After you have saved up a substantial amount of money in your rainy day fund, you may be ready to start investing additional capital into an investment account. However, you may only have a small amount of money to invest at first. Everyone has to start somewhere, and you should feel proud of yourself for taking this important initiative.
There are some challenges you may face when investing smaller amounts of money, but you can overcome these challenges with the right strategy.
Look for the Right Investment Account
The investment account that you open can play a major role on your profitability as a smaller investor.
There are two important factors to pay attention to when opening your investment account. First, pay attention to the minimum opening balance required. This may immediately eliminate quite a few brokerage institutions from consideration.
Second, pay attention to the account fees. Often, the trade fees for a stock transaction are below $10 per trade. However, the difference of even a few dollars on a low opening balance is a big deal.
When you have only a handful of brokerage firms left to consider, focus on which firms give you access to the types of investments that you want to purchase as well as research and analysis tools.
Pay Attention to the Minimum Initial Investment Requirement
When buying shares of stocks, you can usually buy partial shares. For example, you could buy half of a share of a $100 stock for $50. You would still be responsible for the transaction or trade fee on this purchase.
However, when it comes to other investments, such as mutual funds, CDs, bonds and more, you may need to have a minimum initial investment amount. In some cases, this may be $2,500, $5,000 or more. It can be frustrating to be unable to purchase the investments you are truly interested in. Rest assured that you may eventually have access to more investment options.
Make Cost-Effective Decisions
Many individuals who have a limited amount of funds available to invest will regularly contribute more funds to their account. Even if you can only contribute a few hundred dollars per month or less to this account, you will see the account balance increase over time.
However, it is important that you always make savvy investment decisions. Remember that you will pay a transaction fee when you buy a stock or shares in a fund as well as during the sale. You need to generate enough profit to cover these fees as well as to cover your taxes on the gain. Otherwise, you are losing money on your investment.
It may sound trite, but the adage about buying low and selling high holds true. This principle is necessary if you want to make money with your investments.
Think About a Longer Hold Period
One strategy that you can consider using to make money through your investments is to consider a longer hold period. This is particularly true if you have purchased dividend-producing stocks that have an upward price trend. The longer you hold these stocks, the greater your return from the dividend yield may be.
You do, however, need to monitor your portfolio regularly. Learn how to use trend lines to make buying and selling decisions. Trend lines can help you to better time your buy and sell orders. If a stock has a downward price trend, you can sell it before you lose your gain. On the other hand, you could ride the price downward and wait for the stock to rise in value again. While doing so, you can enjoy continue to earn a dividend payment.
Be sure to reinvest your dividends in additional stock purchases. This way, you can buy more of the stock at a lower price for dollar cost averaging benefits. When the price eventually rebounds, you will enjoy a higher overall profit.
When you are getting started with investing, it is easy to feel frustrated. After all, you may feel as though you have limited investment options and like your funds are getting eaten up by fees. However, when you follow some of these helpful tips, you can enjoy seeing your account balance grow more substantially over time.Tips for Picking Your First Investments if You Have Low Capital Click To Tweet
Andrew Altman is the editor-in-chief of a site SlickBucks.com which aspires to help people on their road to better financial wealth. For that, SlickBucks features informative articles about investing so everyone could achieve the type of wealth they desire.