Getting Started
For young adults who are just getting started, investing on a tight budget can seem like a daunting task. As a young student or recent college graduate, you might be just starting to consider investing your money. You might be wondering what options are available. Should you invest in the stock market? Should you work with an investment advisor? What about a long-term investment plan like an IRA or 401(k) plan? What options are available, and where will I find them? With all of the choices available, it’s easy to get overwhelmed. Before you get discouraged, you should know that it is possible, and even quite simple, to get started on a shoestring budget. With $100 to $250, you can easily get started in investing. Some of the options you can start to think about are:
- Mutual Funds
- Employer-sponsored 401(k) Plans
- Individual Retirement Accounts (IRAs)
Mutual Funds
First, consider a mutual fund with a low initial investment requirement. Mutual funds take advantage of the principle of diversification - putting your money into a number of different investments. By doing this, you lower your risk of losing all of your money if one stock tanks. Investing all of your money in one place carries much greater risk than spreading it out over multiple investments. A mutual fund is a package where the different investments have already been compiled for you; you only need to decide how much you can contribute each month. So, how can you go about finding a mutual fund that fits your student budget? There are many ways to find something that will fit your needs. Start by searching the web. You’ll find tons of investments with a low minimum starting price. You’ll want to check past performance of any fund you are considering. If an investment has floundered significantly in the recent past, you should avoid it.
Retirement Accounts
It may seem a little daunting to use the word retirement on a newly graduate student, however retirement accounts are one of the easiest way to get started on investing. When you choose to contribute through your employer, you canoften invest with pre-tax dollars. This means you won’t have to pay taxes on the portion of your salary that goes to your investment account. This can also be relatively painless, because you won’t miss the money so much since it comes out of your check ahead of time. You’ll be able to make your budget with your actual net income in mind. Some employers even match your contribution, making it even more lucrative to invest this way. If your employer doesn’t offer a retirement account plan, you can open an individual retirement account, or IRA, through your local bank. Plan to put away a specific amount each month. After your initial opening deposit, many banks allow you to contribute as little as $50 per month.
Long-term Investment Strategy
With so many options available, it is fairly simple to get started with a very small budget, especially if you’re willing to invest in the long term. While we haven’t discussed them here, short-term investments generally require more capital - and involve greater risk. Low cost, low to moderate risk investments are the best options for students with a limited budget. Though you may start small, but if you start investing early, you can see your money growing tremendously due to compound interest which generates earnings from your asset’s reinvested earnings. For you to take advantage of this low risk, low cost investment, all you need to do is put your money in a high interest account and invest a little time and patience.
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