How to Invest $20, $50, $100, $500, $1000
Many people get caught up in the fact they don’t have enough to invest but small savings add up to large quantities of money over the long term so saving as little as $10 a week can add up. It’s never too soon to use the power of compounding and begin saving. The earlier you start the better off you will be and never think you are too poor to start investing for retirement.
How to invest $20, $50, $100
The best way for someone with little money to invest is to be employed and make use of your companies retirement plan. With a company’s retirement plan you can have small amounts taken out of your paycheck which can add up to quite a bit over the course of a year. It’s much easier to stomach $10 to $20 per pay-check then a larger chunk and is much less intimidating.
You can also easily diversify in whatever funds your company provides.
The basic advice is to search for a fund that has the lowest fees, and is the closest to a total stock market, or S&P 500 index fund. The reason for this is you’re looking to get a very diversified base of companies. A general rule is to have (100 – your age) in a fund like we described above, and the rest in a short term bond fund.
So a 40 year old would have 60 percent in stocks, and 40 percent in a short term bond fund.
Some retirement funds will have target funds that will accomplish this automatically based on your retirement date. Eg, you could pick a 2050 if that was your retirement and it would do the allocation changing automatically. We do not recommend using them because the fees are higher.
The longer away from retirement the more aggressive you can be with this towards stocks.
Set any dividends from the bond or stock funds to reinvest and do your best to increase your savings because one dollar saved early will be a lot better then one dollar saved later.
How to invest $250,$500
If you have $250 or more then you may be able to open an Individual Retirement Account.
So you don’t have a 401k, and you still only have $1,000 to start to invest with but you can still have the benefits of a retirement account we listed above. You can open with your traditional discount broker a Roth IRA or IRA. A traditional IRA is like the retirement account and dollars will come out pre-tax while a Roth IRA will be taxed dollars but not taxed when you withdraw. Traditional Retirements or IRAs are taxed when you are older and withdraw and in theory have a lower tax rate.
With this you can put your money in a Vanguard Total Stock Market Index fund or use an allocation similar to the general rule of 100 – your age.
How to invest $1,000-plus
At this point you can do Vanguard, or a discount brokerage and are not limited to retirement options. You can probably have an IRA and other investment savings. You can buy the Total Stock Market Index Fund or S&P 500 or similar ETF from it and you can begin to compound money.
The power of the stock market and learning how to invest correctly comes from the magical power of compounding If you’re 30 and only invest a mere $1,000 and return the 7% or so the market has earned since 1946 then after 35 years your $1,000 will be $10,677
Now think about if you added $1,000 a year and begun when you are 30 then you’ll have $148,913.
We recommend exploring the site further as we have article for those interested in learning how to invest in index funds and learning how to select individual securities and become an “enterprising investor”.