While Wall Street and professional money managers would have you believe otherwise, investing in the stock market is not nearly as difficult as you might think. Even with a relatively small amount of money – as little as $100 – you can begin investing and growing your capital in no time at all.
There are, surprisingly, many options for investors who would like to enter the market with even a small amount of money to invest. There are online brokerages that do not require a minimum balance, and no not charge a low-balance fee. There are also low-cost mutual funds, penny stocks, ETFs, and options trading.
With every type of investment there is the risk of losing money, even losing your entire principle. The first step is to take a long, honest look at your personality, and your tolerance for risk. Also, be truthful with yourself as to how much time you can commit to your investments. It is perfectly fine to want to invest your money and get on with your life, you just need to make sure you have an investment plan that meets that personality style.
Why So Many People Lose Money In The Market
If the market is so simple, than why do so many people lose money? While investors make many mistakes, there are a few that are the most common, and therefore the most avoidable.
You can not accurately time the market enough to make it profitable. The stock market mainly responds to unexpected events, making it inordinately difficult to predict. This fact is proven by the poor records of individual investors around the world.
The consequence of failed market timing is that investors buy high and sell low. When you chase gains you expose yourself to risk and volatility, and some investors respond with fear and panic selling. This is clearly the opposite of what you should be doing, but many investors make these mistakes every day.
Another common mistake investors make is that they fail to diversify. This is most common in 401k plans, as many investors accumulate too much company stock, and have a limited choice of funds. Strategic asset allocation and diversification are crucial to maximizing profits, and minimizing volatility.
Can I Invest 100 Dollars In The Stock Market Effectively?
With a small time commitment, you can effectively and inexpensively build a diversified portfolio with ETFs, or exchange traded funds. These are funds that are typically designed to track a benchmark index (such as the S&P500), mimic the behavior of a mixture of various types of assets, and trade like stocks.
This strategy relies on low transaction costs, and there are online brokerages that offer trades as low as $4 with no account minimums. By investing $100 in a low-cost ETF and reinvesting your dividends you would be on your way to growing your capital.
Utilize your brokerages automated features, such as automatic funds transfers, and automatic investing plans. If you can, have a small amount transferred to your brokerage account from every paycheck. You will never miss small amounts of money, and these deposits will add up over time.
Have an automatic investment plan set up as well. When your account has enough funds available it will trigger a market order for your chosen securities. This style of investing works because it is effortless, and eliminates market timing by utilizing dollar cost averaging.
Remember to check in weekly to monitor your investments. No matter how simple a plan may be, you must perform the necessary due diligence, and re-balance once a year.