How to Start Investing With A Little Amount of Money
- 1). Open an account with an inexpensive online brokerage firm with little or no minimum balance. Review all fees associated with the account because fees reduce the amount you have to invest. In some cases, it may be better to save a little bit longer and meet an account minimum in exchange for lower buy and sell commissions. Note that many brokerage firms have lower investment minimums for IRAs than for regular taxable accounts -- a good option if you're investing for the long term.
- 2). Begin with one or two well-diversified mutual funds or exchange-traded funds. Both mutual funds and ETFs are pooled investments, meaning your single-share purchase buys portions of many different investments. Mutual funds typically have higher minimum investments than ETFs, but in either case you may be able to avoid minimums or additional commissions if you agree to regular automated deposits over time. Funds that track with a stock index, such as the S & P 500 or the Russell 2000, are good for investors at all levels; these funds are diverse, built from solid companies and generally lower in cost.
- 3). Diversify your investments as you accumulate savings. The simplest way is to buy shares of a new fund once you've reached a certain balance in the first one. You can also purchase individual stocks. Make sure that the new investments are in different industry sectors than the original ones; if you've been buying an index tracking middle-sized companies, think about bigger or smaller firms. Consider real estate, commodities and foreign companies.
- 4). Reinvest your dividends. Mutual funds typically offer automatic dividend reinvestment, meaning that you get more shares instead of a cash dividend. In many cases, this does not cost a fee, so it's an easy way to increase your investment. Get the same effect with individual dividend-paying stocks by enrolling in a dividend reinvestment program. DRIPS are offered directly from the stock issuer and reinvest your dividends automatically, just like mutual funds. The downside is that you may end up with an account at each individual stock company.
- 5). Review your portfolio at least two to four times per year to make certain your investments are performing as you expect. Once a year, rebalance your portfolio, buying and selling assets to ensure you don't become too concentrated in any one market sector. This is also a good time to sell underperforming assets and adjust your portfolio to reflect changes in your investment goals.
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