Feb 8 2010

Everyone Wants to Know How to Invest With Less Than $1000

Is the stock market such a treacherous place? It’s easy for an investor (such as myself) to say that it isn’t so scary. Those who don’t know much about investing will often seek advice and encouragement from an investor before taking the plunge themselves.

How often do you have a conversation with a friend that sounds something like this:

Hey, I want to invest. What do I have to do?
How much do you want to invest with?
Like $500.
Okay. That’s not much but enough for you to start.
Which stock should I buy?

Where does one get the idea that someone who has money in the market knows what stock to buy? I want to be a good friend and just list a few ticker symbols that I believe would see a rise in stock price. But, I’m not an expert stock picker. I don’t trust the advice of most professional stockbrokers so why would anyone trust me? And most important of all, I do not want to be the center of blame because of a poor stock tip.

They Want a Little Taste First
Many prospective investors do not jump into the stock market without a little push. Think of the first time you put money in an investment account and bought a stock. The majority of investors would profess:

  • “I started investing with less than $1,000.”
  • “I had guidance from someone who was an investor.”
  • “I asked that person what stock I should buy.”
  • *Bonus – “I lost money on my first stock purchase.”

Their reluctance to pour their savings into investments is mostly due to inexperience and absence of knowledge when it comes to investing. Usually, we never truly learn anything about a situation until we are in the midst of it. A person who has never declared bankruptcy knows much less regarding the subject than the person who has gone through Chapter 13 bankruptcy.

With less than $1,000, it offers a glimpse into the stock market and the world of investing.

Entry Into Investing is Most Important, Not How Much
I always say that $500 is too little to invest with. A lovely 10% gain would only mean a profit of $50. If the starting amount was $5,000, the profit would be a whopping $500.

It is self-contradictory of me to say so because I started with $500 myself. If I think back to when I first started, I didn’t really care about how much I would gain – though I certainly prayed for a 1000% profit. The most memorable experience was completing the buy order.

Becoming comfortable with investing is primary objective for these aspiring investors. I never thought I’d open up a Roth IRA and buying mutual funds and ETFs – but I am now. Since investing is a necessary aspect of building wealth, developing the habit of investing would be beneficial to those seeking to create a solid retirement portfolio.

My Universal Response to Aspiring Investors
Don’t be afraid to start investing – no matter how little you have to invest with. It is a very simple process from turning a small balance in your checking account into a few shares of a growing company. Here is my 30-second recommendation for rookie investors:

  1. Open an account at an online discount brokerage. You want to avoid expensive commission fees from full service brokerages. Popular discount brokerages include Zecco and Scottrade.
  2. Fund the account with any amount you are comfortable with. There is no perfect amount to start investing with. Keep in mind that there is a chance of losing all your money – so put in what you can afford to lose.
  3. Buy shares of an index ETF. Don’t ask anyone for a stock tip just yet. Index ETFs are shares in a fund that invests in a wide range of companies. The idea in buying ETFs instead of stocks is to help the investor get used to the ups and downs of the stock market.

Do you have these similar conversations? If you can relate to this article, share what type of advice you give to your fellow friends. And if you are the prospective investor, were your friends of any help?

(Photo credit: Marco Belluci)

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8 Comments on this post

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  1. Ken said:

    I took the advice of a seasoned investor and opened a taxable mutual fund with $250 in 1998. I made $50 contributions every month for several years and watched it grow. I am happy I made the leap….having a mentor made it easier….someone with a knowledge base is helpful for getting out of the blocks…..I would advise any investing newbie to start small but go ahead and get your feet wet….experience it is the way to learn it.

    February 10th, 2010 at 9:35 pm
  2. Daddy Paul said:

    For $250 you can invest with the Hodges fund. Not my first choice in funds but it is a good no load fund.

    February 14th, 2010 at 11:17 pm
  3. The Rat said:

    Personally, I have found that investing in companies that will ‘pay you while you wait’ has always been a good strategy. There’s nothing worse than investing your hard-earned dollars and seeing the share price go nowhere over time because it has been nothing more than a ‘speculative play’.

    Investing in large cap, established companies that are considered to be dividend achievers can not only offer long-term capital appreciation, but offer the investor to get paid dividends in the process.

    Nice thread.

    February 21st, 2010 at 11:16 pm
  4. Jim Lee said:

    I suggest individual stocks. If you find some good research and big companies, you can get a nice dividend and make good money.

    March 3rd, 2010 at 2:08 am

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