How do you get started investing in the stock market with little money?
That’s usually one of the first things you wonder about when you know you must invest in the stock market, but just don’t know how to start.
The truth is that there are so many paths you can take when it comes to stock market investing. Some people can afford to take high risks, some just want to protect their money from inflation, and others simply want to try something new.
Therefore, the number of approaches one could go with can be vast. Especially in this area, there is too much noise that can make you get lost and not even know why you began investing in the first place. And that’s where the danger lies.
Fortunately, if you approach the matter in the right way, you won’t get lost in the maze of stock market noise. On top of that, you can ensure that you invest your money (even if it’s not a big sum) in a way that suits you best and can provide the most satisfying returns.
So let’s see how to start investing in stocks with little money, shall we?
Define your Goals
First and foremost, what’s very important before you even begin worrying about how to get started investing in stocks is to be clear about your objectives.
Why do you want to invest? I know this question may sound silly, but “making money” is not an answer that will help you in the long run.
The goal here is to have a clear goal in mind before you start investing so you can weather bad times and keep investing no matter what happens. If you have the notion that stock market gains are easy and you simply want to “make some money”, then you better proceed no further.
Stock market investing is not supposed to be easy and what helps most investors (especially beginners) is a well-defined goal that will motivate them to keep investing their money for the long run.
Do you want to grow your money at a steady rate to have a more comfortable (and possibly earlier) retirement?
Or do you want to outperform the market and be able to grow your money at an above-average rate of return to enjoy a greater wealth sooner?
Whatever you decide, just keep it in mind (or better yet, write it down somewhere you can frequently see it) so you do not lose sight of the end-goal and keep investing. Because, to be honest with you, investing doesn’t provide short-term rewards so you need a good reason that pushes you to keep up.
Once you do this, just think whether you have plenty of time to do your own research or you want a more passive approach to investing.
If you want to outperform the market, you will need to do your own research, for example. But if you don’t have enough time, then a more passive investment approach would be for you.
Let’s assume that you have enough time to do your own research. Another question you must answer is what kind of risk you are willing to take.
For example, are you psychologically ready to do worse than the broad market in bad times? Can you handle the pressure of falling prices caused by panicked traders? If the answer is “no” you shouldn’t consider a DIY approach.
Now that you got your objectives out of the way, let’s see what you should look out for when you’re about to open a brokerage account.
Open a Brokerage Account
Opening a brokerage account is pretty straightforward. Many brokers have made it very easy for beginners to open one and start investing.
On top of that, many of the fee structures that would constitute a big factor in measuring performance results have changed in the past few years, benefiting you, the investor. So, if you don’t have a lot of money to invest in, don’t worry. Most brokers got you covered.
There are 4 factors that should influence your decision-making when you’re planning to select a broker:
- Security As there are old and new brokers, there are safe and less trustworthy ones. That’s not to say that any new broker is not safe, but common sense indicates that going with the oldest and more established ones can decrease the chances of partying with your hard-earned cash sometime in the future. So make sure you look for brokers with a long history and plenty of reviews from established authorities.
- Customer Service Customer service is second because it’s one of the factors that will make or break a broker. It’s very important that you select one that will answer thoroughly and in a timely manner any question you may have. On top of that, great customer service will help resolve any issues with your account that may arise. It’s your money after all…
- Fee Structure The fees you pay to your broker can impact your rate of return. Right now, most brokers don’t charge anything for making transactions. You can buy and sell shares without paying them anything. But still, many brokers charge inactivity fees to encourage frequent trading. Stay away from them. You shouldn’t base your buying and selling decisions on fee penalties. This is something you should look out for. Other than that, make sure you understand “other” fees like currency conversion fees in case you want to invest in another country’s stock market or withdrawal fees (the ones that you have to pay when you want to withdraw your money from your broker to your bank account).
- Deposit/Withdrawal Methods Last but not least, be sure to understand the various ways you can fund your brokerage account and withdraw your money from it if you need to. Plenty of brokers offer the most common bank wire method of deposit/withdrawal. But there are others that also offer you the ability to make a deposit via credit/debit cards.
Do your Research
Now that you have opened a brokerage account, it’s time for you to see what process you should go through to start investing.
If you want to outperform the market and have plenty of time along with a high risk tolerance, you should learn how to analyze stocks.
There are many approaches to stock analysis. Some prefer to trade stocks with total disregard for business fundamentals; technical analysis serves those best. Others want to invest in a company with the intention to keep it indefinitely. Fundamental analysis is what they should apply to their selected stocks.
But there are more sub-categories of technical and fundamental analysis that you should know before you decide what’s best for you. So, in other words, you should do your research to find what you think would be best for you.
One last thing, if you don’t have a lot of money to invest in individual stocks, don’t worry. Most brokers today offer you the ability to invest in fractional shares.
These are basically portions of a full share. That means that you can invest as much as you like in stocks that have very high prices regardless of how much money you have available for investing.
Now, if you are a risk-averse guy with no much time to perform your own analysis and are content with broad market returns, an index fund that follows the broad market is for you.
Index funds, like mutual funds, are basically pooled money that professional portfolio managers invest for you.
The difference with mutual funds is that they invest in companies that are included in an index. An index is simply a measure of how a particular market or segment of it performs in time. The S&P 500 index, for example, consists of the largest 500 US companies that best represent the US stock market.
Investing in an index fund that performs as well as the broad market is best for those who:
- want to invest a small amount of money (you can invest as much as you like)
- don’t want to pay a lot of money in fees (most index funds charge very low management fees)
- and want to perform as good as the market following an almost hands-off approach
Why almost hands-off? Because even when you don’t have to keep analyzing stocks as you invest, you will still need to select an index fund in the beginning. Don’t worry though. When you’re done you will have nothing else to do other than to keep buying that index fund.
You can check out this guide to learn how you can properly choose an index fund.
Conclusion
Investing in stocks isn’t easy, but this guide is supposed to at least make the initial process less frustrating as it often seems to beginners.
It’s important that you understand your investment goals and select the approach that would suit your situation best.
If you do this and choose the right brokerage firm to invest through, along with selecting the right investment approach or index fund, you will be well on your way to effectively growing your money.
I hope this guide helped you understand how to start investing in stocks with little money and encourage you to do it sooner than later. Because the sooner you start investing, the earlier you will be reaching your financial goals.
Thanks for reading and if you found this guide helpful, please share it with your friends using the social media buttons below.
And if you got any questions, please leave a comment and I’ll get back to you.
Take care for now and good luck with investing!
Disclaimer: This information should not be viewed as financial advice. You should consult a financial advisor or do your own due diligence before you invest. The owner of this website and author of this article are not to be held liable for any undesired result by anyone who uses this information that is provided here in any way.
