How to invest: Five-step guide to help set yourself up for success

If you have a 401(k) from your employer, you're already saving for retirement—but there are limits to how much you can contribute to a 401(k) each year. You can save additional money through an Individual Retirement Account (IRA). There are different types of IRAs, each with their own benefits and requirements.

If you're saving for something you'll want or need soon—such as a down payment on a new house within the next year—you'll probably want to invest in something relatively stable, like money market funds or certificates of deposit (all of which can be bought within a brokerage account). These options are steady, predictable, and offer competitive interest rates that are generally significantly better than a traditional savings account.

Given the high cost of college, it's a good idea to begin saving for education goals as early as possible and use tax-advantaged accounts, such as 529 plans or Coverdell education savings accounts (ESAs). Both of these accounts allow you to save for college and pay for tuition.

Your brokerage account is an investment account that allows you to buy and sell bonds, mutual funds, ETFs, and more. Whether you're saving up for a big purchase like a car or vacation, you can use your funds whenever and however you want.

Investing can generate returns over time, but it also involves risk. Most investments do not provide a full guarantee that the original investment amount will be paid back to the investors and are therefore considered risky because they may lose value.

As an investor, you need to decide how much risk you're willing, and able, to take on. Your comfort accepting a certain amount of risk is a combination of your time horizon (length of time to invest) and risk tolerance. Risk tolerance ranges from conservative to aggressive. (If you're not sure where you stand, this investor profile questionnaire can help you gauge your tolerance for risk.)

Time horizon depends on when you need to meet a goal. If your goal is many years away, there may be more time to weather the market's ups and downs. So, you may be comfortable with a portfolio that has a greater potential for growth and a higher level of risk. But if your time frame is shorter, and you have little ability to take a loss, you should consider taking a more conservative approach.

• Setting up regular contributions. Even small contributions, when made regularly, can potentially pay off over the long term. 
• Checking in periodically. Over time, priorities can change—especially when a major life event occurs, such as a new job, new child, marriage, etc. Re-evaluate your goals and check on your investments at least annually to make sure they're still appropriately aligned with your goals and time horizon. If they're not, you can always adjust accordingly.

Progress toward your goal is more important than short-term performance. Over 20 years, markets went up and down—but long-term investors who stuck to their plan would have been rewarded.