Often people yield low benefits by investing in stocks with little money.
It is true that stock trading always delivers higher margin on a larger portfolio.
But it is not exactly impossible to invest in a lower scale.
Of course, investing in stocks with low budget means that you will have to apply sharp strategies.
When you are investing in stocks on a shoe-string budget, the idea is to optimize the value of every dollar spent.
You have to undertake thorough research and carefully choose the stocks.
This will make sure that you can profit from investing in stocks is possible on any budget.
When you are investing in stocks on a low budget, you have to look at cutting down expenses.
Stock investment invariably involves a lot of overhead costs.
You have to pay brokerages for every transaction, commission to the broker and also tax on the transaction.
So when you are trading with a minimal amount, you have to plug these expenses upfront.
The idea is to cut down on these costs and preserve as much of the profit as possible.
That will help you get a bigger chunk of the actual profit.
Moreover, investing in stocks with a small budget or little money is also about creating a comprehensive game plan.
You have to create a careful plan for every dollar that you spend.
Not a penny is spare, and you have to make every dollar count.
So the selection of stocks become crucial at this juncture.
It is all about appropriate application and execution of your investment plan.
But we decided to make the task a lot simpler for you.
Here is a step by step guide to investing in stocks with low budget and profiting.
How to Investing in Stocks with Little Money
Here is how you can start investing with a small budget:
- Research Is Important for Investing in Stocks with Little Money
- Go for Long-Term Investments
- Look for Investing in DRIPS
- ETFs and Mutual Funds
- Use Robo-advisors
- Don’t Spare the Change
- Don’t Forget the Retirement Plans
Step 1) Research Is Important for Investing in Stocks with Little Money
The moment you consider investing in stocks with little money, it has to be a smart investment.
The idea is to look for stocks that can help you realize higher profits despite the lower quantity.
Now, this is not an impossible task.
The market is full of a variety of options.
There are stocks that deliver steady returns over a point of time.
Some very volatile counters are cheap but have wild price swings.
Then there are some which have cyclical movements.
They go up at a certain time in the year or day and then again go down.
But just one look at the Dow or S&P 500 will not reveal all these.
For that, you will need to undertake in-depth research of the talks.
Read analyst views and follow the market like a hawk.
Only then you will be able to identify these hidden gems in the market.
Investing in these stocks is a possibility only when you are ready to devote a certain amount of time in these.
You need to identify and then track these counters for some time at least.
Commit cash in these stocks only when you are very sure about the stocks.
Devoting time in research also has its benefits.
It helps you to read the market with much higher efficiency and precision.
You can anticipate ups and downs with a lot more confidence.
Most importantly you learn to identify the trend.
As they say, when you are investing in stocks, make the trend your friend.
This will make sure that you can cut down your losses and maximize profit.
That is undeniably one of the most sustainable strategies to gradually build assets in the market.
Step 2) Go for Long-Term Investments
When you want to invest in stocks with a low budget, it is always better to invest for a longer term.
There are two distinct advantages of following this strategy.
It helps you create meaningful investments in two distinct fashion.
Benefits Of Compounding: When you invest for the longer term, you don’t withdraw your money in a hurry.
Whatever profits you amass, you tend to reinvest the money again.
This means that you may have started with a net investment of X but in 2-5 years, it will be 2X.
The 2X then increases to 4X and thereon.
Basically, the initial capital that you are investing in stocks does not have to be huge.
Every time you earn a profit, you simply need to reinvest in more stocks.
Of course, one element for that is you have to look for quality stocks.
You cannot invest in a random small cap for the longer term.
For that, you will have to look for quality counters which will justify the prolonged investment.
Only then, you will get the opportunity to reinvest profits for the longer term.
Cut Down Overall Expenses: The other option for enhancing savings with little money is to cut down expenses.
Normally investing in stocks have many related expenses like brokerage charges, commission and taxes.
The idea is to reduce all these associated expenses in a meaningful manner.
That will make sure that you will manage to keep control on a greater chunk of the profit.
This will then inevitably enhance the total investment value for you.
You can also incorporate cost saving initiatives from trading on your own to using the latest technology.
All of these may only result in small savings, but on the whole, they will add.
The net investment, as a result, will rise.
Step 3) Look for Investing in DRIPS
The abbreviation DRIPS stands for dividend reinvestment plans.
Essentially this is all about investing in stocks that pay the dividend.
When you are looking for investing in stocks with a low budget, this is an interesting example.
These stocks offer a dividend at a steady interval.
So you can invest a small amount in these stocks and take advantage of the double benefit.
The most interesting aspect of this investment is low overhead cost.
You do not have to pay any investment fee for these.
The best part about DRIPS is that it allows you to build your savings over a point of time.
You only have to make a contribution at regular intervals.
So your investment is never created in one day.
Whether you contribute some money every month or it gets deducted at a certain time, you stand to gain.
In this way, you are easily able to take a position in large blue chips.
But you are not buying all at once.
Your portfolio is increasing bit by bit.
What is most interesting is that often your investment is funding additional investment.
So you do not have to spend a large amount in it either.
I am sure you have heard the old saying that slow and steady wins the race.
DRIPS is a perfect example of this slow and steady journey towards a huge portfolio.
The complete absence of investment fees makes the deal even sweeter for you.
You are building a major investment base, but the expenses are within control.
But the steady pace of contribution guarantees that you are able to take advantage of every possible upmove in the market.
Even in terms of risk, you have a limited exposure at any given time.
It is, therefore, a relatively profitable proposition for investors.
Step 4) ETFs and Mutual Funds
The mention of risk often brings to light the alternative investment options.
A lot of investors with access to little money choose safe bets in the hope of preserving capital.
Most times, the tradeoff is that they compromise with lower returns.
But what if you chose safe stocks to get the same type of return at a reasonable safety.
This is where Exchange Trade Funds come to play.
In this case, they derive the underlying value from the Index itself.
So these Exchange Traded funds work exactly like the index, but at the same time, they offer you better security.
Here you are trading the underlying value, and at the same time, you can liquidate positions anytime.
So in terms of convenience of operation, this one is at par with stocks.
You can buy ETFs in small batches as per your convenience and fund availability.
For example, if the S&P 500 is set to go higher but don’t have adequate cash to buy large position.
You can buy a small amount of the S&P ETF every month.
So by year-end, you have a reasonable amount of S&P 500 position.
This will enable you to surely take advantage of a higher profit margin.
Mutual Funds are also very popular options to invest in stocks.
Just like ETFs, these also derive value from the underlying stocks.
So this gives you superior returns like stocks without the associated risk.
But at the same time, you cannot liquidate Mutual Funds at your convenience.
There is a distinct lock-in period.
But when you are investing in stocks over the long-term, it is not such a huge consideration.
Rather this gives you the advantage of steady investment.
Therefore it is one of the most convenient options for investing in stocks with little money.
Step 5) Use Robo-Advisors
When you are looking to investing in stocks with a low budget, robo-advisors can help solve many problems.
They are easy, accessible and convenient platforms to address investor issues on a budget.
The budget here is a buzzword.
This is because we are looking to invest in stocks with little money.
Sometimes individuals may not be very market savvy and have to seek help from professionals.
But the worry here is that most advisors will charge a heavy fee for their advice.
Now supposing if I end up paying a sizeable chunk of y money in getting advice, what will I invest?
This is exactly where the low fees robo-advisors can seek to make a difference.
The fees are sometimes as low as 0-0.25% of the entire portfolio.
Different groups of robo-advisor platforms have differing rates.
But affordability is a key consideration for most of these service providers.
Often the first year of operation is also free.
So a significant amount of your stock investment happens without any fees.
Moreover, you are also saving time for researching possible options.
The Robo-advisor makes the searching, shortlisting and investment.
But for all this service, the charges are minimum and the advantage you get to steadily enhance your bottom line.
But the question is can you rely on their investment algorithms?
Well, you have many forms of validation including the Nobel Prize for Eugene Fama and Robert Shiller for their insights and research in this field.
The fact that platforms like Charles Schwab and Betterment are making steady progress also bears testimony to their accuracy.
When you are investing small amounts, the relative risk is also a lot limited.
So even if you feel at any point that it isn’t as profitable, you can cancel your membership and take a call accordingly.
Step 6) Don’t Spare the Change
I mentioned earlier also, investing in stocks with little money is about optimizing the value of money.
The good news is that you now have options that do not even spare the spare change.
Are you confused about what I am hinting at?
Acorn is a great platform for low budget stock investment.
You do not need any minimum account balance and transact easily using the debit or credit cards.
What Acorn really does is keep a track off your purchases and helps you invest the spare change.
Let me explain to you using an example.
Let’s say, you go to a coffee shop and buy stuff worth $4.50.
Now what Acorn does is, it rounds this off to $5.
There is then effectively 50 additional cents in your account.
Acorn goes ahead and invests this amount.
You have a wide range of options in terms of the account type you want.
It can be a monthly investment one or a daily one.
Investors even have the option of weekly investments.
In case the balance is less than $5000, they levy a monthly fee of $1.
For accounts with balance over $5,000, they charge 0.25% management fees.
The amount accrued is invested in a wide range of diverse and relatively low-cost ETFs.
What makes the deal sweeter is that Acorn manages your investments even when you are not paying attention.
It will take tough decisions on your behalf.
It ensures that every penny that you have invested realizes its true potential.
That is what makes it such a winning combination.
It works well for those who actively follow their savings and also for those who are a bit complacent.
At the end, it helps you in investing in stocks on budget.
Step 7) Don’t Forget the Retirement Plans
Most employers offer the 401(k) or other retirement plans by default.
If you are looking to investing in stocks on a low budget, this is a worthwhile option.
The monthly share of these investments is minuscule.
As a result, you will not even feel the difference.
Moreover, it is mostly deducted from your salary, so there is no chance of missing it.
Every month the amount gets deducted and invested by default.
The advantage is by the time you retire; you have a lumpsum amount of money ready for use.
You can start by investing as little as 1% of your salary in these employer-sponsored plans.
You can also check the tax liability on these investments.
That way you can go for ones that have the tax deducted at source.
So this will make sure that when you get the final amount, you don’t lose anymore due to additional taxes.
As your salary increases, you can keep raising the contribution to these retirement plans.
Most times these retirement or pension plans choose relatively safe options.
But the rate of interest is reasonably good.
So the investors can take advantage of steady savings without any huge risk.
This is a major advantage of the entire investment policy.
Financial prudence is important when you are investing in stocks with little money.
You have to concentrate on investing in stocks that can offer maximum growth potential.
The good news is that there are plenty of ways to start investing even with small amount of money.
Technology too has advanced significantly in this area.
From offering options with low investment fees to cutting down transaction costs, the challenge is to choose the most fruitful option.
You have to constantly update your knowledge base and be on the lookout for convenient options.
That is the best way to gain from investing in stocks with a low budget.