One of the most common myths in investing is that you need a lot of money to make it worth while. While some people would like you to believe this to be true, you can begin investing with a very small initial deposit, and watch it grow over time.
While it is true that investing in the stock market involves considerable risk, historically stocks have outperformed all other asset classes. There are different strategies you can implement if you are starting with a relatively small initial deposit both in building wealth and mitigating risk.
Finding The Right Brokerage
Some full-service brokerages will require you to open your account with $5,000 or more. By investing with a firm of this type, you have access to money managers and financial professionals with education and experience.
While these types of firms require minimum deposits, many online brokerages will allow you to open an account with as little as $500 and some sites have no minimum deposit amount. Many online brokerages also offer incentives for opening an account, so it pays to do your homework.
It is also crucial to watch commissions and fees, as these can quickly eat away at profits. Full-service brokerages often charge upwards of $20 per trade, making frequent trading expensive and impractical. Online brokerages typically charge much lower commissions, and some even offer trades for as low as $4.
Discount online brokerages do offer a variety of services including real-time quotes, convenient utilities, and free information. If you are starting out small, and do not mind doing your homework, these brokerages may be right for you.
Making Your Investments Count
Many people believe that you have to purchase stocks in blocks of 100 shares, but this isn’t true. Shares can be purchased in any quantity you would like, and you can even purchase an odd number of shares.
While the lower the amount you begin with means the longer it will take to build a sizable nest egg, it is not impossible. If you set up a plan to deposit small amounts on a regular basis, you can watch your money grow over time. It is recommended that you compile several months of savings and purchase larger blocks of stocks to reduce transaction fees and commissions.
By utilizing a low-cost online broker, with an initial investment of as little as $500 you can purchase a handful of blue-chip shares or broad market ETFs with great potential. By reinvesting your dividends you can increase your stake in your positions, compounding your investments over time.
Find A Low-Cost Mutual Fund
An easy way to get diversification with a minimum initial investment is through a mutual fund. A mutual fund is a collection of stocks or bonds, and can provide an excellent investment opportunity for an investor that does not have a large initial deposit.
There are many mutual funds that have low account minimums and excellent services such as experienced financial professionals on hand to assist you.
Also, pay attention to any extra fees such as account maintenance fees and year end fees. While these may be waived if you carry a higher balance, they are important to consider if you will be operating with a smaller budget.
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