Written by: Beatrice Mullen
Don’t just let your money sit there … do something with it!
Don’t worry — you don’t need a brain or an account as big as Warren Buffett’s to make intelligent decisions with your money. Even with a very small account, there are plenty of ways to start investing that could potentially ofter more substantial returns than just letting your money sit in a savings account.
The first step? Education. Start by learning about a few smart ways to start investing with a small account…
Mutual Funds
A mutual fund is an investment composed of funds collected from a variety of different investors. The money is handled by a professional fund manager who invests in different types of assets to try to generate income.
One benefit of a mutual fund is that by pooling resources investors can gain access to investment types that might not be accessible if they were investing solo.
The assets will vary depending on the fund but could include stocks, bonds, commodities, and real estate. Typically, the fund manager will create a prospectus for potential investors, allowing them to see the structure of the fund. So investors can determine whether it’s aligned with their goals.
One important consideration? Mutual funds typically have a minimum initial investment, unlike other assets like stocks, where you can buy as little as a single share.
Day Trading
Day trading is a fast-paced style of trading stocks where you buy and sell within the same trading day.
Day trading is not technically considered investing. You’re not necessarily investing in the company’s long-term growth. Rather, you’re trying to take advantage of brief price spikes based on news, earnings reports, or trending sectors.
It’s also different from position trading, where you might buy shares of a stock and hold them for months or even years. With day trading, you attempt to capture profits from short-term stock price movements.
The fast pace of day trading isn’t for everyone, and it isn’t an enterprise anyone should enter lightly. Since you’ll be responsible for your own trades, it’s important to educate yourself on market mechanics. You need to have a solid understanding of the market and how stocks move before you risk a dime.
Bonus Tip: Consider a High Return on Investment with Penny Stocks
If you want to get into the stock market with a small account, you may find that big companies like Google or Amazon are out of your price range. Not to mention these stocks are typically slow growers…
But penny stocks — a general term for stocks that trade for $5 per share or less — are typically more accessible the everyday trader.
Penny stocks aren’t typically suitable for long-term investing. Companies that trade for such low prices tend to be small. They may be just starting out or in an emerging industry. Either way, companies in this niche have a relatively high failure rate in the long term.
However, even though many penny stocks will eventually fail, they can experience pretty impressive spikes before that happens. The same kind of news that might only make small waves with a big company could create a tsunami of price action with a lower-priced stock.
The potential to profit can be significant — but so is the risk of losing everything you put into a trade. So it’s vital to take the time to understand the penny stock niche before you begin trading.
Options
Options are a type of derivative — that’s a security that takes its value from underlying assets. Some potential underlying assets might include bonds, commodities, stocks, currencies, or indices.
Derivatives can be traded like stocks, via an exchange, and the price will vary based on the underlying asset.
Options are contracts that give you the right — but not the obligation — to buy or sell a predetermined amount of the security at a predetermined price, by a certain date.
To effectively put dibs on this buy or sell order, you have to pay what’s called a premium — sort of like a down payment. If you end up going through with the contract, this acts as a down payment. If you don’t, you don’t get it back. While the output of capital isn’t as great as buying a security outright, you run the risk of losing that premium.
Ready to Get Started?
There’s no right or wrong way to start investing. Rather, it’s a matter of assessing your personal goals, risk tolerance, and what style of investing or trading appeals to you.
Now that you’ve discovered some smart ways to get started with a small account, you’re one step closer to begin your trading or investing journey!
