Are you interested in investing, but don’t have a lot of money to do so? Don’t worry, this article is for you! Investing can seem intimidating and complicated at first. However, it doesn’t have to be that way – especially if you are just starting out with a little bit of cash. In this guide, we’ll go over everything from what kind of account to invest in to how much risk you should take on. Let’s get started!
Try To Save The Right Amount Of Money To Invest
When you first start investing, the amount that you save will largely determine how much money you can put towards your investments. To figure out what kind of savings rate is right for you, take the number of months until retirement and divide it by 12 (for example: if I retire in 30 years, dividing 30 by 12 gives me a savings rate of roughly 25%). Next, take this number and multiply it by your after-tax income to get an estimate for how much money you should be putting away (for example: if I make $50k per year, multiplying 50,000 * 0.25 = $12,500). If you aren’t currently saving this amount, start now!
Choose The Right Type Of Account To Invest In
Next, you need to decide where you will be investing. There are three main options that we’ll go over here: a retirement account (such as an IRA or 401k), your brokerage firm, and Robo-advisors like Betterment.
Investing In Retirement Account
A retirement account is the best place to start. These accounts are great because you get tax-deferred growth on your investments (meaning that any earnings will be taxed at the time of withdrawal), which can help boost returns over time. Additionally, most employer 401k plans offer matching contributions up to a certain percent – so it’s always better to contribute at least up to the point where your employer will match you.
Investing In Your Brokerage Account
Investing on your own through a brokerage account is another good option for people just starting out with their investments. These accounts are generally very cheap – usually costing less than $20 per trade, and offer direct access to stocks, bonds, mutual funds, and ETFs. Furthermore, they are easy to set up – you can typically get your account approved within a few days of opening it. However, since these accounts give you access to the entire market (both riskier assets with higher returns over time as well as lower-risk assets that have smaller expected returns), this is certainly not the best option for novice investors. Finally, these accounts do not offer tax-deferred growth on your investments (so any earnings will be taxed at the time of withdrawal).
Investing With Robo Advisors
If you are looking to invest with a service that is completely automated and offers hands-off management – then investing through a Robo advisor is the best option for you. Robo advisors are online services that provide automated investing advice with no account minimums or fees. These companies use algorithms to select investments based on your risk profile and goals – meaning they can build a portfolio of low-cost ETFs just for you! However, there is still research being done into whether these strategies actually work or not.
Finally, keep in mind that investing doesn’t mean you need to pick just one of these options! In fact, many people will have a mix of some or all three accounts depending on their goals and what they are saving for. For example, someone who is just starting out with their investments might want to put some money into retirement accounts and some into a brokerage account to learn the ropes. On the other hand, if you have been investing for a while already but haven’t saved much – then putting more money in retirement accounts is probably your best bet at this point!
