Money Tree

5 Tips to Make Your First Investments with Low Capital

The following post is a guest contribution from Andrew Altman.

Is it your first time to invest? Contrary to what most people think, you do not necessarily need to have a huge amount of money in order to get started with your first investment. Even successful investors who are now raking millions of dollars in their investments started small with low capital too.

But since it is your first time investing, it’s important that you know where to put your money.

Going for low risk investments is a good place to start as a first time investor. You cannot just invest without having ample knowledge on the kind of assets you want to make and without calculating the risks.

For first-time investors with low capital, here are five investment tips that you can follow.

Look at the Fees and Minimums To Preserve Low Capital

Just about every type of investment option comes with fees and minimum balances. And if you are working on a tight budget, you have to take these fees into consideration to get the most of the amount you want to invest.

Search for funds or brokerages that do not require you to have a high initial balance. Ideally, you should find one that has a $0 minimum initial balance requirement such as Robinhood. When you have finally researched the different options, you should watch out for the ongoing fees that can siphon off some of your already low capital.

Get Certificates of Deposit

One of the best low-risk investments is a certificate of deposit. With this type of certificate, you can actually deposit your money for a certain period of time to a particular financial institution. In exchange, your money will earn interest during the specific time frame.

What is nice with this kind of investment option is that no matter what happens to the interest rates, the rate is fixed. There is a locked in period, and if you wish to withdraw the money, you will incur penalties.

How about the interest that you can earn? It actually depends on the interest rates in the county when you initially make the deposit.

Even those with low capital can start to grow their wealth over time.
Even those with low capital can start to grow their wealth over time.

 

Invest in Money Market Funds

Another great investment option for those with low capital is to invest your money in money market funds. This is basically a mutual fund created with a purpose of not losing the value of any investment.

The goal of money market funds is to have a net asset value amounting to $1 per share. If you are willing to take a risk, this investment option is still relatively secure.

Invest in Treasury Inflation Protected Securities

Even if you have low capital, and it’s your first time to invest, you can invest in TIPS or treasury inflation protected securities. They are considered to be low risk investments, and depending on your choice, you can choose among the different kinds of bond investment. The one that offers the lowest risk is the Treasury Inflation Protection.

There are two different methods of growth for this type of investment. The first one comes with a fixed interest rate which means that it doesn’t change for a certain period of time.

The other one comes with a built-in inflation protection which is guaranteed by the government. In deciding to invest with TIPS, you have to option to buy them individually or invest in mutual funds that own TIPS.

Have an IRA

Having an individual IRA or Individual Retirement Account is a must-have investment for everyone. As early as possible, it is important that you prepare for your retirement. There are two types of IRA options. The first is the Traditional IRA, which is a tax-deferred vehicle.

Unlike the traditional IRAS, the money that goes into a Roth IRA has been taxed on the front end. This only means that you have to shoulder low tax costs, and when you finally retire and withdraw the funds, you never have to worry about the tax.

In preparing for the future and establishing your financial wealth, you have to start with a decision to invest your money. It really doesn’t require you to have huge amounts of capital to start off. As you study more about the different investment options and as you take the time, you can definitely achieve your financial goals.

Most of the time, it can be tempting to just put your money into a savings account. But if you want it to grow, you should find ways as to where you can invest your money and get the highest possible returns.

BIO:

Andrew Altman is the editor-in-chief of SlickBucks.com which is a site dedicated to helping people learn more about the crazy world of investing. From reviews to informative articles, SlickBucks aspires to help people achieve the type of wealth they hope to achieve.
Money Tree

Loyal3 Is Shutting Down

Prioritize Your Finances to wind up with a suitcase of money
You won’t be maximizing your money with Loyal3 any more.

Back in 2015, I learned about a relatively new investing platform that allowed users to invest in increments as low as $10 per purchase. Additionally, you could buy partial shares, which made the opportunity even more attractive. This platform was Loyal3.  This actually got me to start investing. Unfortunately, after having used this online brokerage for about two years, I got an email that Loyal3 is shutting down.

Loyal3 Is Shutting Down

This email that I received from the company was a bit of a surprise, but not too big of one. The company did not charge any fees, claiming to make money from marketing the stock of the 60 or so companies that it provided for investors as well as the interest from holding onto cash that was not yet invested in an interest-bearing money market fund.

Loyal3 is shutting down.
Loyal3 is shutting down.

This did not seem like the most sustainable of business models, but because Loyal3 was a member of SIPC, I figured at the time that my investments were safe. I enjoyed the chance to build my investment holdings in small increments over time.

Many in the investing community advocate buying stock in increments of $1,000 or more because of fees that hurt long-term returns. This can make it difficult for small-time investors to begin the process of investing. It can also make diversification a very slow process. With Loyal3, I had as many as eight holdings at one time, built up with purchases that ranged between $10 and $200 for any single transaction.

This was a pretty cool deal.

But now it’s done.

What To Do Now?

Now that Loyal3 is shutting down, what is the small-time investor to do? There are some investing options that might work. RobinHood is one that comes to mind. I’ve not used this platform, but I’ve read about it. RobinHood requires investors to buy full shares, which makes the minimum investment a bit higher.

The email from Loyal3 indicated that those who choose to leave their holdings alone would automatically have them transferred to a new brokerage called FolioFirst. This new brokerage, according to the email, is just for Loyal3 clients. The offerings for FolioFirst accounts will grow to around 200 companies and funds, which is good. Then comes the bad news.

There are still free trades( at least up to 2,000 a month), but the new outfit is going to start charging a $5 monthly fee per account. The minimum investment will now go up to $25 from $10. $5 a month might not sound like much, but it would add up to $60 a year.

Let’s say that a new investor has $50 a month to invest. This fee would mean that the investor would go from paying $0 with Loyal3 to paying $60 with the new FolioFirst platform. That’s a fee that would take up 10 percent of the total investments for the first year. Admittedly, the fee would go down over time as more money gets invested, but it would slow down the growth process quite a bit.

Investors with Loyal3 also have the option of instigating an account transfer to the brokerage of their choice. Option 3 involves selling all shares and then cashing them out.

What Am I Doing?

After getting the email that Loyal3 is shutting down, I decided that I’d opt for the third option. My account has some modest gains. I figured that my $100 in gains would cost me about $20 in taxes at most. Not too bad.

Furthermore, I also took into account the fact that I’m investing for dividend income. With the current size of my account, I’d have to pay about 4 percent of its value in account fees over the next year. That’s more than the roughly 3 percent yield that I’m earning on my holdings.

I’m planning to take the proceeds and invest them into my IRA account with TradeKing. This will provide a positive tax effect because I’ll be able to cut my current-year income by the amount I invest and then save 15 percent of the investment in deferred taxes.

I am planning to make one major purchase or two smaller purchases with the proceeds. This will not have me as diversified as I was, but it will cost me a max of $9.90 in trading fees, which is much less than the $60 I’d lose when looking at the monthly fees that FolioFirst would charge.

I can also buy REITs, telecoms, and utilities that pay higher dividend yields, so my overall dividend income for the next 12 months will probably go up with the purchases.

Conclusion

Loyal3 is shutting down. This is sad in one regard. Small-time investors who are getting started will have one less option when it comes to making small purchases and not having to pay major fees.

I’m cashing out and cutting my current-year taxes by putting the proceeds into a traditional IRA. I should also see a bit of a bump in my annual dividend income as a result.

Money Tree

Does Your Budget Matter? Build Wealth With Small Sums

Does Your Budget Matter?

When it comes to investing money and building up a nest egg, does your budget matter? It’s commonly assumed that it’s impossible to save for the future unless you have thousands of dollars stashed away. This couldn’t be further from the truth. Today, more than perhaps at any time in history, it is possible to start a nest egg for with minimal expense. Here are some steps to take to build wealth at any income level. Even a dollar a day can really add up over time.

Your Budget Doesn’t Matter: Pay Yourself First

These three words make up a very important piece of advice. When you fail to save money on a monthly basis before you pay all of the bills, it’s likely that there will be nothing left over to save. This savings should be automatic. If your employer allows you to save in a 401k, have the funds taken out before you see them. If you only have access to a savings account, be sure to have a bit taken out of every check. Even $5 or $10 a week can build up over time.

Choose Your Investing Platform

There are many different options when it comes to investing. Your local bank or credit union probably has savings accounts and certificates of deposit that you can use to stash money in the short term. They won’t earn much in the way of interest under most conditions. When you get up to $500 or $1,000 in savings, it’s probably a good idea to move toward a brokerage. While the bank might have a broker that can help you buy stocks and bonds, it’s likely that they’ll charge an arm and a leg.

There are tons of online brokerages, and many of them are discount brokerages in nature. It’s possible to invest via Loyal3 and pay nothing in brokerage transaction fees. I’ve used both Loyal3 and TradeKing for cheap brokerage options.  TradeKing only charges $4.95 for trades and offers options trading.

Think About Index Investing

I’ve personally started using a dividend growth model for investing. I’m looking at the amount of income that my portfolio can provide. If you’re looking more toward capital gains, this might not be the best option for you. Even Warren Buffett told his heirs to invest his estate in index funds. These funds have minimal fees and track an index like the S & P 500. They do not attempt to beat the market like regular mutual funds. Traditional funds that try to beat the overall market tend to charge high fees, and these fees tend to cut down on your actual investment returns.

Warren Buffett and Barack Obama
Warren Buffett and Barack Obama, public domain via Pete Souza

Buffett often points out his optimism for the American economy over the long term. Therefore, he’s committed to investing in America. He’s been pretty successful so far, so it’s probably a good idea to listen to what he thinks about investing.

Look For Additional Income

If you’re asking the question, “Does your budget matter?” because it’s pretty tight, it might be a good idea to look for additional income. This might involve getting a second job. It might involve starting a business as a side hustle. It might involve trying to earn bonuses for opening bank accounts or credit cards. Here are some ways to earn money online without spending a penny.

This additional income, even a few dollars every week, can be the basis for increasing the amount that you have in your nest egg. As the nest egg starts to grow, it will build its own momentum. Many people have talked of building a dividend snowball that starts to grow on its own as more capital and dividends get added to the snowball. Over time, you might l awake to find that your snowball is worth hundreds of thousands of dollars.  Even index funds will tend to pay out dividends that can go toward buying more shares.

Regardless of how much you make, anything above your actual expenses can go toward building wealth. The time to start is today. The younger you are, the more time you have to build your nest egg over time.  The answer to the question at the beginning of the article, Does Your Budget Matter? is a definite no.

Disclaimer: Some of these links are affiliate links that can may compensate me should you sign up for a product or service. Also, I am not an investment professional. This article is intended only for educational and informational purposes, so be sure to perform due diligence before investing in any securities.

Money Tree

Using Dividends to Buy More Dividends

One of my long-term goals is to build up a decent amount of wealth that can produce a nice level of passive income over the long haul. While I’m not likely to get to the $1 million per year in passive income, I believe that several thousand, if not tens of thousands in annual income, is definitely doable over the next couple of decades. When trying to earn money in pajamas, one of the best ways to make this happen is through dividend income. This is passive income that accumulates as a return on capital from allowing great companies to use said capital to operate and grow their businesses.  As I’ve said before, passive income is the best income.

Earning more money is always a good thing. The bad thing about earning more money is the time that it usually takes to do so. There are, however, some strategies that can be used to make more money without putting in any additional effort. Investing for dividends is one such strategy. Here is an article that lists three great reasons for investing in dividend paying stocks. The final reason is key. Even stable dividends pay out more over time. “How can this be?” you might be wondering. The answer is simple–COMPOUNDING.

There is one step and one step alone that is required to compound the your gains, provided that the dividend is left stable by the company paying it out. This one step is reinvesting. There are a couple of different avenues that can accomplish the reinvestment of dividends. The first is through a DRIP program. The DRIP stands for Dividend ReInvestment Program, and in this situation, an investor automatically reinvests the dividend into additional shares of the company that originally paid out the dividend. This will basically increase the dividend payout by the annual yield. A dividend yield of 3 percent that gets reinvested will see the annual dividend payment raise by about 3 percent over the course of a year because the number of shares that our hypothetical investor has should increase by about 3 percent. This is an increase in income that’s more than inflation has been over the past few years–all without lifting a finger.

Several brokerages, such as TradeKing, allow you to automatically DRIP your dividends into companies that permit dividend reinvestment. TradeKing is currently offering a $50 bonus for new signups under my referral link listed above.  You would get $50 for meeting the requirements, and I would also get $50. You don’t have to sign up with my link to invest through TradeKing, but I greatly appreciate any support you might feel like giving. This bonus could be used to buy a share or two of many great dividend-paying stocks.

Automatic reinvestment is one strategy, but there is another. I use the DRIP in my Tradeking account, but I have to use the other strategy in my Loyal3 account because DRIPing is not an option. This involves stocking up on dividend payments until a certain minimum amount of cash is reached. The minimum investment through Loyal3 is $10, and I pay no fees for my investments on this site. You can check out my review of Loyal3 here.  Those who invest through a TradeKing, Scwhab, or any other investment account can also pool dividends to diversify. It’s probably best to pool until a decent amount of money is available so that you can keep the transaction cost to a minimum. For example, a share of AT & T costs around $40 a share right now. Through TradeKing, if you were to purchase only one share, you’d pay $4.95 in transaction fees, which effectively adds about 12 percent to your purchase price.  It would also eat up more than the $1.92 in dividend income you’d get in the first year. It would be year three before dividend income would exceed your transaction cost. If you were to hold off until you could buy 10 shares, the transaction fee would drop to slightly more than 1 percent of the purchase price, which will definitely help long-term returns.

loyal3-logo

I decided in January to use my dividends from my Loyal3 account to diversify. Any additional purchases would come from new funds, while dividend income would just sit until I reached $10 in the account. During the first week of April, I reached the requisite level to make my first purchase from my dividend income stash. I decided that I would buy shares of Unilever (UL), which is a massive international consumer goods company that produces everything from butter to deodorant. I again started to pool the dividends after making this small $10 purchase, except now, I would be adding the small dividend from Unilever into the equation. My first payment came in June, and added $0.08 to my account.  Admittedly, this was a very small amount of money, but it allowed me to inch toward another purchase a little bit more quickly.

I hit $13 worth of dividends in my account by the first week of July, as my payment from Coca-Cola pushed me across the necessary $10 threshold. Again, I put the accumulated dividends toward more UL. Last week, I got my second payment from Unilever, and it was up to $0.17 over the course of a quarter, still not a huge amount, but an increase over the course of three months that allows me to edge ever closer to another purchase. This morning, I awoke to find that a dividend payment of nearly $4 from McDonald’s had posted into my account. This brought my account total $11.49, and I made my third purchase of Unilever stock for $11. If all goes according to plan, I will see a payment of around $0.25 for the fourth quarter in December.

I admit that I’ve put more capital toward my account with Loyal3 over the past nine months, but it’s been great to see that my dividends are growing and allowing me to purchase additional dividends. Even if I never added any additional capital to my account, I should be able to grow my dividends as companies decide to give dividend increases and I reinvest my dividends. This is the power of compounding. Of course, I’m hoping to have enough capital available to pay my bills and to invest each and every month going into the future, but seeing additional dividend income come in without doing more than making a few clicks and keystrokes is positive reinforcement. It’s exciting to see my dividend payments going higher and higher over time.

Disclaimer: I am not a financial advisor. This article is not a recommendation to buy any security. It is intended only for educational/entertainment purposes.

I am long all stock listed in this article.

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