Investing with $1000
or Less
Provided by FinancialContent.com
By Chris Stallman
| E-mail
Over
the last year, I've been following up on e-mails that I have
received from young and beginning investors and, by far, the most
common question I've received is, "I don't have very
much money but I'm interested in getting started in the stock
market. How do I do this?" In fact, if I had a dollar for every
time I received that question I'd be a millionaire. Okay, that's
a little exaggeration on my part but it does show that most beginning
investors are people who have set aside a little money and would
like to see that grow faster than it would in a savings account
or CD.
Many people wonder if it's even possible to invest
just a little money and it definitely is. You hear stories about
these millionaire investment moguls all the time but it doesn't
mean you have to have that much money to invest. A thousand dollars
is usually a good number to start with but you can start with less.
I doubt it'll make you the next Warren Buffett but even he wasn't
born a billionaire.
There
are two approaches to investing $1000 or less: the mutual fund route
or the stock route.
Investing In Mutual Funds
The first step
to investing in mutual funds is to research and find a mutual fund
that suits your interests. It also has to have a minimum investment
which you can afford. Most mutual funds have $2500 minimum investments
for regular accounts but some funds let you start with $1000 or
less like Invesco funds ($1000) or the Pax World Fund ($250).
The next
step is to decide what kind of account you want to open up. The
options usually include custodial, joint, IRA, and regular accounts.
Custodial accounts are what you would open up if you are a kid and
want to invest or if you are a parent who wants to open up an account
for their child. You might consider a joint account if you want
the account in both you and your spouse's name. Individual Retirement
Accounts (IRA's) are excellent ways to save for retirement with
tax benefits but you should only open up one of these if you plan
on using the money for retirement. Regular accounts are the standard
type of account.
Once you have decided what fund you want to invest
in and what type of account you want to open, all you have to do
is fill out the forms and mail them in and relax as your money grows.
Since your money is managed by professionals, you probably won't
have to worry about it as much if the market takes a little dip.
You can also check how your mutual fund is doing online by entering
in its ticker symbol.
Investing in Stocks
If you feel
you have a good understanding of the stock market and want to pick
your own stocks, there are a couple ways to go about doing it. You
can either invest in them by buying DSP's or by opening a low-cost
online investing account.
A Direct Stock Plan (DSP) allows you to invest in a
stock with very little commission. They're good for people who
have little money but I don't recommend them for someone who
doesn't plan to own the stock for at least a year. The reason
is because you have to fill out the paperwork for each stock you
buy and they are slightly less liquid than a regular stock is.
The alternative to a DSP is finding a low-cost online
investing account. Finding a low cost online broker is very important
when you don't have a lot of money to invest because higher
commissions can eat away at your savings. Some online brokers that
allow you to start with $1000 or less and have cheap commissions
are Scottrade, Ameritrade, and Sharebuilder.
Once you've found the broker and have filled out
the necessary forms, you'll be able to invest online. But before
you make that first trade, you have to research some stocks and
decide which one you want to buy. I personally recommend you invest
in companies you know about rather than some strange company that
you had never heard of before. Once you've picked the stock,
just enter the trade and it should be promptly executed.
Whether you decide to invest in a mutual fund or in
individual stocks, the odds are in your favor that, over a period
of time, you will earn a positive return greater than the traditional
savings account or CD. If you keep at it, maybe you'll retire
with a few million dollars and a large beach house. If that's
a case, give me a call.
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