Are you interested in investing but have no idea how to get started? There are a huge number of investment options available, and many of them don’t require a huge amount of money to get started. No matter how much money you have, investing is always a good option to grow your funds and create a passive income stream. Here are some of the best ways to invest your money:
The classic way on investing is still a great option—purchasing individual stocks gives you the freedom to customize your investment experience. Individual stocks can be a good option no matter how much money you have to invest; because prices vary, you can choose a less expensive stock or to purchase lots of shares from the same company. Individual stocks are vulnerable to the risk of the open market, meaning this option is best for investors with a higher risk tolerance. To avoid paying high broker fees, you’ll need to do your research about the best-performing stocks and industries, such as using the Zacks Stock Screener. The benefit of investing in individual stocks is that it can easily create a constant return without a huge upfront cost.
ETFs are essentially mutual funds that trade like stocks and that let you invest at a higher risk level without having to pay excess fees. ETFs can be good for people who don’t have a lot of money to invest or who have more time before they need to access the funds, especially when saving for retirement. ETFs are a popular investment option because they are relatively easy to understand and trade. Because ETFs are actively traded on the market with a passive management structure, they have fewer fees but still offer broad diversification. You’ll also pay taxes less frequently because ETFs tend to have a lower turnover, and therefore less taxable events.
An index fund is a category of mutual funds that follows a specific market index like the S&P 500 or the Dow Jones. When you invest in an index fund, you are investing in whatever companies are in that index. Similar to an ETF, index funds are also passively managed, have very limited fees, and are fairly easy to understand; however, index funds tend to be more diverse and can provide exposure to a variety of asset classes. Index funds are structured to match or beat the market and to follow the return of the overall market as closely as possible, which means they carry less risk than other individual investment options.
Dividend Reinvestment Plans
Also known as DRIPs, these plans are great for beginning investors because they allow you to start with a single stock and avoid paying broker commissions. With a DRIP, investors purchase stock directly from the company and reinvest any dividends automatically by purchasing additional shares. In essence, you can start by purchasing one share and then buy more shares as dividends come until you own lots of shares in a company. Many companies also allow DRIP investors to make cash payments to the plan to purchase additional shares, sometimes at discounted rates. DRIPs are fairly easy to understand, although each company may have slightly different terms, so do your research before joining a plan.
Certificates of Deposit
One of the lowest-risk and most dependable types of investing is to put your money into a certificate of deposit. These accounts lock your money up for a period of time, ranging from six months to four years, and charge an early access fee if you need to make a withdrawal before the maturation date. However, if you are willing to set money aside for a while, it can lead to a great payoff. Generally, the longer the CD term, the higher the interest rate. While the growth potential is limited, there also isn’t any risk of losing money. Note that many CDs have a minimum opening balance, typically around $5,000.
There are numerous options when it comes to investing, and it can be easy to be overwhelmed by the choices. Simply do your research and rest assured that these options are all relatively safe, beginning-friendly options that can help get your foot in the investment door.