The world of investing is a very intriguing and exciting one to many. It is common to hear about it on the news or in certain social circles. With all of this talk about the markets swirling around all the time, it is little wonder that so many people would be interested in learning more about it.
At the same time, so many who are new to the markets also want to know how they can get started with just a small amount of capital. These days, that objective can be reached.
How Much to Start with
While investing is more fun and potentially more profitable with larger sums of money, it is certainly possible to get started with much less. There is potential to start with as little as $100 for many people. The best way to do this if you plan to start with this small of a sum is to open an online brokerage account.
The reason to open a brokerage account online is because these types of accounts offer low cost investing that is simply not available with brick and mortar brokers.
In fact, the brick and mortar shops would not even take an account of that size. They would require a much larger starting sum. Investing online by contrast can cost just a few dollars per trade with some brokers.
Picking a Good Investment
We all want good investments, so the definition of one can be difficult to nail down. However, there are a few things that a newbie investor should consider keeping an eye on.
For example, the new investor probably wants to invest in something that he or she is personally familiar with in daily life. It is a lot more fun to have some shares of a company that one actually does some business with. It can bring about a sense of pride and even bragging rights to own something so well known.
Aside from picking a stock of a company that is well known, why not also look for one that pays a dividend?
This is a sum of money that the company pays out to the investor just for holding on to the shares. It is typical for those well-known and well established companies to offer dividends.
This is extra money that they are not using for growth but instead paying back to their loyal investors for sticking with them. It is paid out quarterly, so the investor can enjoy a little boost every 3 months.
Look for Shares That Are Oversold
The old mantra on Wall Street is “buy low, sell high”. It is the point of all investing to purchase something at a lower price and then sell it to someone else when the price has increased. That is how one makes money in the market and it is the only way that makes sense to play the markets.
Therefore, even the newest investor out there ought to look for these opportunities.
Those starting in the markets with just a small amount of capital to work with should perhaps look for the value stocks. These are stocks that are selling at a fraction of what they should really be worth. Picking up some of these shares now could pay off in a big way down the line.
At the same time, investors should be cautious as some stocks that are cheaply priced are beaten down for a good reason.
Pay Attention to Fees
As previously mentioned, online brokers tend to provide cheaper prices for trading than do traditional brokers. However, one should pay close attention to every bit of the broker that they are considering using.
There is every opportunity to compare one broker against another to see who is really offering the best deals. There are even some websites that do all of the comparing for you and give you the details to review for yourself.
There are still a few online brokers which make it possible to put money into certain mutual funds without any trading costs at all. These are the best opportunities because then there is no transaction fee at all even on a small investment.
However, bare in mind that there may still be fees associated with the particular mutual fund so these should be carefully reviewed.
Adding Money Over Time: Dollar Cost Averaging
Another strategy used by some who do not have a lot of capital to invest with at the moment is to use something known as dollar cost averaging. That is to say that they can put a little in now and then more later as they accumulate more money. They can even just add small amounts over time as they go along.
Dollar cost averaging is using this strategy to continue to buy more and more into any particular investment. It is great because it means that the investor is actually purchasing fewer shares as the price climbs and more shares as it falls. It helps keep the average price paid for the shares pretty consistent and can help the investor enjoy the gains over time.
More Complicated Options
If you are a more experienced investor who simply does not have the funds to play around with right now, it is still possible to enjoy the markets. You can invest in stock options to try to gain a larger return on your money.
Options are risky but they are priced in such a way that you can enjoy a big return on some money if you happen to pick the movement of a stock correctly. They are essentially a side bet on the movement of the underlying security. If you guess correctly which way it is going, you can profit considerably.
Keep in mind that options are typically an all or nothing type play. If you are not right about the movement of the security you can expect to lose just about everything that you have invested in the options. If you are correct though, you might gain double, triple, or even more times what you originally invested.
Stock options are something that should only be used by those who truly understand how they work and then only when there is a very strong reason to believe that the option will move in your favor. It is easy to win or lose big with this type of investing vehicle.