To be a successful investor you normally have to play a long game and be patient when it comes to achieving excellent returns over a period of time, but you don’t have to be rich to get started.
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Starting out with only a small sum of money to invest shouldn’t necessarily be a barrier to making your money grow into a tidy nest egg, provided you know how to make the right moves with your cash.
Here are some pointers on how to develop an investment strategy that puts your money to work and some of the options available to you even when you have a minimal amount to play with.
Stock markets are not just for the wealthy
You could be forgiven for thinking that you most likely have to be reasonably wealthy to be able to become an investor in stocks, but even if you only have a maximum of $1,000 to invest, there are plenty of viable options linked to the stock market to consider.
Putting your money into one single stock could be a risky strategy as you are relying on that one company to perform and the stock price to rise in order to make any money.
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However, if you consider investing in an index fund, which is a mutual fund that is managed on your behalf, you would be putting your cash in the hands of a fund manager who will normally have a proven track record of achieving a positive return on the cash they invest on behalf of their clients.
Not every mutual fund will accept a low initial deposit and a $1,000 is probably a minimum amount for some of these funds, but an index fund could be a more affordable option.
An index fund follows the performance of securities in a broad index market such as the Nasdaq-100, meaning that if the index rises, your investment should rise too.
The value of your investment can fall too, so it is not without risk, but an index fund is a great example of how gaining access to the stock market is not an exclusive option that is only available to wealthy investors.
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Start planning for your retirement
The earlier you start putting money away for your retirement the greater your chances of enjoying your golden years in a bit more comfort and style.
Having a $1,000 to invest might not seem like its going to make much of a difference to your retirement pot but starting out with only a small amount could still mean you end up with more than if you do nothing or leave your plans to a later date.
Having a small sum to invest could be the catalyst to a better financial future and you could use that sum to start your 401 (k) with your employer and get into the regular savings habit each month after that.
If your employer matches that contribution, you could see your small deposit and modest regular monthly investment thereafter, turn into a nice sum of money when the time comes to put your feet up.
Park your money with the government
If you are not that keen on taking much of a risk with your cash but want to get some sort of positive return with interest, one option that may be worth considering are treasury securities, which are also known as savings bonds.
You can buy these savings bonds directly through the US Treasury’s own site, Treasury Direct, and you should be able to buy fixed-income government securities for upward of $100 that matures in as little as 30 days or stay invested for as many as 30 years.
You could hardly describe investing in government securities as a get-rich-quick scheme but at least you can be assured of getting your money back at the end of the investment period, plus a bit of interest.
Consider a high-yield savings account
Another savings option to consider if you are risk-averse would be a certificate of deposit (CD).
These CDs are another version of a high-yield savings account and investors are offered a fixed return and period of investment to choose from. This means that you could put your money into a CD for five years, for example, knowing that your money is protected by FDIC (Federal Deposit Insurance) rules.
As with the savings bonds mentioned, this is an investment for a fixed period and you will likely have to pay a withdrawal penalty if you need to take your money out before the maturity date.
Exchange-traded funds are worth considering
There are plenty of investment vehicles to choose from and it can be a bit confusing if you are a novice investor, buy ETFs are proving popular and should be on your radar if you want to get investing in markets without it costing you a fortune.
If you only have a modest sum to invest this should not be an issue with regard to buying into an ETF, as each one is traded on a public exchange and you can buy one single share or multiples, allowing you to spread a sum like $1,000 around if that is what you want to do.
You should find that investing in ETFs is less expensive in trading costs in comparison to mutual funds and the charges they tend to attract. Another point to consider is that ETFs can often allow you to keep more of your profits as the capital gains tax structure can be more favorable than other investment options.
It is a good idea to get some professional advice on your tax status and options before you put your money into an ETF or any other investment where you be taxed on your profits.
Some ETFs are definitely higher on the risk scale than others and this means that they could be very volatile with the value of your cash falling and rising at frequent intervals.
As you can see, only having a small amount of available to invest is not a reason for not looking at ways to put that cash to potentially better use than keeping it in a cookie jar, so consider your options and see if you can get your money working harder for you.