How to Start Investing in the Stock Market With Only $20
It's well advertised and understood that it takes money to make money and that investing often and early is one of the smartest financial decisions that you can make. Unfortunately, the lack of funds often discourages individuals from starting an investment portfolio. Luckily, with the help of online tools you can start with very little money and limited research or experience. Everyone can make the small sacrifice to find the money to start investing.
1. Set up online profile
Shop around a bit to find the online investment company that you like the most. There are many to choose from (E-trade, Vanguard, Schwabb, Scottrade, etc.). They are professional and offer basically the same service. You can't go wrong with any of the big names.
It's quick and easy to create online brokerage accounts. To set up most accounts it requires:
- U.S. Permanent Residential Address
- Date of Birth
- Social Security number of Tax ID number
- Employer name and address
Sometimes it takes a few days to process, but it's pretty pain-free.
2. Select a No-fee Mutual Fund
Most investment companies will charge you around $7.99 to buy stock and then another $7.99 to sell it. When you're only dealing with pocket change, this eats up all of your profit margin. Luckily, there are many mutual funds that can be bought and sold without any fee. The only catch is that you must hold those investments for at least 90 days.
There is also an option to select funds that have a $0 initial and $0 subsequent investment requirement. This means that you can start investing in the fund with as little as $.01 and every additional purchase of the fund can be whatever value you like. It's important to screen for these funds, because you don't want to be looking at funds that require $2,500 to sign up and $1,000 for every purchase afterwards.
Lean towards funds that have four or five star ratings or an ALL-STAR FUND category. Look for strong past performance or frequent dividends. Look at the holdings of the fund and find one with which you feel comfortable. Remember, there is a small amount of risk inherent with any investment, but well-balanced mutual funds can help to mitigate that risk.
3. Set up regular transfers to your account
Every online investment company allows you to schedule repeating transfers to your account. This is a crucial piece of your investment strategy. For instance, if you transfer $3 a week to your portfolio, you can invest a few dollars every week. When the market is great, your $3 won't go as far and when the market is doing poor, your $3 will buy more of that mutual fund. This keeps your investment consistent, constant and smart. Once you've set up the automatic withdrawal from your bank account, you'll never miss the money. You can even begin putting a dollar or two into a different no-transaction fund. This gives you options every week on how to invest your additional $3.
This step is really crucial. Unless there is an automated system that pulls your money out for you, it's doubtful that you'll do it on your own.
4. Be patient and consistent
Continue to put money into your account on a regular basis and be sure to actually invest it once it's in your account. It's also important to be patient. Putting money into the stock market is a long-term investment. Don't get trigger happy and pull your investments out before the 90 day limit and don't sell them if they happen to slump a little bit. Continue to put money in. In fact, consider increasing your weekly amount if the market is slumping. You can get funds and stocks for cheap. Hold on to them and watch their value rise again.
Investing only $20 won't make you rich, but it can help you get your foot in the door and make you feel comfortable. As your circumstance change, increase the amount of your regular transfers. Diversify your portfolio and continue to be patient and consistent. Eventually, you'll see your holdings slowly rise. They'll pay dividends that will allow you to invest more and more. Eventually you'll have enough money to buy into some of the funds that require higher initial investments ($100, $250, etc.). More than anything, you have money in the market that is earning you more than the measly .01% APY it would get in your savings account. You are setting consistent patterns of wealth.