Wherever you turn for financial advice, you will find everyone in your life is encouraging you to begin investing.
But the word investment invokes images of stock tickers, million-dollar deals, and men and woman in expensive attire.
You might wonder how you can invest and where to start when you have hardly any money to spare. Mutual funds typically need thousands of dollars in upfront investment, while stock market prices seem too high to invest in individual shares.
But there are many simple and straightforward options where passive earnings can accrue for beginners, even with a small amount of investment. Here are six smart ways to start investing right now.
Savings account
Start with a high-yield savings account to earn a substantially higher interest rate than a traditional savings account.
With the lowest of risk, you can begin earning interest on the entire balance in your account, in any of the several online banks that do not have a minimum balance requirement.
Banks also generally provide FDIC insurance where your account is insured up to $250,000.
Certificates of deposit
A certificate of deposit (CD) can yield a higher rate of interest if you are willing to commit your funds for a certain period of time. Most of these bank deposits are for a precise number of months and any withdrawals before that might attract a penalty, usually equivalent to the interest income of several months.
The tenure of a term CD could be anywhere from a few months to five years.
Index funds
If the prices of individual shares seem high, one of the best ways to invest with little cash is with index funds.
These funds, being linked to market benchmarks, take the guesswork out of the equation and keep costs low. You can start investing with as low as $1 in some of the index funds.
Among the many advantages of index fund are simplicity, low costs, and diverse portfolios.
Robo-advisors
Not every investor wants to invest the time and effort needed to manage an investment portfolio, along with the money that they are already investing.
If this sentiment resonates with you, consider a fully automated robo-advisor to invest your money in a mix of funds selected according to your risk appetite and investment goals.
Most robo-advisor platforms charge around 0.25 percent as annual advisory fees and you can open an account with as little as $1 with some of them.
Your 401(k) plan
A 401(k) or 403(b) retirement plan is one of the easiest ways to start investing. Your employer may offer to contribute a matching amount to your first investment portion.
Workplace 401(k) plans typically offer mutual funds of stocks and bonds and index funds.
If you want to start investing in a small way, you might contribute an amount that is just sufficient to earn the employer match. The tax advantages with 401(k) plans reduce your taxable income, which might spur you to save even more.
Small business bonds
Investment in small business bonds yields a higher return than most other bond investments. Some of these bonds allow you to start investing with as little as $10.
Although backed by collateral, small businesses can be a riskier investment proposition. The greater extent of the risk is the reason investing in small business bonds provides a higher yield than traditional bonds.
