You’ve understood the benefits of investing by running the numbers in our wealth calculator. You’ve started to look around our online app and have found some curious stocks. You’re now itching to get into the game—to start investing, to start building your portfolio.
But you’re flat broke.
Unfortunately, the stock market is rather cold to newer investors who don’t have a lot of cash. It’s not that there are minimums to invest in stocks—you basically just need enough to buy 1 share—but the less the amount you are investing, the more you’re paying in fees.
Here are some ways you can get started with little money—yes, even if you’re a college student.
Although Stocks for the Week is the expert at finding undervalued stocks, we think you have to start somewhere, and sometimes an index fund is that. Index funds are a stock fund that is made up of shares of several companies underneath it—and the minimums and price for getting into index funds is much lower than stocks.
However, instead of the traditional brokerages, you should investigate newer startups like Betterment, Future Advisor, or Acorns to help you start building that stock portfolio while avoiding fees. These lean startups have millennials, like yourself, as their target market, which means you have easy mobile interfaces to monitor your smaller investments’ incremental growth over time. And as your investments grow, you can start to shift money out of the fund and into the stocks you are most interested in. This is ideal because you can watch and learn the stock market now, while socking away the funds you’ll need to invest later.
Of course, it goes without saying—be sure you know what fees you’ll pay to make transfers and tractions!
I mentioned earlier that the brokerage fees are the big barrier of entry. So why not skip them? It’s possible. Many companies allow you to invest in their stocks directly, with little or no fee and no minimum amounts. It’s typically called a “dividend reinvestment plan”—DRIP for short.
Here’s how it works: you decide the company you want to invest in because it has a high safety score. You go to their website and look for investor relations information—or just google “[company name] investor information” if you can’t find it. They’ll have instructions online; in some cases, it will be simple as telling them how much you want to invest and sending a check.
You likely won’t get the fancy dashboards and online features that the online brokerages have, but if you’re really interested in building a portfolio for the long haul, you shouldn’t care.
Credit unions don’t offer as many features or services as bigger banks, but you probably don’t need them. They few drawbacks of credit unions are far outweighed by the benefits, namely lower rates on loans (if you have them) and higher rates on deposits. A high-interest earning savings account can be a great place for you to put aside funds until you have enough to make the investments you want, and credit unions tend to have the best offerings. Make a note on your calendar to check your balance every month or quarter to check-in—and make sure to remember to put any extra money into the savings account as soon as you have it so you can accrue that interest.
One thing that’s important to know that the concept of “compounding” that our wealth calculator demonstrates also applies to debt. If you have credit card debt growing at a high interest rate, that’s just going to negate your long-term wealth-growing investments.
If you have credit card debt or any other high-interest loans (by high interest, we’re talking over 10%), then you should direct funds at paying off those debts before investing in the stock market.