Have you ever asked yourself, “How do I start investing”? Many people would love to invest, but they don’t know where to start and don’t end up starting at all.
Some people believe they don’t have enough money to start investing, while others don’t know what assets they should invest. After all, there are so many investment types to choose from and so many choices to make that it can be intimidating.
Here are some basic tips for anyone wanting to begin investing with only small amounts of money to get you started.
How Do I Start Investing with Only a Small Deposit?
Perhaps the easiest option for beginning investors with only a small deposit is investing in mutual funds. There are funds available that allow you to start investing without a lump sum deposit to get you started. They ask you to pay an agreed amount using monthly withdrawals from your checking account, and you might agree to withdraw $25 or $50 or even $100. Decide how much you want to invest every month and then stick to a comfortable figure for your budget.
The mutual fund managers withdraw your money each month and invest it for you. Your money forms a part of a much larger pool of money, made up from the cash of lots of investors.
For younger people looking to invest, the best route by many is to open a ROTH Individual Retirement Account (IRA) and then invest in a low-cost indexed mutual fund. I recommend either a mutual fund that invests in the S&P 500 or a total market indexed fund. I use Charles Schwab, and you may open an account with them at https://www.schwab.com.
How Do I Choose the Right Investment?
Choosing the right investment platform to suit you is a lot more involved than just sticking your money in the bank and earning interest. While this may give you some return on your money, it’s not exactly a long-term investment strategy.
Your investment goals should be tailored to your specific reasons for wanting to invest in the first place. If you’re trying to find a way to save extra money for a home deposit or to pay for a college education, then consider how long you want to hold onto the investment. This can help determine what type of investment you choose and how long you need to stay with your plan to see the returns you hope for.
After having an actionable budget, the next best thing to a comprehensive financial plan is an investment plan. This is simply a plan that outlines what types of investments you want to invest in, the amount of risk you are willing to take, and timelines of when you may or will spend the funds. Investing for a car may be short-term and might be better in a savings account. Is college your goal? Equities in a state-sponsored 529 plan are most likely your best bet. Do you want that new house? Investing in a lost-cost indexed mutual fund in a brokerage account may be your best bet.
Should I Start Investing in the Stock Market?
When you buy shares, you’re buying little pieces of ownership in one company. If that company performs poorly and the value of your stock drops, then you’ve put your investment at risk. Perhaps a less risky option to get started would be stock mutual funds. A stock mutual fund manager will invest the pooled funds from many investors into many company stocks, which diversifies the portfolio overall and spreads the risk significantly. Even if one company performs badly, the total fund may still offer good returns simply because the investment is spread across a diverse selection of stocks. An excellent book by the man who led the industry to where it is now regarding index funds is John Bogle’s Little Book to Common Sense Investing, found at https://amzn.to/3pOM4e9.
How Do I Get Started Investing in Mutual Funds?
If you think you’re ready to begin investing, you should spend some time researching different types of mutual funds available. There are quite a few websites that offer mutual fund ratings and searchable parameters that can give you results of funds that meet your criteria.
You might search for funds that don’t require an initial investment deposit and will allow you to begin investing using only monthly withdrawals from your checking account. When the database returns your results, you can narrow down your search into different categories, such as how much the administrative fees will cost, the fund’s return for the current year, and other aspects. For a site with a good deal of paid and free content, I recommend https://www.morningstar.com.
If you would like more information on financial plans or the importance of an investment plan, feel free to contact me directly. And for those not located in or near Nashville, Tennessee, I can still assist you or, if you prefer, seek out a fee-only Registered Financial Consultant near you.
