Experts say this is the easiest way for beginners to start investing

Investing may seem overly complex, but that complexity can paralyze Americans and leave them unable to do anything.

But investing, and doing it wisely, doesn’t have to be difficult. In fact, financial experts say it’s relatively easy to get started.

“You don’t have to be a rocket scientist. Investing is not a game where someone with an IQ of 160 beats someone with an IQ of 130,” Warren Buffett, chairman and CEO of Berkshire Hathaway, famously said. Ta.

For many people, investing is what they need to grow their savings and ensure financial security in retirement. Investing early in your career benefits investors because you have a longer period of time to earn interest and your investment returns compound.

Appropriate long-term goals vary from person to person, but one rule of thumb is to increase your salary by approximately 1x by age 30, 3x by age 40, and ultimately 10x by age 67, according to Fidelity Investments. It’s about saving twice as much.

Financial experts say target-date funds, known as TDFs, are the easiest entry point into long-term investing.

“We think it’s a wonderfully simple solution for a novice investor or any investor,” said Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar.

TDF is based on age. Investors choose funds based on the year they aim to retire. For example, a person who is currently 25 years old and expects to retire in about 40 years may choose a 2065 fund.

These mutual funds do much of the heavy lifting for investors, including rebalancing, diversifying across different stocks and bonds, and choosing a relatively appropriate level of risk.

As investors age, asset managers automatically reduce risk by reducing the proportion of equities in TDFs and increasing exposure to bonds and cash.

Lee Baker, a certified financial planner and founder of Apex Financial Services in Atlanta, said TDFs are a good starting point for “do nothing” investors looking for a hands-off approach.

“For a lot of people, that’s the easiest thing to do,” said Baker, a member of CNBC’s advisory council.

Investors only need to select a TDF provider, target year, and investment amount.

Benz recommends choosing a TDF that uses an underlying index fund. Index funds, unlike actively managed funds, aim to replicate the broad range of returns found in stock and bond markets and are generally cheaper. Index funds (also known as passive funds) tend to outperform actively managed funds over the long term.

“You definitely want a passive TDF,” says Carolyn McClanahan, CFP, founder of Life Planning Partners in Jacksonville, Florida.

Benz also advises investors to look for funds among the largest TDF providers, including Fidelity, Vanguard Group, Charles Schwab, BlackRock and T. Rowe Price.

Experts say there are other, easier options for investors who want to be a little more hands-on than TDF investors.

For example, some people may choose a target allocation fund, Baker said. These funds are similar to TDFs in that the asset manager diversifies between stocks and bonds according to a specific asset allocation (for example, 60% stocks, 40% bonds).

However, this allocation is static. It does not change over time like TDF. That means investors may eventually need to reconsider their choices. Baker says you can determine which funds are a good starting point by filling out an online risk profile questionnaire.

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Alternatively, investors may instead choose a Global Market Index Fund, which is an all-stock portfolio diversified between U.S. and non-U.S. stocks, Benz said. Like target allocation funds, these funds do not become less risky as you age.

“I think novice investors sometimes question the simple elegance of these very solid choices,” Benz said. “People crave more complexity because they think it has to be better. But it’s not.”

McClanahan, a member of CNBC’s Council of Advisors, said young, long-term investors should generally ensure their funds have a high allocation of about 90% or more to stocks, whether TDF or not.

Retirement investors under the age of 50 are likely to have some cash reserves for emergencies such as job loss or health problems, and a primarily stock-heavy portfolio would be a good fit, Benz said.

One caveat: Investors who are saving for short- or medium-term needs (perhaps a house or a car) may be better off moving their allocated funds into safer instruments such as money market accounts or certificates of deposit. McClanahan said there is a good chance that the

For long-term investors, the easiest way to save is through a workplace retirement plan like a 401(k) plan. McClanahan said companies that match their employers should aim to invest at least enough to achieve a full match.

“Where else can you get 100% of your money?” she said.

Investors who don’t have access to a 401(k)-type plan can instead save in an individual retirement account (another type of tax-advantaged retirement account) and set up automatic deposits, McClanahan said.

TDF investors who save in taxable brokerage accounts could be hit with an unexpected tax bill, experts say. Because TDFs rebalance periodically, there may be transactions within the fund that trigger capital gains taxes if it is not held in a tax-advantaged retirement account.