Tips for Picking Your First Investments if You Have Low Capital

The following is a guest post by Andrew Altman at Slick Bucks, a website designed "to help folks learn to manage money more cleverly, and how that clever management can make you wealthier."  I highly recommend that you check out his site!  

Tips for Picking Your First Investments if You Have Low Capital

One of the first hurdles when you decide to start investing your money is choosing where you’re going to invest. This is even more challenging if you don’t have much capital available, because brokers have account minimums. Full-service brokers that offer investment advice may require you to make a $25,000 initial deposit, and even discount brokers often have account minimums of $500 to $1,000.

This doesn’t mean that you need to wait around to start investing. You can invest with any amount of money, you just need to choose the right method. Here are some tips on picking those first few investments when you have low capital.

Contribute to Your 401(k)

Most employers offer a 401(k) or some other type of retirement plan, and many will even match your contribution up to a certain percentage or dollar amount.

This is essentially free money, so it’s smart to take advantage. There aren’t any upfront costs with this type of investing, you just need to commit a small percentage of your salary. You could get started with as little as 1 percent.

Find a Mutual Fund

mutual fund is a portfolio of different stocks and bonds. Because of that, they’re one of the more low-risk investment opportunities, and they tend to provide a consistent return.

It’s important to have a diverse portfolio so that you aren’t relying on any single investment. This is challenging when you only have a few hundred or thousand dollars, which is what makes mutual funds so helpful for the beginning investor.

With low capital, you’ll need to shop around to find the right mutual fund company, as many of them have minimum requirements for your initial investment. If you don’t have enough to meet that minimum requirement, you may still be able to invest if you set up direct deposits into your account every month.

Keep Your Trades to a Minimum

It’s typically better to make fewer trades, regardless of how much money you have invested. While plenty of people advertise their day trading systems that are supposedly great for making money, the reality is that the investors who trade less often outperform the frequent traders.

When you don’t have much money to invest, there’s another reason to keep your trades down – fees. The most common fee is a commission on every trade you make, but there could also be other fees depending on the broker. Every time you trade, the fees cut into your potential profits. The more you trade, the more fees you’ll pay.

Check out Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a type of lending that has been available in the United States since 2006. How it works is that instead of a financial institution funding a person’s low, a group of investors on the P2P marketplace choose to fund the loan with their own money. The interest that the borrower pays is their return on the investment.

One of the nice things about P2P lending is that you don’t need much money to get into it, since you can fund a small portion of the loan. You could make your first investment with just $25 to $50. P2P loans can provide an excellent return, since the average interest rates are about 13 to 14 percent.

There is some risk involved, since the borrower could default, but you can mitigate this by checking each borrower’s risk score before investing. Just like with stocks, you can diversify your portfolio by investing small amounts in several different loans.

Starting Out with Investing

Low capital can make investing more of a challenge. You need to find the right places to invest and minimize risk since you don’t have much to lose.

However, it’s smart to invest your money regardless of how much you have, so look around and see which opportunity is right for your financial situation.


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