How to start investing in stocks if you don’t have much capital:
One of the biggest hurdles that many people find when it comes to investing is knowing how to get started. For those who do not have access to a retirement plan at work, the fear of making the wrong choices can also come into play.
Additionally, there has traditionally been a barrier to investing because of the amount of capital needed to start. This is not necessarily the case any longer.
You don’t need to have much capital to get started. Depending upon the type of investing that you’re looking to get started with, very little money could allow you to begin building a nest egg.
If you’re looking to go the index fund route that many financial gurus recommend, you’ll probably need to come up with between $1,000 and $3,000 to invest directly with the fund company. To build up this amount of money, you’ll need to put away a bit from every paycheck or find a way to add some income that you can put toward savings.
Stashing just $20 a week can build up to more than $1,000 over the course of the next year. This would allow you to make your initial investment if there’s a minimum of $1,000. Of course, you’d need to be very disciplined to keep up the savings, but they can really start to build up over time.
Choose A Brokerage
Depending upon the brokerage you choose, you might be able to get started with substantially less than $1,000.
If you’re looking to purchase an ETF, you could buy as soon as you have enough to take care of a single share. This amount will vary depending upon the ETF that you’re looking to buy. Discount brokerages like TradeKing or Scottrade can charge as little as $4.95 per trade, so you’ll have to add this to the cost of your transaction.
If you’re looking to buy a single stock, there are a couple of options that allow you to start investing with no transaction fees.
Loyal3 is a brokerage that allows you to purchase as little as $10 worth of the companies that they have available. This will usually get buyers a partial share that they can put additional money toward over time.
The only downside with this option is the fact that there are only about 60 companies that investors can buy through Loyal3 although they include popular options like Apple, McDonald’s and Coca-Cola.
Another fee-free option is RobinHood, which is a brokerage that’s tied to a mobile app. Unlike Loyal3, you have to have enough in your account to buy at least a whole share. They do not have the limited number of investments that Loyal3 offers.
There are many more options with RobinHood. When looking at most companies to buy a single share from, you’ll need quite a bit less than the $1,000 or $3,000 that you’d need to buy into most Vanguard accounts directly.
Decide On Your Investments
The easiest option for investing is a basic index ETF. These are funds that trade like individual stocks on an exchange, which provides greater flexibility for those who hold them. These tend to have lower fees than managed mutual funds or ETFs, and they track a specific index.
One of the more popular ETFs is the Vanguard Total Market Index fund that includes every publicly traded stock in the US market. There are also funds that track the S&P 500 or dividend payers.
The cost of these funds can vary based upon the company, and tend to range between $20 a share to more than $200 per share. Regardless, you can get started with relatively little capital.
You can also buy individual stocks. Many successful investors, including Warren Buffett, recommend the index fund route, but it’s possible to buy individual stocks and build wealth over time.
Unproven companies with little in the way of profits might be hot today but wind up costing investors in the long term as they begin to collapse because of a lack of revenue or income.
Stable blue chip companies that pay out dividends from a strong cash flow tend not to provide investors with a grand slam, but they do tend to provide an income stream through regular dividend payments and some moderate price appreciation over time.
Getting started with investments can be a daunting step to take for those who are not familiar with the process. With some planning, there’s no need to worry about the fact that you might not have a massive amount of capital available.
By getting started, the process of building wealth can begin quickly and compounding can really turn your investments into a veritable wealth snowball.
Andrew Altman is the editor in chief of a website SlickBucks.com. Via his site, he shares practical advice, reviews and investing tips so everyone could achieve the type of wealth they desire.
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