When it comes to investing, there are a few common misconceptions. One misconception is that you need a lot of money to start investing. This is far from the truth. Another misconception is that if you invest, you could lose all of your money. While there is some truth to that statement, people often don’t talk about riding out the downturn and making a profit. The market is full of ups and downs, being able to ride it through is what results in true gains. Lastly, there is a misconception that investing is reserved for stocks only. Once again, not true.
The CGS Team has put together a quick-start guide for CGS members who are looking to start investing with a little cash. You don’t need a large lump sum to start investing. Once you have your account opened, you can contribute a small amount on a consistent basis and let it ride. The purpose of these investment strategies is to leave it alone for as long as possible.
Contribute to a 401k Plan
When you contribute to your company’s 401k plan, you are already investing! Your contribution is being dispersed to different stocks, bonds and funds that make up your portfolio. Each contribution allows you to purchase more of those assets. At the very least, you should be contributing up to the amount that your employer will match.
For example, if your employer will match up to 5% of your income, you should be contributing 5%. That will lead to a total contribution amount of 10%, which is excellent. Any time you get a raise, up that contribution amount.
You Have Less than $1,000 to Invest
You don’t have to stop with contributing to a 401k plan. If you want to start dabbling in side investments (which is definitely recommended) but you don’t have much money to start with, try Betterment. There is no minimum balance required to open the account, however $100/month is required to keep the account. Split that up between two paychecks ($50 each isn’t too much to part with).
The great thing about Betterment is that you get a portfolio manager for 3x less than what you would pay at a traditional investment firm. Invite 3 friends and get your account free for a year! In addition, they don’t charge fees for trading and transactions. The manager consistently rebalances your portfolio to ensure you are on track for your long-term goals.
You Have More than $1,000 to Invest
If you have more than $1,000 to start investing with, consider a Roth IRA with a Target Date Fund. How a Target Date Fund typically works is you select the year in which you want to retire ( 2035, 2040, 2045, 2050, 2055) and the fund will automatically allocate your investments accordingly to help you reach that target goal amount.
Once you start getting closer to retirement, your fund will automatically shift your investments to be more conservative. This all happens automatically, so you can literally set it and forget it! Vanguard and Fidelity both have great options for Target Date Funds.
Related: Easy Ways to Start Investing Now
It’s really that simple. To make true progress with investing, take the long-term approach. Start early and contribute what you can. Remember, the earlier you start, the more you will have when you are ready to see your funds. You also don’t have to limit your investments to retirement-based funds. You can invest in mutual funds. The minimum requirements are generally higher than Roth IRAs, but you also don’t have any penalties for using that money before retirement.
Have you started investing in a 401k plan, Roth IRA or mutual funds? What are your experiences? Do you have any tips to share with the group? Leave a comment below and let’s get the discussion going!
1 thought on “The Beginner’s Guide to Investing with Little Cash”
I’ve heard good things about Betterment