For many, the word “investing” conjures up images of men in suits tracking the exchange of millions of dollars on the stock exchange.
I’m here to tell you, you don’t have to be a Wall Street wolf to start investing. It’s okay if you’re more like a Main Street mouse. Even if you only have a few extra dollars, your money will grow through compound interest.
The key to amassing wealth is developing good habits like saving money regularly every month and giving up a Planet Fitness membership that you haven’t used in years (this alone saves you over $ 100 a year).
Once you have some money to play with, you can start investing.
1. Try the cookie jar approach.
The accumulation of money and their investment are closely related. To invest money, you first need to save.… It will take a lot less time than you think, and you can do it in very small steps.
If you’ve never saved, start at $ 10 a week. It may not sound like a lot, but over the course of a year it exceeds $ 500.
Try putting $ 10 in an envelope, shoebox, small safe, or even this legendary first aid bank – the cookie jar. While this may sound silly, it is often a necessary first step. Make it a habit to live on a little less than you earn and hide your savings in a safe place.
The electronic equivalent of a cookie bank is an online savings account; it is separate from your checking account. If necessary, money can be withdrawn within two business days, but they are not tied to your debit card. Then, when the stash is big enough, you can take it out and move it into some real investment vehicles.
Read more: Best High Yield Savings Accounts Comparison
2. Become a member of your employer’s retirement plan.
If you are on a tight budget, even the simple step of enrolling in a 401 (k) retirement plan or other employer’s retirement plan may seem out of your reach. But you can start investing in an employer-sponsored retirement plan with amounts so small that you won’t even notice.
This is one step everyone should take!
For example, plan to invest just 1% of your salary in an employer plan.
You probably won’t even miss out on such a small contribution, but what makes it even easier is that the tax deduction you receive for it will make the contribution even smaller.
By making a contribution of 1%, you can gradually increase it every year. For example, in the second year, you can increase your contribution to 2% of your salary. In the third year, you can increase your contribution up to 3% of your salary, and so on.
If you time the increase in conjunction with the annual wage increase, you will notice that the contribution is even lower. So if you get a 2% pay increase, it effectively splits the increase between your retirement plan and your checking account. And if your employer pays the appropriate contribution, it will make the arrangement even better.
Read more: Best 401 (k) investment accounts
If you’re at a loss, companies like Blooom offer automatic investment management for your 401 (k).
3. Also open the IRA.
Employer-sponsored 401 (k) is great, but it doesn’t offer the same tax benefits as other retirement accounts, so opening an IRA is also important.
First, you will have more control over your account as you open your personal IRA rather than through your employer who determines your investment for you.
Also, one of the best benefits of an IRA (specifically the Roth IRA) is its ability to grow tax-free. Your account will grow tax-free and you will be able to withdraw tax-free starting at 59½ years.
Read more: Roth IRA for Young Adults: Why Early Start Pays Off
4. Let the robo-advisor invest your money for you.
Robo-advisors entered the investing scene about ten years ago and made investing as easy and affordable as possible. You don’t need any previous investing experience as robo-advisors save you all the guesswork when investing.
Robo consultants work by asking a few simple questions to determine your target and risk tolerance, then investing your money in a highly diversified low-cost portfolio of stocks and bonds. Robo consultants then use algorithms to continually rebalance your portfolio and optimize it for taxes.
There is no easier way to start long-term investing. Most robotic advisors require very little money to start investing and charge very modest fees depending on your account size. They all offer automated investment plans to help you increase your balance.
If Robo Advisors have a downside, then that’s the price. Robo Advisors charge an annual commission equal to a small percentage of your balance. The industry average is about 0.25%. So, if you invest $ 10,000, you will be paying $ 25 per year. It’s not a lot of money, but it starts to grow if you save up hundreds of thousands of dollars.
It is important to note that the fees of robo consultants exceed the fees charged by exchange traded funds (ETFs) that robo consultants buy to build your portfolio. You can avoid paying robo-consultant fees by creating your own portfolio from ETFs or mutual funds. However, for the vast majority of investors, this is a lot of additional work and responsibility.
Bottom line? Robo Advisors are cheap and well worth it.
Read more: The best robo advisors
5. Start investing in the stock market with little money
When it comes to investing in the stock market, cost is often a barrier to entry. It takes money to make money, right?
Aldeady no. The Internet has made it easy for consumers to get started with very little down payment. This means that you can invest a few dollars to familiarize yourself with the investment before taking on larger commitments. This is a great way to learn how to invest while risking very little money.
Today, there are more and more options that have opened the doors to a new generation of investors – they allow you to get started with just $ 1 and do not charge trading fees.
In the past, stock brokers charged a commission of several dollars for each purchase or sale of stock. Because of this, it was prohibitively expensive to invest even in a single share worth less than hundreds or thousands of dollars. In fact, company-wide commissions of $ 0 have been so successful that they have disrupted the entire investment industry and forced all major brokers – from E * TRADE to Fidelity – to follow suit and abandon trading commissions.
In addition, the ability to invest in fractional / partial stock companies is a game changer for investing. With fractional stocks, this means you can diversify your portfolio even more while saving money. Instead of investing in the full share, you can buy a portion of it. If you want to invest in high-value stocks like Apple, you can do it for a few dollars instead of shelling out the price per full share, which, as I write this, is around $ 370.
Read more: How to Invest in Stocks – A Beginner’s Guide to the Stock Market
6. Plunge into the real estate market.
Believe it or not, you no longer need big money (or even good credit) to invest in real estate. A new category of investment known as real estate crowdfunding allows ownership of shares in large commercial properties without landlord headaches.
Crowdfunding real estate investments require a larger minimum investment than robo-consultants (for example, $ 5,000 instead of $ 500). It is also a riskier investment because you will be putting all that $ 5,000 in one property, rather than a diversified portfolio of hundreds of individual investments.
On the positive side, ownership of a portion of a real physical asset that does not necessarily correlate with the stock market.
As with robot consultants, investing in real estate through a crowdfunding platform comes with costs that you would not pay if you bought the building yourself. But here the advantages are obvious: you share the costs and risks with other investors and you are not responsible for the maintenance of the property (or even paperwork to buy it!)
I think real estate crowdfunding can be a fun way to learn about investing in commercial real estate as well as diversify your assets. I wouldn’t invest all my money in these platforms, but they do represent an interesting alternative investment, especially in these times of unprecedented market volatility and pitiful bond yields.
Read more: Can you make money on real estate? Here’s what the experts say
7. Invest in mutual funds with a low initial investment.
Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds with a single transaction, making them ideal for new investors.
The problem is that many mutual funds require a minimum initial investment of between $ 500 and $ 5,000. If this is your first time investing with little money to invest, these lows may be out of reach. But some mutual funds will drop the minimum account size if you agree to automatic monthly investments of between $ 50 and $ 100.
Automatic investing is a common feature of mutual funds and IRA ETF accounts. Mutual fund companies known to do this include Dreyfus, Transamerica, and T. Rowe Price.
The automatic investing mechanism is especially convenient if you can do it at the expense of saving wages. You can usually set up automatic depositing through your payroll, much the same way you do with an employer-sponsored retirement plan. Just ask your HR department how to set it up.
Read more: How to buy a mutual fund
Summary
There are tons of ways to start investing with little money, as the many online and app-based platforms make it easier than ever. All you have to do is start somewhere. Once you do that, it will get easier over time, and your future will love you for it.