Bare-Bones Investing for those with Little to Spend

The method for accomplishing a goal often varies tremendously based on one’s resources, with money being an obvious factor. If you’re trying to lose weight, the resources at …

The method for accomplishing a goal often varies tremendously based on one’s resources, with money being an obvious factor. If you’re trying to lose weight, the resources at your disposal will likely determine whether you join a private club or go out for a jog. If you think someone is stalking you, your available resources will dictate whether you hire a private detective or resort simply to a reverse phone lookup.

When it comes to investing, advice freely available in books and on the internet often assumes that a person possesses a certain amount of resources, and as a result gives investing tips that do not differentiate much between the various amounts of money that people have at their disposal. But someone with $2,000 to invest is worlds apart from someone with $300,000, and they deserve advice that takes their limited resources into consideration.

Here is an attempt to do just that. If you are a new investor with a low paying job and can only set aside a couple thousand dollars to put into the stock market, here are a few considerations to keep in mind:

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Transaction Fees Matter

Since you don’t have much money to invest, you almost certainly won’t be buying large quantities of any single stock. In turn, this means that any transactions fee you incur will consist of a disproportionately large percentage of your purchase. A $10 fee, for example, matter a whole lot more when the transaction totals $300. In light of this, look for online brokerage services that offer low (or no) transaction fees. This will certainly free up a good chunk of money and will make you less adverse to incrementally putting more money into the market as your savings grow.

Buy a Market Index or No-Fee Mutual Fund

It is also important to keep in mind that, without having much to spend, your best chance of seeing healthy returns on your investment is to buy more shares of fewer stocks. With this in mind, it’s important that you are confident about the few purchases you make and that you can still find a way to diversify your portfolio. The best way to accomplish this is through a no-fee mutual fund or the purchase of an index that simply tracks a segment of the market. If you’re only buying three stocks, getting an S&P 500 index fund may be an appropriate purchase to make.

Play it Safe, Slow

Without much money to spend, you’re not in a position to sell short, day trade, or take on risky investments. Instead, play it safe. Buy indexes and stocks with a proven history of growth. Make sure that your investments cover multiple sectors. And, even if they don’t perform well at first, let them sit and give them time to grow. In the meantime, gradually put more and more savings into your account.

By keeping fees low, playing it safe, and growing slowly, you can eventually reach the point where you no longer need to take such measures. At that time, you’ll be a mainstream investor. You can take on greater risks if you choose and you can avail yourself of online investing advice targeted towards your new circumstances. But, for now, it’s important to realize that your situation is different and respond accordingly.

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