by Jeff Reeves | August 7, 2013 7:35 am
Getting started in the investing world can often seem daunting. And more likely than not, you as a wannabe young investors are full of excuses as to why you can’t start just yet.
But whether you think you are lacking the time, money or knowledge to get the ball rolling … well … you’re wrong.
Even if your savings are small and your expertise is limited, you can still start being smarter with your money right away. Heck, after you build up a rainy day fund, a stash of just $1,000 can be enough to get your feet wet.
In fact, I’d recommend starting off with one of these simple investments. All four are easy and reasonably low-risk ways to invest as little as $1,000 now.
Take a look:
Are you getting the full “match” amount from employer’s 401k plan? If not, you can change that immediately! That money instantly returns 100% because your company will match your contribution dollar for dollar. Even if your 401k investment portfolio loses 10% or so, you’ll still be way ahead.
The downside is that if you need that extra money, you’ll have to pay taxes and fees out the nose as a penalty for withdrawing your retirement funds early. And of course, if you’re already meeting your employer’s match, then this isn’t quite as attractive an option.
Still, putting more away now will certainly have benefits. The compound interest on just an extra $1,000 a year will be quite impressive after 20 or 30 years when it’s time to retire.
In the words of financial journalist and web entrepreneur James Altucher, his best investment was “in either myself or people I knew very well who were building companies.”
If you have a knack for writing, just a few hundred bucks can get you a domain name and server space for a website. If you have a knack for home improvement, take out a few ads and see what happens.
The downside, of course, is that this equation is most profitable if you consider your time isn’t worth much, and those folks with a busy schedule may find the idea downright impossible. But aside from the satisfaction of being your own boss — even on a part-time or occasional basis — you may find this is the most profitable long-term investment you’ve ever made.
If you’re actively trading stocks with just $1,000, it’s very likely you’re paying more in fees than you are making in profits. For instance, if you make just two trades a month all year long and pay $10 a trade, you need a 24% annual return on your holdings just to break even! On the other hand, putting all your eggs in one basket via a single stock investment is a very risky proposition.
So if you have a small sum to invest, you’re better off relying on the diversification and know-how of an exchange-traded fund or ETF. Such an investment is a group of stocks similar to a mutual fund, only there’s no minimum investment to overcome.
And in case you miss the fun of picking individual winners, there are hundreds of ETFs in all shapes and sizes — from funds that track gold to funds that track only financial stocks to funds that go up when a sector goes down! This way you can play a specific sector or strategy without the risk of putting all your cash into a single company or paying too much in fees.
This is a great choice for those with student loans, a mortgage or any long-term borrowing under your belt. Even if you have a rock-bottom interest rate of just 4% on your home, over the life of your 30-year loan you will pay $1,200 for every $1,000 in principal!
Paying down even a small amount of your loan early can drastically reduce what you’ll be paying down the road. And in the case of credit card debts and other short-term loans with higher rates, the payoff is even bigger and more immediate.
That’s to say nothing of the benefits you may reap through an increased credit score — and the added bonus of one less bill to pay each month.
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