Investing even very small amounts can reap big rewards. Here are 7 ways you can start investing with
For many people, the word “investing” conjures up images of men in suits, monitoring the exchange of millions of dollars on a stock ticker.
I’m here to tell you: You don’t need to be the Wolf of Wall Street to start investing. It’s okay if you’re more of a mouse of Main Street. Even if you only have a few dollars to spare, your money will grow with compound interest.
The key to building wealth is developing good habits—like regularly putting money away every month. Swap out the barista-made cappuccinos for coffee at home and you could already be saving more than $50 a month.
Once you have a little money to play with, you can start to invest.
In 2020, you can get a date, a ride or a pizza with the swipe of a smartphone screen. Investing is no different. If you can automate your bills, why not your investments? It’s just as easy.
With a robo-advisor or savings account, you can make your money work while you play. With a stock trading app, you can play with a little money and learn valuable investing lessons at the same time. Just like Halloween costumes, investing comes in many different forms. It shouldn’t be a scary word.
With so many different options, investing for beginners is simpler and more straightforward than ever before.
Soon you’ll see how addictive growing your money can be.
Here are seven simple ways to get there:
Saving money and investing it are closely connected. In order to invest money, you first have to save some up. That will take a lot less time than you think, and you can do it in very small steps.
If you’ve never been a saver, you can start by putting away just $10 per week. That may not seem like a lot, but over the course of a year, it comes to over $500.
Try putting $10 into an envelope, shoebox, a small safe, or even that legendary bank of first resort, the cookie jar. Though this may sound silly, it’s often a necessary first step. Get yourself into the habit of living on a little bit less than you earn, and stash the savings away in a safe place.
The electronic equivalent of the cookie jar is the online savings account; it’s separate from your checking account. The money can be withdrawn in two business days if you need it, but it’s not linked to your debit card. Then when the stash is large enough, you can take it out and move it into some actual investment vehicles.
2.Let a robo-advisor invest your money for you
Robo-advisors entered the investing scene about a decade ago and make investing as simple and accessible as possible. You don’t need any prior investing experience, as robo-advisors take all of the guesswork out of investing.
Robo-advisors work by asking a few simple questions to determine your goal and risk tolerance and then investing your money in a highly-diversified low-cost portfolio of stocks and bonds. Robo-advisors then use algorithms to continually rebalance your portfolio and optimize it for taxes.
There’s no easier way to get started in long-term investing. Most robo-advisors require just $500 or less to start investing and charge very modest fees based upon the size of your account. All offer automated investing plans to help you grow your balance.
If there’s any downside to Robo-advisors it’s cost. Robo-advisors charge an annual fee equal to a small percentage of your balance. The industry average is about 0.25%. So, if you invest $10,000, you’ll pay $25 a year. That’s not a lot of money, but it begins to add up if you amass hundreds of thousands of dollars.
It’s important to note that robo-advisors fees are on top of the fees charged by the exchange-traded funds (ETFs) that robo-advisors buy to make up your portfolio. You can avoid paying the robo-advisor fees by building your own portfolio of ETFs or mutual funds. For the vast majority of investors, however, that’s a lot of additional work and responsibility.
The bottom line? Robo-advisors are cheap and well worth it.
3. Start investing in the stock market with little money
When it comes to investing in the stock market, cost is often the barrier to entry. It takes money to make money, right?
Not anymore. The internet has made it easy for consumers to get started with very little upfront money. That means you can put a few dollars in to familiarize yourself with investing before making a bigger commitment. It’s a great way to learn about investing while putting very little money at risk.
Today, there are increasing numbers of options that have swung open doors to a new generation of investors – letting you get started with as little as $1 and charges no trade commissions.
In the past, stockbrokers charged commissions of several dollars every time you bought or sold stock. That made it cost-prohibitive to invest in even a single stock with less than hundreds or thousands of dollars. In fact, $0 commissions across comp have been so successful they’ve disrupted the entire investing industry and forced all the major brokers – from ETrade to Fidelity – to follow suit and drop trading commissions.
Plus the ability to invest in companies with fractional/partial shares is a complete game-changer with investing. With fractional shares, it means you can diversify your portfolio even more while saving money. Instead of investing in a full share, you can buy a fraction of a share. If you want to invest in a high-priced stock like Apple, for instance, you can do so for a few dollars instead of shelling out the price for one full share, which, as I write this, is around $370.
4. Dip your toe in the real estate market
Believe it or not, you no longer need a lot of money (or even good credit) to invest in real estate. A new category of investment known familiarly as “real estate crowdfunding” makes it possible to own fractional shares of large commercial properties without the headache of being a landlord.
Crowdfunded real estate investments require larger minimum investments than robo-advisors (for example, $5,000 instead of $500). They’re also riskier investments because you’ll be putting that entire $5,000 into one property rather than a diversified portfolio of hundreds of individual investments.
The upside is owning a piece of a real physical asset that’s not necessarily correlated with the stock market.
As with robo-advisors, investing in real estate via a crowdfunding platform carries costs that you wouldn’t pay if you bought a building yourself. But here, the advantages are obvious: You share the cost and risk with other investors and you have no responsibility for maintaining the property (or even doing the paperwork to buy it!)
I think real estate crowdfunding can be an intriguing way to learn about commercial real estate investing and also diversify your assets. I wouldn’t lay all of my money on these platforms, but they do make an intriguing alternative investment especially in these times of unprecedented market volatility and pitiful bond yields.
5. Enroll in your employer’s retirement plan
If you’re on a tight budget, even the simple step of enrolling in your 401(k) or other employer retirement plan may seem beyond your reach. But you can begin investing in an employer-sponsored retirement plan with amounts so small you won’t even notice them.
This is one step that everybody should take!
For example, plan to invest just 1% of your salary into the employer plan.
You probably won’t even miss a contribution that small, but what makes it even easier is that the tax deduction that you’ll get for doing so will make the contribution even smaller.
Once you commit to a 1% contribution, you can increase it gradually each year. For example, in year two, you can increase your contribution to 2% of your pay. In year three, you can increase your contribution to 3% of your pay, and so on.
If you time the increases with your annual pay raise, you’ll notice the increased contribution even less. So if you get a 2% increase in pay, it will effectively be splitting the increase between your retirement plan and your checking account. And if your employer provides a matching contribution, that will make the arrangement even better.
Blooom is a great tool for hands-off investment management of your 401(k). They’ll give you a free 401(k) analysis, telling you where and how they can optimize your investments. Check out our review of blooom; if you decide to use their services, you’ll be charged a reasonable $10 per month.
6. Put your money in low-initial-investment mutual funds
Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds with a single transaction, making them perfect for new investors.
7. Play it safe with Treasury securities
Not many small investors begin their investment journey with US Treasury securities, but you can. You’ll never get rich with these securities, but it is an extremely safe place to park your money—and earn at least some interest—until you are ready to go into higher risk/higher return investments.
Treasury securities, also known as savings bonds, are easy to buy through the US Treasury’s bond portal Treasury Direct. There you can buy fixed-income US government securities with maturities of anywhere from 30 days to 30 years in denominations as low as $100.
You can also use Treasury Direct to buy Treasury Inflation Protected Securities, or TIPS. These not only pay interest, but they also make periodic principal adjustments to account for inflation based on changes in the consumer price index.
And as is the case with mutual funds, you can also arrange to have your Treasury Direct account funded through payroll savings.
Unfortunately, the yields on treasuries have been getting closer and closer to 0% for a while now, and there’s no end in sight to their lackluster performance. This makes treasuries mostly a place to stash cash for safekeeping rather than a way to grow your money.