To many people, investment is only for the rich who earn big and can afford to spare huge amounts of money. Many others also believe that investment is complex, so you need so much knowledge to begin. These are only myths, and they are not true at all.
You can leverage many investment opportunities to make good returns with the least amount you can think of, especially online.
All you need is the right information, the right platforms, the right strategy, the right disciplines, the right tools, and consistent effort. With all these, there’s practically no limit to how far you can go with the little money you invest.
So let’s explore the available options you have when it comes to investing with little money and what you need to know to make it work.
5 Important Steps To Take When Investing With Little Money
Since you can invest with any amount, as low as $5, you must understand the proper steps to take to have a profitable investment. If you do not take the right approach, you will lose your money and most likely get frustrated.
Here are five crucial steps you need to take when investing a small amount of money.
Step 1. Do Your Research
Knowledge, they say, is power. It is very dangerous to risk your money in investments you do not understand. And, you wouldn’t want to lose the little money you’ve budgeted for investment carelessly. So, the first thing you need to do is do proper research.
Your research will help you find out the different investment opportunities available to you and how you can leverage them. At this stage, you need to find answers to very important questions such as:
- Which investments can I put my money into?
- How does each of them work?
- How much do I need for any of them?
- What are the possible risks involved?
- What’s the expected rate of return?
- Which of them is the best for me?
When you have carefully analyzed the result of your research, you can then make a well-informed decision on the type of investment to venture into.
Step 2. Draw an Investment Plan and Get a Working Strategy
After your research, you should identify the investments you want to make. Then, you need to make a comprehensive plan on how best to approach your investment.
First, you need to define your investment goals and ask yourself questions like;
- What exactly are you trying to achieve with the investments?
- How much are you targeting to make?
- How much do you need to start?
- And how long will it likely take to achieve your goals?
A good investment plan involves breaking down your goals into targets and attaching time frames to them. This will help you monitor your progress, and reaching the milestones will also encourage you in the process.
You then develop a feasible strategy to achieve your goals with this information.
Different investments have different strategies that can apply to them, so you need to find out which one best suits your plan.
Step 3. Prioritize Long Term Investments
Many people fail in investments because of greed, impatience, and a get-rich-quick mindset. You must understand that it will take time to master any type of investment and become profitable. Especially when you don’t have enough starting capital, you need to be patient enough to grow your little money into something substantial.
Hence, it is best to focus on long-term investments. Long-term investments usually focus more on growth and consistency, not huge immediate returns. This will help you minimize risk and give you enough time to master the game.
Step 4. Diversify Your Portfolio
It is not safe to put all your eggs in one basket as an investor. This means that you should not stake all your money in just one type of investment. As such, you need to diversify your investment portfolio.
Diversifying your portfolio simply means investing in many different assets at the same time.
For instance, instead of buying 50 units of one type of shares, you can buy 5 units of 10 different shares. The essence of diversifying your portfolio is to minimize your overall risk by distributing investment risks evenly. This helps to cushion the effects of any loss on any of your investments. Let’s illustrate this with a simple example.
Say you have an investment portfolio worth $100 in total, and the portfolio consists of only one type of stock, say ABC. Assuming the stock value falls by 70%, that implies that your total portfolio value also falls by 70%, leaving you with a $30 balance.
On the other hand, assume you have the same portfolio worth $100 but consisting of 5 different stocks worth $20 each. If one stock falls by 70%, your portfolio value only decreases by $14 since the fall in value in one stock does not affect other stocks.
Another notable benefit of a diversified portfolio is that it helps you maximize different reward systems of different assets with little investment capital.
Step 5. Automate Your Savings For Investment
Most times, success in investments is not only about how much you start with or even how much you know about investment. You also need to maintain a good level of consistency to remain profitable.
Also, it is one thing to draw an investment plan and budget and another thing to stick to them. So, you have to find a way to ensure that you do not spend your investment money on other things. A very effective way to achieve this goal is to automate your savings for investment.
The process is simple: you can set aside a particular account for saving your investment capital. Then, you authorize your financial institution to automatically deduct your savings percentage from each entry and deposit the money in your investment account. You can set this process to repeat at regular intervals, say monthly.
With your investment savings automated, you can be certain you have something to invest each month, no matter how little.
Depending on your plan, you can invest the savings as they come or wait till they pool to a certain amount before you invest them.
Top 4 Investment Opportunities You Can Start With Little Money
So far, we’ve seen the best steps and approaches you need to take to make a profitable investment. Now, let us consider the best investments and assets you should look out for if you want to invest with little money and yet make good returns.
It’s quite difficult to discuss anything about investments and not mention stocks as they have been one of the most profitable investments over time. Stocks allow you to buy into a company’s share. As a shareholder, you benefit from the dividends of the company.
To maximize stocks with little money, it is best to easily leverage index funds to diversify your portfolio. Index funds allow you to invest in different shares of publicly traded companies in one “package.”
For instance, if you invest in the S&P 500 index fund, it means you’re investing in the 500 companies that make up the index. So, it’s an excellent opportunity to split your money into little bits and invest in many assets at once.
Cryptocurrencies have gained massive popularity in recent times for many good reasons. Apart from the fact that they are highly profitable, their affordability makes them more popular among investors.
With as low as $10, you can start your crypto investment journey. And the beautiful thing is that there is absolutely no limit to the amount you can earn even from the least starting capital. All you need to do is find the right wallet/exchange and a working investment strategy.
You can either decide to buy, hold, and resell at a higher price or trade cryptocurrencies. In this context of investing with little money, it might be safer to buy and hold as a long-term investment. This is because crypto is still relatively new and has a promising future which means that the profit potential is massive.
3. Retirement Savings Accounts
If you’re a regular salary earner, you can benefit from saving your money in retirement savings accounts. Such accounts include IRAs, traditional and Roth IRAs, 401(k), etc.
Most of these retirement savings accounts offer tax benefits that help maximize your earnings. You can also leverage compound interest to make more money on the interest you earned already.
REITs simply means Real Estate Investment Trust. Real estate investment is usually associated with huge capital, so you might be surprised to find anything about real estate on this list. However, it is possible to invest in real estate with little money via REITs.
Basically, REITs are companies that allow investors to share in the proceeds from the commercial use of real estate properties. It is similar to buying the shares of a company and sharing in the dividends like a shareholder. That way, you do not have to buy a property to become a real estate investor.
There are different types of REITs, mainly categorized into publicly traded and non-exchange traded REITs. This broad classification is based on whether a REIT is traded on a stock exchange or not.
To be on the safe side, always do your research to be sure of the details and the risks involved in a REIT before you invest.
No matter how much money you have available for investments, you can still find decent investment opportunities to give you good returns. The sky is your limit with the steps and investment opportunities covered here.