Do you have enough money to start investing?
Investing in the stock market is one of the smartest steps you can take to improve your finances and build wealth for the long term. A diversified portfolio of well-researched investments can make your money work for you, giving you the best chance of generating reasonable returns while minimizing your risk. But for many people, there are barriers to buying stocks.
In particular, many Americans probably don’t invest because they think they don’t have enough money to do so. But if a lack of available cash is holding you back, your small wallet may not be the obstacle you think it is. There are now many options to start investing with very little money, although this does not necessarily mean everyone should put their reserve dollars on the market.
Not sure you have the money to start investing? Here is what you need to know.
First of all: in some circumstances you don’t have enough to start investing. In particular, you are not ready if:
- You have high interest debt: If you have credit cards or payday loans, the interest on them will likely eclipse any returns you might earn in the market. You have to pay them back before you invest, with one exception: contributing enough to get the matching funds from your employer on your 401 (k). Winning your match should generally be your second priority after making minimum debt payments; otherwise, you lose free money.
- You don’t have emergency funds: An emergency fund covers unforeseen expenses which are almost certain. Ultimately, your emergency fund should be large enough to pay for three to six months of essential expenses. But you don’t have to raise that much money before you start investing. You can first save a small emergency fund of about $ 1,000 or $ 2,000, and then divide your available money between building that fund and investing. Your small emergency fund should cover most of the expenses without you having to go into debt or sell stocks.
Once you’ve paid off your high-interest debt and saved for emergencies, you’re probably ready to start investing, having done your research on becoming a savvy investor.
You can start with even a small amount of free cash that you won’t need for the next two to five years. You don’t want to invest the money you will need before then because you may be forced to sell at an inconvenient time. But with a delay of five years or more, you increase the chances of generating positive returns by giving yourself time to wait for downturns.
Note that I said you can invest even with a “small” amount of money available. And it can really be as little as a few dollars thanks to the fact that most brokers have eliminated commissions for trades, and a growing number allow you to buy fractions of shares (which are, as the name suggests , whole fractions of shares). Commission-free, you can buy exchange traded funds (ETFs) or stocks for just a few dollars and start making your money work.
With $ 10 to spare, for example, you could buy a partial share of an ETF that tracks the S&P 500 or about 0.003 of an Amazon stock share (or whatever stock you want). If your investment is performing well, the returns you earn will be the same, in percentage terms, as those earned by investors with much deeper pockets.
As you get more cash on hand over time you can keep investing and by building a diverse portfolio hopefully growing all those small contributions into a nest egg that allows you to make big. things.