Some people believe that one has to have a huge budget to start an investment. But, you can start investing with as little as five hundred dollars. You need to compare several investment ideas first to choose the one with the highest return on investment (ROI). Also, study your target clients to understand their needs and how you can solve them. The following are five ways to start investing on a small budget.
1. Automated Savings
Many people save a specific percentage of their income every month. But, if you lack financial discipline, you can use computer and smartphone applications to save money. Such apps round up transactions and purchases to the nearest dollar. Then, they set aside savings. They include Acorns, Qapital, and Chime.
advanced savings apps round up all transactions that you make with your debit or credit card and they return money in the form of savings-friendly vehicles. For example, Acorns puts money in low-cost ETF portfolios while Qapital automatically transfers money according to the options you select, to FDIC-insured bank accounts.
2. Enroll in an Employer’s Retirement Plan
People who have little savings tend to struggle to enroll in a 401(k) retirement plan. Keep calm, if you are facing the same challenge. You can join an employer-sponsored retirement plan. Most of such plans have small amounts that many workers can afford. For example, invest 2 percent of your net salary into the retirement plan. You will get a significant tax deduction that will enable you to make consistent contributions. You can raise your annual contribution after one or two years.
3. Exchange Traded Funds (ETFs)
Some people get scared about picking stocks, especially if they cannot hire a skilled investment advisor. You can buy particular exchange traded funds, as they resemble index mutual funds. There are many stock market opportunities that you need to utilize.
An ETF such as SPDR Trust has the same performance as that of S&P 500. Thus, it would earn you the same return as that of 500 individual stocks. Besides helping you to start a single investment with many stocks, exchange traded funds allow you to have a broad portfolio. It is easy to find a traded fund that suits your market goals.
4. Pay Off Debt
It is unwise to start an investment when you have unsecured debt. Instead, pay off your debt to have guaranteed return from your investment. Many average investors don’t get a guarantee for double-digit returns. You can take a personal loan that has a low interest rate if your debt has a high interest rate. Companies such as Fiona help clients compare credit cards, personal loans and savings accounts in a short period.
5. Dividend Reinvestment Plans
Dividend Retirement Plans are popularly known as DRIPS. You can use them to invest money into stocks of firms which pay dividends. Most established companies provide DRIPS. So, you can invest in stocks of those companies that you like without paying any investment fees. You need to make periodic contributions to grow your investment.
Financial analysts recommend conducting extensive research before you start any investment. Check the viability of your idea and understand the legal requirements of your target location. Exchange traded funds, automated savings, an employer’s retirement plan, paying off debt and dividend reinvestment plans are some of the investments that you can start on a tight budget.