Even with a little amount of money, investing in the stock market is still possible. In fact, even the experts would agree that it is best to start investing smaller amounts to “test the waters.” For an average earner, assuming that you already have at least $1,000 on hand, here are some ways to invest and build your wealth albeit gradually.
For the employed, the very first option is the 401(k) or the employer-sponsored retirement savings plan. An employee is allowed to save and invest a portion of their monthly wages before taking out the taxes. Taxes will be paid when money is withdrawn from the said account. You can think of this as free money that is available for investment. Hence, consider funding your 401(k) first before looking for outside investments.
Dividend reinvestment plans (DRIPs) are specifically created for such purpose – investing with smaller amounts of money. These dividend-paying stocks are usually sold by multinational companies such as Coca-Cola, GE, Johnson & Johnson, and Verizon. The stocks are purchased directly from these companies and the dividends earned from them can be reinvested in new stocks. Eventually, the dividends earned from the first few stocks that you purchased initially will pay for itself. You may start diverting your dividends into other stocks once your balance allows you to do this.
Direct stock purchase plans (DSPPs) are simply shares directly purchased from a company or through its transfer agent. Companies that offer DSPPs have requirements such as a minimum deposit of $100. One advantage of the process is it bypasses the broker and thus, the commissions incurred in brokerage. Put simply, you can have all the gains for yourself. Nonetheless, you need to go to the company directly to purchase the share.
4) Stock funds
Also known as securities, stock funds, as the name implies, are funds that are invested in stocks. While stocks differ in value and growth, investing in such is basically considered as a long-term growth strategy since they yield both capital gains and dividends. For first-time investors, it would be best to put your money in the well-established, “blue chip” firms as they can pay regular dividends.
5) Broker CDs
If stock funds are too ambitious for you at the moment, broker certificate of deposits (CDs) are the next best thing to invest in. Indeed, CDs are not only available from banks and other financial institutions. Brokers may issue CDs, too, and their main advantage is they can negotiate a higher interest rate for the deposits. Deposit brokers are not licensed, however, so make sure you conduct a thorough background check before investing your hard-earned money.
Exchange traded funds (ETFs) are marketable securities tracking other index funds, bonds or a commodity. Nonetheless, ETFs are traded like regular stocks since they are representative of a particular sector within the investment market. ETFs are available for as little as one share and can be purchased from the broker. Like DRIPs, ETFs are dividend-paying securities.
Also called age-based funds, target date funds (TDFs) refers to a collective investment scheme. TDFs may start aggressively and end conservatively as the target date approaches. The target date is usually the investor’s retirement age. The scheme involves a changing stocks and bonds percentages to assure the safety and security of the money invested.
Above are some of your investment options. Nevertheless, the main issue that you have to deal with right now is coming up with the money to invest. If $1,000 is difficult for you to shoulder, then what you should do is to start saving. Set aside at least $50, $100 or a percentage of your monthly income to devote to your initial deposit.
There is nothing revolutionary with this tip, but there remains the fact that little sacrifices go a long way. Start by becoming aware of your own spending pattern. Do you drop by Starbucks for a cup of caramel macchiato every morning? A cup costs $4.95, so that’s $24.75 every week, $123.75 every month. Can you cut back a little? Let’s say, to only 2 cups per week?
Again, these are the little things that you can live without. These are the small luxuries that you may give up even just for a while. Think about the big picture – your future – and all the sacrifices will be worth it.