How To Start Investing With Little (Or No) Money

Investing is an important part of managing your finances and something you should start doing early. The sooner you start investing the sooner you will be able to put your money to work. It doesn't matter if you are young, in school or working a low paying job. Just putting a small amount of money into the market will yield excellent returns in the long run.

What Should I Invest In?

What deters most people from investing is the thought that investing is complicated. They hear a lot of technical financial terms and think investing is just for professionals. While it is true that some advanced forms of investing are difficult to understand there are some basic forms that anyone can learn. I'm going to focus on what are the two most common assets: stocks and bonds.

Stocks are shares in a company that anyone can buy and become a "shareholder" in said company. This doesn't mean you work for them but if the company does well and the value of the stock goes up you will make money. Some stocks also pay "dividends" that are like small paycheck paid to shareholders based on how many shares they own. So if you buy a 1000 shares company XYZ at $1 a share. Then after a month, the price per share goes up to $1.20. You will have made a $200 profit.

Bonds are pieces of a loan issued by a company or government. When you buy a bond it will slowly pay you back over a given period (e.g. 5, 10, 15 years) along with a little extra called a "coupon rate" which is just a percentage that is returned on top of what you invested (e.g. 1%, 5%, 15%). So if you buy a $1000 5 year bond with a 5% coupon rate, you will be paid a total of $1050 over the 5 years that the bond "matures". How often you are paid will depend on the bond terms.

Now you can lose money on either stocks or bonds but usually bonds so it is important to invest in the "right" stocks and bonds. While it's impossible to know which stocks will go up and which bonds won't default you can apply some basic logic. Stocks in larger companies are usually a safer bet then smaller companies. Bonds issued by the governments are usually safer than bond issues by smaller companies. Over time you will learn other skills to help you choose the best investments but that's enough to get you started.

How Do I Start Investing?

The first step you need to take is to open a "brokerage account" that will allow you to buy stocks and bonds. Stocks and bonds are traded on exchanges like the New York Stock Exchange and you can access these changes through a "broker". This is a critical step because certain brokers can charge you unnecessary fees that will hurt you in the long run.

The second step is to build a "portfolio" of stocks and bonds. Your portfolio needs to have a good mix of stocks and bonds to not only guarantee you a decent return but also protect you from huge swings in the market that could cause major losses.

The third and final step is the most important and it is to wait. Investing is a long term game and you should never expect to invest money that you think you will need in the short term.

Step 1: Opening A Brokerage Account

There are way too many brokerage accounts for me to summarize them all here so I will just mention three unique types of brokers that I think are a good option for beginners.

1. WeBull - WeBull doesn't charge you any monthly fees and allows you to buy and sell any kind of equity for free. It does have a lot of tools for more advanced traders, but it is also a good option for beginners who want to learn more. You can learn more about WeBull from this review.

2. Stash Invest - Stash charges you $1 a month for their Beginner program but allows you to buy and sell shares for free. What makes stash a good option for beginners is that it simplifies the process of buying and selling shares. They don't use any complicated terms and have a lot of educational resources. After you become more experienced you might choose to leave Stash, but it's a great place to start.

3. Acorns - Acorns is very similar to Stash an also charges you $1 a month and allows you to buy and sell equity for free. However, if you are a student you can use your .edu email to sign-up for a special "student account" that doesn't charge you any fees.

There are hundreds of brokers out there but these three are a great option for beginners. If you aren't sure which one to chose there is nothing wrong with opening an account with all three and just trying them out. See which one you like best and then stick to it. All three offer free sign-up bonuses so you will make money just for giving them a try. Also Stash and Acorns won't charge you any fees if you withdraw all your money so you don't have anything to lose.

WeBull Bonus: 2 shares worth up to $1000 each.

Stash Invest Bonus: $20 plus a chance to win $2400.

Acorns Bonus: $5 plus a chance to win $300.

Step 2: Building A Portfolio

There are so many different kinds of portfolios that you can build. Many of them have cool sounding names (e.g. slice and dice) and there are dozens of books you can read. Some will choose to build a real estate portfolio while other might chose to build an income portfolio to help subsidize their regular income. But if you are just starting out you should consider building a "lazy portfolio".

A lazy portfolio simply splits your investments across a few very broad funds that include thousands of individuals stocks. The idea is rather than picking individual stocks to put in your portfolio you'll choose a "bundle" of stocks that cover an entire sector. For example, you can by the Vanguard Total Stock Market ETF if you want to own a portion of every American company.

An example of a lazy portfolio would split your money like so: 40% in Total US Stocks (VTI), 40% Total US Bonds (BND) and 20% Total International Stocks (VXUS).

The idea behind this investment strategy is to not bet on any particular stock or bond but rather to invest in the entire market. As long as the overall market increase in value you will make money. This is a safe bet because historically, markets have always gone up in the long run. There have been short term dips (i.e. The Great Depression, The Dot Com Bubble, The Housing Crash) but overall the market recovered and made investors money.

Step 3: Waiting

Once you have built your portfolio it is very important that you don't sell. You need to choose investments that you are comfortable with and are willing to hold for years. Even if you don't have to pay any fees when buying or selling stocks you can still lose a lot of money if you get scared and buy stocks when the market is down.

As long as you do some basic research and buy low-risk stocks or bonds you don't have anything to worry about. Short term drops in the market are normal and are usually followed by a period of huge gains. It is best to just invest your money and then forget about it for a couple of years.