You do not need to have great sums of money to start investing. Just to set the record straight, investments go beyond typical savings accounts, money market accounts and other low yielding funds. Typically, investing means placing your money in bonds, stocks, mutual funds and other higher risk options. You should know that investing generally means that your investment could cause you a loss. Thus, you need to take careful steps to find a risk level that is right for you.
1. Establish an amount.
How much do you plan to invest? Amounts of $5 to $10 per week may seem conservative, but it may be all that you have to work with — at least initially.
Before you invest money, you should have other funds set aside to cover your everyday expenses as well as an emergency fund. If you are presently in debt, that is, you have credit card debt — it would be better for you to pay down that debt first before you begin to invest your money.
2. Understand what investing is.
You may have a basic understanding of what investing is, but you may not know all the nuances of investing. It is important that you become a student of investments. Newspapers such as the Wall Street Journal and magazines such as Money, Smart Money, Fortune and Forbes are good places to start.
It can also be helpful to read books by investors to learn what they have to say. Stop by your local public library branch or visit a bookstore to review titles. Familiarize yourself with investing language as you will be reading a number of prospectuses as you weigh your investing options.
3. Know that fees are charged.
Unless you plan to buy stock directly from a company fees are almost always unavoidable. Those fees can eat up your profits especially if your investment has a low annual yield.
It is not uncommon for fees of 1 to 2 percent to be charged. That means if your yield is 4 percent per year, then half of what you earn will go to cover fees. At minimum, the net amount you make each year should outpace inflation.
4. Consider your employer’s stock purchase plan.
One place where you can look for an investment opportunity is with your own employer. So called ESOP or employee stock option plans allow you to purchase company stock and sometimes at a discount.
If your company has this investment and you like what they do, then you may set up automatic purchases. Your company may allow you to invest as little as $10 or $20 per pay period with those funds automatically withdrawn from your account.
5. Take a look at mutual funds.
Perhaps you want to diversify your portfolio and have a mixture of stocks and other investments from a variety of companies. Look around for mutual funds that welcome small time investors such as yourself.
You may have to pay a fee to open your account, but often these are negligible if charged at all. An automatic investment plan is an option here where monies are taken out of your bank account and invested.
6. Consider a discount broker service.
The wealthy have their personal stockbrokers to work with. As a small time investor you cannot afford this type of service. At least not yet.
Fortunately, there are number of discount brokerage firms you can work with. These include ETrade, Scottrade and Trade King. With these types of firms you need to familiarize yourself with their respective commission structures. For instance, if you plan to purchase stocks you may be charged a fee of $7 per transaction. The fee structure may vary and can include fees on mutual funds, futures contracts, fixed income, bonds and other investments.
7. Fund your retirement account.
One of most sensible investments that anyone can make is to fund their retirement account. You may have an account through your employer where funds can be taken out of your paycheck and deposited into your retirement funds.
You can also open an Individual Retirement Account (IRA) and fund it on your own. There are both traditional and Roth IRA options that may be right for you.
Starting out with a very small amount can be a wise way of getting your feet wet when investing. You should track your investment to determine how it is performing. As your funds increase and your confidence builds consider stepping out into other investment options. Remember, you can lose money when investing. You can also outperform the market over the long haul if you do not panic and cash out when the market drops.