There's a stereotype painting investors as wealthy button-ups who live in luxury. But in reality, they're not the only people who want to invest. Plenty of people would love to supplement their income with a savvy investment or two and feel financially stable, but don't believe they have the funds necessary to do so.
You can make investments in an inexpensive manner. For real -- this isn't a presumptuous article that says you can invest with "only" $1,000 to $2,000. Come on. You're likely saddled with student loan debt in a gig economy, and in cases like these people don't always have that money lying around.
Here are some things you'll need to know about how to start investing your money, even if you're not exactly flush with cash.
Finding a Broker with Low Minimums
What are your options if you have a very limited amount of money? You're not able to just buy up a bunch of Apple shares. You probably don't even have the time to meet with a stockbroker to discuss your options.
In instances like these, online brokers can be an excellent resource. An online brokerage allows you to make investments right from your own home. This may require you to do your own research before purchasing stock, but some online brokers offer feedback on their platform. Some online platforms may also offer market analysis.
Many online stock brokers offer lower minimum deposits for your brokerage account. This can be a $500 minimum like the E*Trade online brokerage, but if that's too steep there are other notable brokers like TD Ameritrade or Fidelity Investments that have a $0 minimum for your account.
When searching for the right online broker, you'll also need to look into its fees. TD Ameritrade's lack of a minimum looks great, but be aware it also charges $6.95 per trade in fees. If you find a reputable online brokerage with an acceptable combination of minimum deposit and fees, you could get started on your affordable investing quicker than you realize.
Using a Robo Advisor
What if your online brokerage doesn't offer any feedback or advice, though? Where can you go as a new trader for some information on where your money should go?
Financial advisors are a costly expense. Robo advisors, though, aren't as expensive. Robo advisors will ask questions about you, your financial situation and your investment preferences. Using its algorithm, the robo advisor uses this data to create a unique investment plan for you. As long as you make sure it knows important factors of your finances - you're not looking to spend too much, perhaps some debts and loans are holding you back -- it will take that into account. In this way it can be different from a human advisor, who will not only cost more but may recommend a costly stock against your wishes.
Like with online brokerages, do your due diligence for research into robo advisors that are respected, and research the price and fees that come with them. Many well-regarded robo advisors (Betterment, Ellevest) don't require a minimum investment; others, like Wealthfront, have a minimum of $500. Lower-end fees can be 0.25% per year.
Making the right call on a robo advisor means the possibility of a low-cost, diverse portfolio.
Investing in Mutual Funds and ETFs
One way that robo advisors try to keep your costs low is by recommending exchange-traded funds, also known as ETFs. An ETF is a collection of multiple different stocks and bonds all in one single fund, and can be bought and sold on a stock exchange just like any individual stock could.
ETFs are very popular for traders looking to save money on the market because you can pay the price of one stock to get as many of hundreds of different companies' shares in a single fund. It also takes much of the work entirely out of your hands; these aren't random stocks thrown together, they're all selected (and subsequently managed) to be in the ETF as part of an overarching theme. There are value ETFs, where each stock and bond is from a company generally seen as an undervalued asset on the market, and growth ETFs that include companies with quick growth that can lead to larger returns.
Of the two, value ETFs may be the better one for the just-starting investor without a lot to spend. Growth ETFs have far more volatile, risky companies in them, meaning more of a chance of losing some money. Regardless of which you choose, the goal of an ETF is that enough companies will do well to offset one company within that is struggling, ideally mitigating the risk inherent in investing.
Mutual funds are a bit different from ETFs; you're still investing in a large group of stocks and bonds, but so are a lot of people. Money is pooled from multiple investors to invest in these assets. Many mutual funds have steep requirements for your minimum investment, but others can be as low as $50. Be aware, though, that because this is a fund you put money into to be managed, there will be fees even if you find an affordable one.
Using Your Job to Invest
If you have a full-time job at a company that offers benefits, take a look at those benefits. You may be able to start investing within those benefits alone.
The 401(k) plan your job offers you is an investment. You, the employee, decide how much out of your pre-tax paycheck you want put into the 401(k) plan, where your employer invests it into one or more funds. Let's say you get paid biweekly, and those two weeks add up to $1200 pre-tax. If you decided to make a 2% contribution to your 401(k), $24 from each paycheck would be placed into the plan.
In a particularly good 401(k) plan, your employer could even match your contribution. Suddenly that $24 every two weeks has become $48.
Over time, you can also increase the amount you contribute to the plan every year if you so choose. If you've been at this job for 3 years and get a rise in the third year, you may consider going from investing 2% into the plan to 5%. Suddenly you've been investing in a solid retirement fund for yourself.
Read up on your benefits package as much as you can to see what the specifics are within your retirement plan. You may have multiple investing options for your 401(k), from stocks to bonds to index funds.
Reducing Risk in Your Investments
There is never a risk-free investment. It's an inevitable part of the game, and not every investment will work. But there are ways one can do her best to mitigate risk and have a safer portfolio. And the less money you have, the more you have to lose. So how do we go about reducing risk?
Previously mentioned ETFs and mutual funds are designed in large part to help make a less risky portfolio, as enough businesses doing well can make up for any struggling businesses in the fund. Outside of these collections of funds, you may need to do your own research for individual stocks. What is the company's stock price history? Is the company doing well, and has upper management been stable or has it seen a great deal of turnover lately? How is the P/E/ ratio, also known as price-to-earnings ratio? A high ratio of price to earnings in a company is often seen as a warning sign of risk.
Diversification is key to minimizing risk in a portfolio as well. That means having bonds as well as stocks, and making sure to not limit all your investments to one single area. Profits are a bit minimized by this as well, but should one of your investments go south, a different one doing well can pick up the slack.
How to Get Started in Investing if You DO Have the Money
If you do actually have the money to do more with your investments, then... do it. If you can afford a better broker with a $1,000+ minimum deposit without breaking the bank, it can be worth it. If a more reputable brokerage has a higher fee, consider it anyway. You can even take some more risks, picking more volatile companies or businesses in newer industries like marijuana.
But even if you do have the money and are starting investing, these safer, thriftier options may be a good choice as well so you can learn the ropes. Whether or not you have the cash, affordable methods for investing are greatly educational in an environment where, in order to thrive, you have to be particularly savvy and knowledgeable.