Have you been thinking about investing but unsure whether you’re in a position to do so?
Many people would love to be the next Warren Buffett, Barbara Corcoran or Mark Cuban, only they often think that they need funds approaching the scale of these famous investors in order to get started.
The truth is that you don’t need to have a huge amount of money to invest, in fact, it’s probably less than you might think.
First of all, a good starting point is whether or not you are actually ready to invest:
Are you ready to invest?
Before diving into any particular investment, it’s a good idea to sit down, take a look at your situation and work out if you’re really ready to invest in the first place. While you don’t need to be incredibly wealthy, you should have a decent financial base and of course, you shouldn’t be “risking the farm” to get into investing.
Here are some points to consider when deciding if you’re ready to invest:
Have you paid off high-interest debt?
This sort of debt tends to be things like consumer debt (credit cards or personal loans) or perhaps even a student loan. It makes no sense to invest if you’re accruing debt interest at a faster rate than any investment returns.
On average, it is generally considered that 7% is a “safe” annual return on investments, bearing in mind that actual returns can fluctuate. This means that any debt accruing interest over that 7% should be considered as “high interest” and should be paid off first.
Do you understand the investment?
One of my personal rules is never to invest in something that I don’t understand. I like to fully comprehend how the investment works, any risks and any tips I need to be aware of to try and maximize returns.
Sometimes people get caught up in a giddy idea of “getting in on the next big thing,” but lacking a good understanding of the investment can lead to them losing good money on it. For example, I don’t invest in cryptocurrencies because I have not yet learned all the ins and outs.
Can you tolerate the risk?
Investing can net you some healthy returns, but the flipside is always the inherent risk. Risk tolerance looks different to everyone, but a general rule is that you should never invest more than you’re prepared to lose.
Your basic needs must be taken care of first, whatever those are. Some people prefer not to invest unless they have at least six months worth of expenses in savings, while others don’t mind having a lot less in savings. What is your tolerance?
Another point here is whether you’re going with self-managed investing or relying on a fund or investment manager. Some people enjoy managing their own investments, or don’t like the idea of giving the responsibility to someone else. Others would much rather let a manager take care of the details (I would still recommend that you properly understand the investment you are getting into though!)
Do you have clear goals?
Why exactly are you investing? The answer/s to this question dictate what type of investment is suitable and over what period of time. For example, if you have a big goal you’re hoping to be able to afford from investment income in the next five years or less, the stock market is probably not a good idea to be getting into.
On the other hand, if you’re looking at retirement more than five years into the future or perhaps college funds for a child who is currently very young, some of those riskier, longer term investments might pan out.
What you need in order to invest
If you’ve checked off the questions above, this leaves the obvious next question, how much do you need? There are so many different options for investing out there that there is no one “right” answer.
A conventional approach is that you should have emergency savings and at least $500 available to invest. Remember, you need to be able to afford to lose that $500 too. A key point here though is that you don’t need to have a fat salary or a trust fund to get started. Regular working people are investing every day, in fact, just over half of Americans own stocks, which is low compared to previous average figures.
One thing that is true is that you may be limited in what you can invest in with lower amounts. Some managed funds have higher minimum investments, while other types of alternative investments simply offer you a better chance of success if you have more to invest in order to spread risk (peer-to-peer lending is one of these).
The $5 investment
There is another alternative which is becoming more popular and allows people to get started with investing for much lower minimums. There have been a few different apps springing up which allow you to begin investing with as little as $5. These generally work by pooling the funds of investors and investing in a diversified portfolio (usually stocks and bonds).
Acorns is one such app which works like this. Investors can choose to make a regular contribution or to hook up their bank account and have purchases automatically rounded up to the next dollar. These round-ups then get invested via Acorns. It’s a way to make investment more accessible to the masses and is fine if you want to take a hands-off (although potentially lower return) approach.
I know someone who has used their app for about 8 months now. So far, while gains are not huge, it looks promising and has been painless to use. A benefit of note is that they have brought onboard several partners in a scheme they call “found money.” This means Acorns users who shop with those partners can get a percentage of their purchase credited to their Acorns account, providing an extra gain.
When you’re looking for more gains…
That’s what we all want, right? To maximize the possible gains we can get from investing our money. For many people, the question is how or where to get started – what do you need to know and where can you learn it?
My own personal preference is for a mix of alternative investments, namely real estate, stocks, private lending, and crowdfunding. All of these categories have the potential for substantial gains, but with that possibility comes the flipside of higher risk.
These are all investments where you need to know what you’re doing and of course, be willing to accept the risk. You may lose everything, you may make nothing or you may do very well.
Many investors are frustrated with trying to find reliable information on alternative investing. You’ve got to be wary of who you listen to as unfortunately, there seem to be a lot of false “gurus” out there.
My aim has always been to remove the “fluff” and just straight-up inform investors of the strategies I use personally with my own investments. I created the Income Investors Academy as a platform to serve investors, both new and seasoned. This is an option for you if you understand that investing isn’t a “get rich quick” scheme and if you’d like to be on top of how different investments work.
You really don’t need a trust fund or a heap of cash to get started with investing, but what you do need is to be in a position to accept the risks.
I would never suggest that it’s a good idea for someone who is deep in high-interest debt or who struggles to meet financial commitments to invest in a category that potentially carries a lot of risk. You’ve got to be prepared to lose that money and for any implications that may have on your financial health.
If you’re ready to invest, it can be a fun thing to learn about and (of course!) to watch your portfolio grow. You don’t need as much as you might think…