Over the past year, markets have soared but to you, none of that has mattered. Through it all, you’ve struggled to make ends meet. Stock exchanges have hit all-time highs, but you’re stuck on the outside looking in, your nose pressed against the glass. It sucks to be an outsider.
But through significant effort, you’ve finally managed to scrape together some cash. So, what now? We’ll talk about six points every investor on a budget ought to know in today’s post.
Let’s jump right into it.
1) Don’t Invest Money You Can’t Afford to Lose
Sadly, far too many people, desperate to get rich quickly, dump every dollar they have into “can’t-miss” investments. In reality, these “opportunities-of-a-lifetime” usually turn out to be pump-and-dump schemes.
Most of us fall for an over-hyped investment opportunity at some point – it’s all part of the learning process. But if you lose cash needed to pay bills, buy groceries, etc., you can quickly find yourself in a serious predicament.
No investment is worth risking hunger or homelessness. So, don’t rush into investing with capital needed for essentials. Take the time to save up a fund first – if you can set aside $10 per day, you’ll have $1,000 in seed capital in less than four months.
But what if you don’t want to wait that long? Many brokerages have no account minimums – so if you only have $200 extra kicking around, you can get started TODAY.
But never use money needed to pay the bills. After all, it’s quite hard to trade stocks with no electricity.
2) You Need to Do Your Research
If “hot stock tips” were the real deal, we’d all be millionaires. But they aren’t. They serve to underscore a central point – there are no shortcuts to wealth. To enjoy lasting success as an investor, you need to do your research.
That means hours of investigating markets, highlighting promising prospects, and digging into financial details. You should base the first component – markets – on sectors that interest you. If a specific niche bores you to tears, good lucks putting in the reps needed for success.
Then, you’ll need to flag prospects. Investing blogs like insiderfinancial.com do a good job of picking up on interesting trends, but don’t rely totally on them. In fact, before reading them, you should be able to do what they do.
Reading books like The Intelligent Investor by Benjamin Graham will give you a good grounding in what to look for (revenue, net income, price-earnings ratio, etc.) That way, as you go through their financial reports, you’ll be able to spot the winners from the losers with increasing ease.
3) Use Physical and Virtual “Cookie Jars” to Raise Seed Capital
Your initial seed capital will get you started, but it’s just that – a start. To enjoy returns that compound over time, you’ll need a pipeline that continually pumps capital into your investment accounts.
In the long term, you’ll do this by re-investing capital gains from dividends. But, while you’re still on a budget, it’ll have to come from your primary income source. So in your everyday life, capture savings by setting up virtual and physical cookie jars.
In your online banking, open a new savings account. Then, set up an auto-debit every month to channel a predetermined sum of money from your checking account to this virtual cookie jar. You can adjust this amount according to your current financial situation – so, if you get a raise, you can increase your contribution amount.
Also, as you go through your everyday life, take whatever change you accumulate and put it into physical cookie jars. Once they fill, roll your coins up, take them to the bank, and deposit them in your investment savings account. This may seem like a lot of work, but every last cent is a soldier fighting for your financial freedom. The more you have on the battlefield, the better your chances of victory.
4) Choose a Broker With Low Minimums
By charging high minimums, many brokerages erect barriers to ordinary people. For instance, to trade on Interactive Brokers, you’ll need to deposit at least 10,000 USD – ouch.
Fortunately, many other brokerages will take on new traders for 1,000 USD or less. And some platforms (like TD Ameritrade) allow investors to get started from 1 USD. Now, it may be true that your gains won’t be as significant with a lower balance. But the only way to get good at investing is to do it with real money.
5) Create a Solid Blue Chip Foundation for Your Portfolio
It’s fun to talk about “going to the moon” with GME or Dogecoin. But long-term wealth creation isn’t thrilling at all – it’s actually drop-dead boring. By investing the bulk of your investment funds in blue-chips like Google and General Electric, you’ll see returns that track with the market.
Slowly but surely, it’ll add up to an amount that’ll provide a comfortable income in your later years. At a minimum, we all deserve dignity.
6) Start Small with Speculative Investments
“But I don’t want to be comfortable – I want to be rich!” you say. Totally understandable – who wouldn’t want to be? The previous point was about setting up an insurance policy against disaster. And as a budget investor, you ought to start by building a solid foundation.
But this point is about going for it. So once you’ve got your blue-chips set up, you can start playing around a bit. However, note the key phrase “a bit” – as an inexperienced investor, you can’t afford a 50%+ hit to your net worth.
For that reason, we recommend investing no more than 2% of your capital in speculative assets. This way, you’re free to make mistakes without them impacting your net worth/confidence too heavily. Feel free to expand your speculative exposure up to 10% of your net worth as you gain experience.
But remember – the greater the risk, the greater the potential downside. If you can’t take a massive loss without losing sleep, scale your exposure back.
It’s Time You Got Started
Nobody knows for sure what the future holds. Government supports that are here today may be gone tomorrow. As such, investing is the single greatest way to take your future into your own hands. The more capital you have, the better your options – so get started today.