Got only $20?
It may not sound much, but you can use it to buy shares of small company.But what if you've got $100 -- or $1,000? Your options are even greater. But you have choose a broker wisely.
How to invest $20
Start with $20. Assuming that you've already have already paid all your debt and that you have a small amount of money stashed in a safe place (like a savings or money market account) that you can get to quickly in case of an emergency. Now you find yourself with a little extra dough, and you want to begin investing for your future.
One of the best ways to invest small amounts of money cheaply is through Dividend Reinvestment Plans (DRPs), also known as Drips. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.
More than 1,000 major corporations offer these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you're in the plan, you can set up an automatic payment plan, and you don't even have to buy a full share each time you make a contribution. Drips may be one of the surest, steadiest ways to build wealth.
How to invest a hundred bucks or higher
So you've have manage to hide a few hundred bucks for rainy season. Instead of spending it on your boyfriend or girlfriend, consider investing it in an index fund. An index fund that tracks the S&P 500 is your ticket to an investment that has traditionally returned about 10% per year. Some index funds require as little as $250 for you to call yourself an owner. This low minimum is usually restricted to IRAs (Individual Retirement Accounts). After your initial investment, try add as much money as you can, and as frequently as you can, with no additional costs or commissions. You purchase index funds directly from mutual fund companies, so there are no commissions to pay to a middleman. If you have a few hundred dollars to start with, then this is a great, low-cost way to start your investment.
How to invest $500
Once you have started investing and earning money. Your investment options widen up. You can still buy an index fund, and now you'll have your pick of fund companies that require higher initial investments. This freedom will enable you to shop around for a fund with the lowest expense ratio. You should seriously consider opening a discount brokerage account. Focus on the account option that best serves your needs; some accounts require a minimum initial deposit, and some don't. That means you can open up an account with whatever investing money you have available, and start researching and perhaps purchasing individual companies.
You can also try investing in spiders, a stock-like investment that mimics the performance of the S&P 500.
But always remember to keep your costs of investment (including brokerage fees) to less than 2% of the transaction value. So if you're planning to add to your position in stocks a few times a month, a Drip or an index fund may still be the way to go.
How to invest $1,000-plus
With $1,000 you can open up a discount brokerage account, but look at the rewards if you can scrape up an additional $1,000 a year to add to your original investment. Say you've got 40 years to retirement. If you start with $1,000 and invest an additional $1,000 each year, and your money earns 10% annually, then when you're ready to retire at age 65, you'll have $532,111.07. Again, even at this level, the key is to keep fees from eating up your earnings. So make sure that the costs of your investment (including brokerage commissions, stamps to mail in checks, and books that help you learn to invest) are less than 2% of your account's overall worth. With small accounts, that can be a challenge, but with such low commissions being offered by discount brokers, it's definitely do able.
It may not sound much, but you can use it to buy shares of small company.But what if you've got $100 -- or $1,000? Your options are even greater. But you have choose a broker wisely.
How to invest $20
Start with $20. Assuming that you've already have already paid all your debt and that you have a small amount of money stashed in a safe place (like a savings or money market account) that you can get to quickly in case of an emergency. Now you find yourself with a little extra dough, and you want to begin investing for your future.
One of the best ways to invest small amounts of money cheaply is through Dividend Reinvestment Plans (DRPs), also known as Drips. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.
More than 1,000 major corporations offer these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you're in the plan, you can set up an automatic payment plan, and you don't even have to buy a full share each time you make a contribution. Drips may be one of the surest, steadiest ways to build wealth.
How to invest a hundred bucks or higher
So you've have manage to hide a few hundred bucks for rainy season. Instead of spending it on your boyfriend or girlfriend, consider investing it in an index fund. An index fund that tracks the S&P 500 is your ticket to an investment that has traditionally returned about 10% per year. Some index funds require as little as $250 for you to call yourself an owner. This low minimum is usually restricted to IRAs (Individual Retirement Accounts). After your initial investment, try add as much money as you can, and as frequently as you can, with no additional costs or commissions. You purchase index funds directly from mutual fund companies, so there are no commissions to pay to a middleman. If you have a few hundred dollars to start with, then this is a great, low-cost way to start your investment.
How to invest $500
Once you have started investing and earning money. Your investment options widen up. You can still buy an index fund, and now you'll have your pick of fund companies that require higher initial investments. This freedom will enable you to shop around for a fund with the lowest expense ratio. You should seriously consider opening a discount brokerage account. Focus on the account option that best serves your needs; some accounts require a minimum initial deposit, and some don't. That means you can open up an account with whatever investing money you have available, and start researching and perhaps purchasing individual companies.
You can also try investing in spiders, a stock-like investment that mimics the performance of the S&P 500.
But always remember to keep your costs of investment (including brokerage fees) to less than 2% of the transaction value. So if you're planning to add to your position in stocks a few times a month, a Drip or an index fund may still be the way to go.
How to invest $1,000-plus
With $1,000 you can open up a discount brokerage account, but look at the rewards if you can scrape up an additional $1,000 a year to add to your original investment. Say you've got 40 years to retirement. If you start with $1,000 and invest an additional $1,000 each year, and your money earns 10% annually, then when you're ready to retire at age 65, you'll have $532,111.07. Again, even at this level, the key is to keep fees from eating up your earnings. So make sure that the costs of your investment (including brokerage commissions, stamps to mail in checks, and books that help you learn to invest) are less than 2% of your account's overall worth. With small accounts, that can be a challenge, but with such low commissions being offered by discount brokers, it's definitely do able.
