Easy Ways to Start Investing with Little Money
The sooner you start investing, the sooner your money can begin working for you. With the proliferation of employer-sponsored retirement plans and discount brokerages, you don't need tens of thousands of dollars to get in the investing game. A variety of investment opportunities exist if you're able to set aside even $50 a month.
Start With Self-Assessment
Take a look at yourself before you delve into the financials of what you think could be the next hot stock. Identify your goals, how long you have to meet them, and how comfortable you are with risk. For example, if you're saving for a down payment on a house that you want to buy in two years, a drop in the stock market could be devastating to your plans. But if you're saving for retirement and that's three decades away, your long-term horizon can make short-term losses just a blip on the radar.
Take Advantage of Employer-Sponsored Retirement Accounts
Employer plans such as 401(k)s and 403(b)s are great places to start investing because the money comes right out of your pay check. You can select from at least a few different investment options and you get tax benefits. Large employers can often negotiate lower fees for the investments than you might be able to if you tried to open a retirement account for yourself. If your employer matches all or a portion of your contributions, you're turning down free money if you don't take advantage of the match.
Brokerage Accounts Versus Funds
Investing in mutual funds or exchange-traded funds allows you to invest in a wider portion of the market than if you were to pick individual stocks. Different funds may track the Dow Jones Industrial Average, S&P 500, or any other market index. These funds usually have lower volatility than one stock or just a handful of stocks because of the diversity of the companies you invest in. Consider a discount brokerage to keep your transaction fees to a minimum if you want to pick your own stocks. Each trade you make costs a fee, which can chip away at your returns.
Automate Your Investment
Setting aside a certain amount of money from each paycheck to put toward investments serves several purposes. First, you won't give yourself a chance to short-change your savings. You're much more likely to run short if you wait until the end of the month to put aside money.
Second, it takes some of the emotion out of investing. Individual investors tend to want to buy stocks after prices have been rising, then sell them when the prices come crashing down, robbing them of the biggest gains.
Third, signing up for an automated investment program might allow you to open an account with less than you would otherwise be required to deposit. For example, an account with a standard $1,000 minimum might allow you to open an account with just $200 if you also sign up to have $50 of each paycheck added to the account.