How to Invest With A Little Money

It is the oldest way to think about how to invest money. However, it is also the easiest. Investing requires a keen eye and extraordinary luck, and people's behavioral responses. It takes courage to hold onto stocks in extreme stock market volatility. This is not what the brain is wired for. If you have no prior experience in investing, how can you approach it? It isn't easy to know how to invest your money if you don't have any prior experience.

Automate Your Savings

Consider the last time you have saved money. What percentage of your monthly income did you set aside for savings? We all make a common mistake - we spend after we save. What happens when there is nothing left to save? Instead of wasting your money, grab the bull by its horns and start saving. Make a budget, determine the amount of money you can save each month, and include it as a line item in that budget. It's like a bill; automate it. Most employers offer direct deposits. Instead of depositing your entire check into your checking, you can have some transferred to your savings account.

Purchase an Index Tracker

Index funds, also known as exchange-traded funds, track the performance of an asset class or stock market. ETFs are generally cheaper than actively managed funds, where a stock picker chooses investments for you. ETFs are easy and cost-effective to build a portfolio using very little money.

Use a Robo-Adviser

You can let a Robo-adviser do all the work and decide where to invest your money. Online fund platforms such as Nutmeg and Evestor allow you to invest. This will automatically create a portfolio. Evestor requires a minimum investment of just PS1. Nutmeg customers have to invest a minimum of PS100 or PS500, depending on the type of investment account they choose. Because it is not a financial advisor or fund manager, it is called a "Robo-adviser." This makes it cheaper.

Register For Your Employer's Retirement Program

Even if you have a tight budget, enrolling in your employer's 401(k) or other retirement plans might seem impossible. You can start investing in an employer-sponsored retirement program with small amounts that you won't even notice. This is a step everyone should take. Plan to put 1% of your salary in the employer plan. It's unlikely that you will miss a small contribution, but the tax deduction you get for making it will make the contribution even more affordable.

You can gradually increase your contribution each year by committing to a 1% annual contribution. In year 2, you can increase your contribution up to 2% of your salary. You can also increase your contribution to 3% in year three. You'll be able to see the increase in contribution even more if you combine the increases with your annual salary raise. If you receive a 2% rise in your pay, this will effectively split the increase between your retirement plan account and your checking account. If your employer matches your contribution, this arrangement will be even more attractive.

Paying Off Debt

Paying off debt has two purposes. An obvious reason not to invest if you are in debt, particularly unsecured debt, is risky. Another argument is that paying off debt ensures a higher-than-average return on your investment. Even if the interest rate is double-digit, there are no venues where an investor may earn double-digit returns that are assured. This is particularly true if the rate is double-digit. Imagine you have a $1,000 debt on a credit card with a 15.99 percent annual interest rate. For the rest of your life, you'll have a roughly 16% rate of return on your money if you pay off that credit card!

Fund Companies That Offer Low Minimums

Vanguard is one of the most well-known and largest no-load fund companies. To get started with most funds, you will need to invest $3,000. If you are investing for the first time, it could take them nearly a year to save that much money. This is if they only want to invest in one fund. Vanguard is not the only one with high initial investment minimums.

There are many other no-load fund families that offer new investors low minimums and do not impose high limits. Charles Schwab has a $100 minimum for its no-load funds. If they open an account, T. Rowe Price doesn't have a minimum for investor-class funds. These two fund families are great and affordable, making it possible for new investors to start with a little money.