How to invest in stocks with limited budget

There is no reason to worry if you only have $10, because you can still invest and start earning right away

How to invest in stocks with limited budget. Source: shutterstock.com

Don’t try to tell yourself you can’t invest if you don’t have hundreds of dollars if you really want to start investing. Even a small amount can be a good start. It can give you great impetus towards lucrative deals in the future.

Savings accounts are not the best option, if we are talking about real investing. They prove themselves to be nothing but a site for parking your funds. Savings accounts are not about interest.

On the contrary, stocks can help you to save some money for your future life. Of course, nobody talks here about instant returns as it will take some time. However, if you figure out how to invest, it can be lucrative.

Top misconceptions about investing

Your misapprehensions about investing are probably the major thing that holds you back from huge revenues. We’ve listed the top myths about investing, and have debunked them.

It is obligatory to have a lot of money to start investing. Source: shutterstock.com

№1: It is obligatory to have a lot of money to start investing

The truth: It is a very deceptive myth. Nowadays, there are tons of online brokerage companies that allow you to invest even if you have less than $1,000.

Moreover, some companies have already reduced their requirement for a minimum investment threshold sum. The only thing they want is a regular deposit (mostly it is about monthly deposits).

The sum depends on the firm’s policy, so you’ll just have to check the agreement they wish to offer you.

Mostly, the minimum sum is around $100. It is not the worst idea to invest $100, rather than just spend it on some useless stuff, isn’t it?

Remember, a diversified fund usually offers more. The long-term can even multiply your payouts.

№2: Diversified portfolio is very expensive

The truth: Indeed, a diversified portfolio is the best way to lower your risk related to investing. However, this option is not only for rich investors.

Many firms offer ETFs (Exchange Traded Funds). These make it possible to invest in a variety of investments with little money. ETFs work alongside an index, such as the S&P 500.

If you purchase ETF shares, it will provide you with a part of the portfolio of the entire index. You’ll still have some risk, but that will be divided between different stocks with different risk levels.

A diversified portfolio is the best way to lower your risk. Source: shutterstock.com

№3: You’ll be dealing with penny stocks only if you don’t have enough money

The truth: Let’s suppose you’re a rookie investor. There is no reason for you to invest in highly volatile penny stocks.

What are penny stocks? According to the US SEC, a penny stock is about security issued by a small company that trades for less than $5 per share initially. Here we have two options. On the one hand, a company can be just starting out, so it is risky to invest in a company without any history. On the other hand, a company might not last for much longer. Actually, both options are not peachy.

If you don’t have much money, it is better for you to work with influential companies, which have an extensive history.

№4: Buying stocks requires big sums

The truth: Have you ever heard of Dividend Reinvestment Plans (DRIPs)? With the help of these, you can invest in a company even if you have a small sum. You can purchase even one share if you want.

The core idea here is the opportunity to invest more and more in the same firm (thus, buying more and more shares of the company you’ve started with).

You can purchase even one share if you want. Source: shutterstock.com

№5: Mutual funds can only be an option for investors with big sums

The truth: Mutual funds are not that expensive. Furthermore, it is a very wise way to diversify your portfolio if you don’t have big sums.

Of course, we can’t talk about all the funds. Some of them require colossal investments. Nevertheless, you can find enough funds with fairly low minimum investment requirements.

What should I do before starting investing?

  • Check your financial situation. You should know whether you have a debt. Moreover, it is good to know that you have an emergency fund. It doesn’t mean you can’t invest with a debt. All we want to say is that you’ve got to have a firm foundation for future investing.
  • Pay off credit card debt. It sounds as simple as it is in real life. We don’t mean it is easy to pay off your debt if you don’t have money. We are talking about the sense of the phrase. If you still have debt, all the interest you are receiving will not make your balance positive. It is simple maths. Thus, firstly take care of your credit card balance. Then, you can start investing with a clear conscience.
  • Make sure you have an emergency fund. There is no universal rule for this point, but it is good to have at least $1,000 for an emergency fund. Thus, you’ll buy some time and cover unexpected unpleasant surprises. Saving $1000 in one year is not that hard. It is just $100 per month.

How much money do you need to start investing?

It is a good question. However, you won’t find a precise answer to this question.

You can start investing with $5 – $10, as well as you can get started with $100, or even $500. The first step here is to choose between ETFs and DRIPs.

Otherwise, you can opt to put your money in stocks of a particular company, but it can be riskier since you put all of your eggs in one basket. At this point, you can get in trouble if something happens with a company (financial issues, for example).

Firstly take care of your credit card balance. Source: shutterstock.com

The best way to get started

The major thing to watch for here is research. Actually, there are tons of options here, so you should research, and rely on your personal preferences.

A brokerage review is also a good thing to start your research campaign.

Please remember, just because there is a brand-new brokerage app available doesn’t mean it is the best one.

It is almost impossible to predict whether a particular company will be successful or not, but still, research can help you out to figure some things.

So, you are a rookie investor. Let’s find out what options you have

Here, you’ll have millions of choices, and you don’t even need a broker to help you out. Let’s start with some simple examples:

  • Employer IRA

You should never ever refuse free money. And Employer-Sponsored IRA is what you need, when it comes to free money.

If your employer provides matching contributions, this investment is a must.

Maximizing your contributions can take advantage of your employer’s match.

For example, check out the Blooom. This one can help you with your retirement plan. In short, it analyses the programs and helps you with optimizing your investment strategy.

  • Automatic Investments

Since we’ve mentioned robo advisers, let’s stay on our course. They can take care of automatic investments. There are plenty of robo advisers on the internet today.

Normally, you set the monthly amount that will be deposited. Most companies charge a small fee for their services provided.

There are plenty of robo advisers on the internet today. Source: shutterstock.com

  • Mutual Funds

We’ve already mentioned mutual funds as well.

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets.

Some brokerage companies require investments starting from $500+. But others require much less money. It can be a less risky option than investing in one particular company. Yes, it is not a kind of “golden rule”, and nobody guarantees you anything. It can depend on the types of holdings and whatnot. Anyway, just consider this option.

  • Stocks

You should be aware of such things as discount brokerage firms. They can provide you some assistance with purchasing individual stocks (for a fairly low fee).

Again, if your aim is a portion of stock (mostly it is due to limited budget), then a DRIP is your best decision.

  • Treasury Securities

This option is considered to be the less risky one. Treasury securities do not depend on the market, hence they are not so volatile. Therefore, you can predict the dynamics of prices, etc.

The pros and cons of investing a tiny sum

First and foremost, you’ll develop the habit of investing. Source: shutterstock.com

Pros:

  • First and foremost, you’ll develop the habit of investing. Most often, the hardest thing is to start. An aspiring investor usually thinks that $5/$10/$20 won’t even make a dent, so there is no use to start an investment campaign. This is a common mistake. When you think that your sum won’t make any difference, you just do yourself the biggest disservice (if we are talking about an investment market). This is what primarily prevents you from investing.
  • You broaden your horizons. An investment sector is not limited to just stocks. There are also tons of different options. Sometimes, a small budget makes people think out of the box. Let’s just remember the above-mentioned DRIPs and ETFs.
  • The diversifying of the risk. The less money you have, the less money you’ll lose. On the other hand, the less money you have, the less likely you’ll buy stocks directly. There are different interesting ways to put your money in. For example, index funds/Dividend Reinvestment Plans are good for starters. You’ll not have payouts right away, but it can be lucrative over time.

Cons:

  • A long wait for a return. First of all, small investments are not about instant payouts. Thus, you shouldn’t invest funds you may need in the near future (we are talking about months or even one year).
  • Large firms/companies are reluctant about selling individual stocks. If you want to invest in some company, DRIPs and ETFs are your best way to implement this.
  • Monthly deposits. If you are not charged with a brokerage fee, then be ready to pay the minimum deposit requirements.

Disclaimer

Opinions expressed here are the author’s alone. Use any advice at your own risk since the author is not responsible for decisions taken.

SEE ALSO: Top 5 ways you can invest in esports

facebook