these:

The bottom line

Becoming a confident investor starts with setting goals, choosing the right investment accounts and assets, and sticking to a plan that aligns with your time horizon and risk tolerance. If your investments grow, your confidence will likely grow, too. Just remember that market volatility is a normal part of the process, and you can always seek guidance from a trusted financial professional who has your best interests in mind.

View disclosures