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.
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.