A common myth about investing is that you need a large sum to start. This idea is also one of the reasons many people do not invest, instead choosing to keep their money in bank accounts that do not yield much.
The truth is that it is possible to build a solid investment portfolio even when you have a few hundred to a few thousand dollars. This article will cover some smart investment tips for those on small budgets.
Understand Diversification
Before you start investing, you need to understand what diversification is and why it is important. Diversification is an investment principle where you invest in different types of assets and commodities. The main reason for having a diversified portfolio is so that you are covered in case one investment option does not perform as expected. It is also important for reducing volatility, especially when you invest in assets or commodities that do not move the same way in the market.
When new to investing and would like to learn more about investment diversification, you can follow these tips to diversify your investments and learn how to ensure your investment portfolio is protected and has the best returns possible.
Investing Using Certificates of Deposit
Certificates of deposits from banks or other financial institutions allow you to park your money in an account. These deposits can then be used to purchase low-risk investment options or be left alone to accumulate interest. These certificates of deposits are usually used to buy treasury bills, which are long-term investments with little return but virtually no risk.
Dividend Reinvestment Plans
When you purchase company shares, you are likely entitled to dividends at the end of the current financial year. Most people choose to withdraw these dividends, leaving their shares intact. Instead of doing this, you can reinvest the dividends and use them to purchase additional stocks. This option is great because shares bought using a reinvestment plan are usually available at a discount and there are usually no broker or processing fees involved in this plan.
Peer-to-Peer Lending
Although this is a smart way of investing your money, it carries some risk. When you invest in peer-to-peer lending, a crowdfunder will connect you to borrowers who need money to find their own investments or for new ventures. You will receive a portion of the interest aid as the loan is repaid. This will depend on the amount of money you invested.
While some crowdfunding accounts require about $1,000 to open, some require as little as $25.
Buy Stocks
If you have more than $1000 to invest, stocks can be a great option for you. Stocks are relatively safe (depending on the companies you invest in) but they generate generous returns. You can also invest in mutual funds that serve to diversify your portfolio and are overseen by a professional to minimize risk.
If you are new to investing, you may be looking for some smart investment options to include in your portfolio. All the options discussed above come with low risk, require little capital, and have a healthy return.