When investing, it’s important to minimise your investment fees. Fees may be payable whether it’s on a checking account, a mutual fund, or any other financial product. A $100 annual fee on a $1 million account is trivial, but a $100 fee on a $5,000 account is a substantial financial hit. If you’re investing on a budget, carefully choose the costs associated with where you put your money.
Consider likely returns on your investments against the level of risk you’re comfortable with taking and that’s appropriate to your age. In general, your portfolio should become steadily less risky as you approach retirement.
$500 can go farther than you might think in starting an investment portfolio
- If you prefer to play it safe, park your sum in a certificate of deposit from a bank or other lender.
- For those who are comfortable with a little more risk, a range of choices are available, even for small investors, buy shares of stock, and your dividends are automatically used to purchase additional shares or even fractional shares.
- Towards the top of the risk pyramid, you can in invest in connect investors with money to lend and entrepreneurs trying to fund new ventures. As the loans are repaid, each investor receives a share of the interest in proportion to the amount they have invested.
With that $1,000, you can consider purchasing individual stock shares. Stock shares come with higher risk but can generate higher returns. Investing in individual stocks that pay dividends is a smart strategy. You will have the option of receiving the dividends as cash payouts or reinvesting them in additional shares.
This investment level allows access to additional options, including more mutual funds. While some funds require a minimum investment of $1,000 or less, a larger sum is more common. The goal of an index fund is to at least match the performance of the index. It also gives you broad exposure to a number of asset classes.
The possibilities become broader at the $5,000 level, including more options for investing in real estate. While $5,000 isn’t enough to purchase property, or even to make a deposit, it’s enough to get a stake in real estate in several other ways. The first is to invest in a real estate investment trust (REIT). This is a corporation that owns a group of properties or mortgages that produce a continuous stream of income. As a REIT investor, you’re entitled to a share of the income generated by the underlying properties. REITs are required by law to pay out 90% of their income to investors as dividends annually.
THE BOTTOM LINE
Investing can get complicated, but the basics are simple. Maximise the amount you save and your employer’s contributions. Minimise taxes and fees. Make smart choices with your limited resources. The hardest part of investing is getting started. And the sooner you do so, the more you should make, by odds. It’s as simple as that.
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