It is a common belief that to invest, you need thousands of dollars to get started. Thankfully, this isn’t true. You don’t need a ton of money to get started, rather you need to develop a strategy and good investing habits.
The first investing decision you must make is how much risk you are comfortable with. If you are planning to invest long term, say more than five years, you will be able to handle a little more risk. This opens up more investment opportunities such as mutual funds. However, if you cannot afford to lose money or prefer a shorter term investment, there are safer options such as money market funds, and CDs. Short term bonds may be considered as well, but there are issues to be considered. (More on Bonds in a future post)
if you already own stocks for the long term.
A dividend reinvestment plan, commonly referred to as DRIP or DRP, offers investors the opportunity to directly reinvest dividends earned from companies you already own stock in without the use of a broker. A DRIP is an excellent way to increase the value of an investment and typically are commission-free.
Choose Individual Stocks
Individual stocks are an attractive option for those who want to take on additional risk. Unlike last century, you can invest in stocks at little cost because discount brokerage firms allow you to buy individual stocks for a small fee per trade. Most fees range from $5-$10.
Invest in Mutual Funds
Mutual funds can scare away investors because many require a minimum investment that ranges in thousands of dollars. However, there are plenty of mutual funds that allow for expenditures of $500 or less. The great thing about mutual funds is it will enable you to diversify your portfolio, so instead of owning one stock, you may hold a hundred. Downsides include significant fees and the inability to trade in real time. Trades execute at the end of day at the ending daily price.
A favorite of mine, exchange-traded funds (ETFs) are another option for those who want to invest with little to no money. ETFs are similar to mutual funds because they offer a diverse portfolio, but they are traded like a common stock on an exchange. One ETF can be bought for the cost of one share, allowing it to be an easy investment.
Investing in equities offers benefits and historically higher rewards when you have a significant portfolio over a long time frame, eg. 5+ years. Whether you are trying to save for retirement, earn extra income, or achieve a savings goal, there are many ways to invest other than putting your assets into a savings account with a bank.
Other Equity Income Strategies
Options trading is a more advanced and sophisticated way to generate income. (More on this in future posts)