免費論壇 繁體 | 簡體
Sclub交友聊天~加入聊天室當版主
分享
返回列表 回復 發帖

Best Ways to Invest for a Small Budget

Best Ways to Invest for a Small Budget



BY REBECCA LAKE


Updated Dec 18, 2018


One of the most common myths surrounding investing is that it's necessary to have a large sum of money to get started. In reality, it's possible to build a well-rounded portfolio on a small budget of a few thousand or even a few hundred dollars.



Whether you're starting off with $500, $5,000 or something in between, operating on a limited budget, the key is to choose investments that offer the most value for every dollar.




1. How to Invest $500





At first glance, $500 may seem like a relatively small amount to work with, but it can go farther than you might think.


Exchange-traded funds or ETFs, for example, are an attractive option for investors who are comfortable taking on a higher degree of risk but don't want to pay higher fees. Compared to a traditional mutual fund, ETFs are actively traded on the market and they typically feature a passive management structure, which translates to fewer fees. Because they tend to have a lower turnover, exchange-traded funds are also more efficient in terms of how frequently taxable events occur.


Another great, low-fee alternative is a dividend reinvestment plan or DRIP. With this kind of plan, companies allow you to buy shares of their stock and reinvest any dividends earned automatically by purchasing additional shares or fractional shares. This is a good choice for smaller investors because it's possible to purchase shares at a discount and without paying a sales commission to a broker. All that's needed to get started is enough money to buy a single share of the company's stock.




2. How to Invest $1,000





With $1,000, it's possible to do a branch out a little more with your investment strategy. Keeping fees to a minimum is still a priority, but investors can move beyond ETFs and consider other options, such as index funds. An index fund is a type of mutual fund that tracks a specific market index, such as the Standard & Poor 500 or the Dow Jones.


Like exchange-traded funds, index funds are also passively managed which means a lower expense ratio. They're structured to match or beat the market, which is positive in terms of their overall performance. Because they're linked to a broader index, these kinds of funds also offer more exposure to different asset classes.



Purchasing individual stock shares can potentially generate higher returns for investors with a higher risk tolerance. Investing in individual stocks that pay dividends is a smart strategy when your budget is set at $1,000. Unlike a DRIP, investors have the option of receiving their dividends as cash payouts or reinvesting them to purchase additional shares. This can be an effective way to create a passive income stream with very little invested up front.




3. How to Invest $2,500 to $3,000





Moving up the ladder, the question of what to do with an extra $2,500 to $3,000 ultimately depends on your goals and risk tolerance.


Investors who prefer to play it safe with a larger sum, for instance, may be better off parking it in a certificate of deposit or using it to purchase short-term treasury bills. The growth potential is limited with these types of investments, but the returns are more or less guaranteed, and there are virtually zero risks involved. Both bonds and mutual funds can be purchased through an online broker.


Peer-to-peer lending, on the other hand, offers the potential to earn significantly higher yields. Crowdfunding platforms like Lending Club and Prosper allow non-accredited investors to partially or fully fund loans for borrowers. As the loans are repaid, each investor receives a share of the interest in proportion to the amount they have invested. Generally, annual returns fall in the 5% to 8% range but they can climb higher for investors who are willing to take a chance on high-risk borrowers who may be paying interest rates of 30% or more.



4. How to Invest $5,000





The possibilities become even broader at the $5,000 level. One avenue worth considering is making an investment in real estate. While $5,000 isn't sufficient to purchase an investment property, it's still enough to allow investors to add real estate holdings to their portfolio in one of two ways.


The first option is investing in a real estate investment trust (REIT). A REIT is a corporation that owns individual properties or mortgages that produce a continuous stream of income. When you invest in a REIT, you're entitled to a share of the income generated by the underlying properties. REITs are required by law to pay out 90% of their income to investors as dividends annually. REITs can be traded or non-traded, with the latter carrying much higher upfront fees.


Real estate crowdfunding is the second option. Following the SEC's final ruling on Title III of the JOBS Act, real estate crowdfunding platforms are now in a position to accept investments from both accredited and non-accredited investors. Many platforms set the minimum investment for gaining entry to private real estate deals at $5,000. Investors can choose between debt and equity investmentsin commercial and residential properties, depending on the platform. Returns for debt investments may range anywhere from 8% to 12% annually, while equity investors may see higher yields with increasing internal rate of return for the project itself.



5. Be Sure to Maximize Your Employer Contributions





Many companies offer retirement plans with a 401(k) match, in which they match a portion of the employee's retirement contributions up to a certain percentage of their income, usually 6%. For example, if you have an income of $50,000 and contribute $3,000 (6% of your income) to your 401(k), then your employer could match that by contributing an additional $3,000. You'll always want to invest up the full amount of your employer’s match; otherwise, you would be leaving free money on the table. Not all companies offer this benefit. The specifics of the match vary by company, but the underlying principle remains the same: Your employer rewards you for every dollar you save.


This makes a 401(k) plan with an employer match one of the easiest and best ways to invest if you’re on a tight budget. Moreover, such plans offer important tax advantages over regular investment accounts. Tax-deferred accounts allow you to defer taxation until the time of withdrawal – lowering your taxable income at the time of contribution – while tax-exempt accounts allow your after-tax income to make capital gains without incurring further taxes. These are important tax advantages over traditional investment accounts, which are funded with after-tax income whose gains are subject to capital gains taxes.




6. Invest in a Target-Date Fund





If you’re saving for retirement and want to make your investments as affordable and easy as possible, look for a low-fee target-date fund with a low minimum investment.


The asset allocation in a target-date fund goes from riskier to safer as your retirement date nears. You choose the year of your likely retirement, and as time goes by, the fund automatically adjusts the allocation of money to the right assets. Why is this important? When you’re young, you can make riskier investments that can earn higher returns. But when you’re nearing retirement age, you want to shift your portfolio into safer, but lower-yielding assets that are less likely to lose value.


Losing 40% of your portfolio is painful at any age, but if it happens when you’re 35, you have a few decades for your portfolio to recover. If it happens at 65, such a loss could ruin your retirement. By investing a greater proportion of money in safe assets as retirement nears, a target-date fund tries to protect the nest egg you’ve been building. If you’re investing on a budget, you likely don’t have the cash to spend on every fund under the sun. That’s why a carefully chosen target-date fund with a low expense ratio can be a good way to grow your savings.



7. Consider Investing in ETFs or Mutual Funds





Picking individual winners and losers in the market is hard, and besides, putting all your money in a single asset is pretty risky. So how can you benefit from a rising market without having too much exposure to any individual stock or asset? Mutual funds and exchange-traded funds (ETFs) solve this problem by investing in a variety of assets all at once. Investing in multiple stocks or assets at the same time also increases diversification, which reduces risk.


Low-fee ETFs and mutual funds are a great way to get broad exposure to the markets without having to worry about stock picking. There also are ETFs for assets beyond stocks, including international equities, commodities, real estate and more. The New York Stock Exchange recently moved to list cryptocurrency ETFs, so you may even be able to invest in bitcoin ETFs soon. Of course, just because an ETF exists for an asset doesn't mean it's a good investment.If you want exposure to a certain sector or the U.S. markets as a whole, investing in an ETF or mutual fund is a wise idea. If you don’t want to adjust your asset allocation yourself as time goes on, a target-date retirement account is the easier choice because those adjustments are automatically made for you.




8. Understand Taxes





You can’t escape taxes, but you can minimize their impact on your retirement account. If you open a standard brokerage account, you use after-tax money to make investments. If those investments are profitable, you are then taxed on the capital gains. This results in taxation of the income that is put into the account and then taxation of the gains as well. However, you can also open a tax-deferred account (TDA) or a tax-exempt account (TEA), which will mean the money in the account is only taxed once.


With a tax-deferred account, you pay taxes on your investments only when you withdraw the money. For example, if you have an annual income of $50,000 and put $3,000 in a TDA, you will be taxed as if you had made $47,000 (assuming you don’t take other deductions) that year. You will have to pay taxes on that $3,000 – or whatever amount it has grown into – only when you withdraw those earnings in the future. Typically, TDAs are a better choice if you think your future tax rate is likely to be lower than it is today. A traditional individual retirement account (IRA) is one example of a TDA.


With a tax-exempt account, you use after-tax money to make the investments. Using the above example, if you earn $50,000 and put $3,000 in a TEA, you will have to pay income taxes on that full $50,000. However, any gains from the $3,000 in the TEA are tax-free. If you are currently in a low tax bracket but think your future tax rates will be higher, a TEA is probably a good choice. A Roth IRA is one example of a TEA.


Because of their special tax status, TDAs and TEAs have special restrictions that standard investment accounts don’t have. For example, there is a 10% penalty if you withdraw the money for a non-qualifying reason before the age of 59½. These accounts also are subject to contribution limits that vary with your age.




9. Open a Low-Fee Brokerage Account





Online brokerage accounts are an affordable way to buy and sell investments. Companies like TD Ameritrade have fees as low as $6.95 per trade with no account minimum. Serious investors with an account balance of $10,000 or more can benefit from fees as low as $0.005 per trade at Interactive Brokers.


Ultimately, your choice of broker matters less than making sure you get started investing.



10. Automatically Save and Invest Small Amounts of Money





Earning money is hard, spending it is easy. With expenses such as electricity, food, rent, health insurance and student loan payments, sometimes it seems like your paycheck is gone before you’ve even cashed it. Putting aside even $1 a day is a good way to start saving, but most target-date funds require a minimum investment of $1,000, while ETFs and mutual funds can require higher minimums. If you’re having trouble building enough money to make such investments, you can sign up for a service that automatically saves money for you.



Acorns





Acorns is a mobile app that automatically rounds up transactions from linked credit or debit cards and puts it into one of several low-cost ETF portfolios. The service costs just $1 a month until your balance is over $5,000, at which point you instead pay a 0.25% expense ratio. There are no minimum investment amounts and no trading fees. Although savvy investors should avoid Acorns' 0.25% fee by investing directly in reputable ETFs, small investors or those unfamiliar with investing might prefer the convenience of Acorns. If you're a college student, using the Acorns service is free, making it an excellent way to develop financial literacy and start saving for retirement early.



Qapital





Qapital is an app that links to your checking account and automatically saves money based on rules you choose. The money is stored in an FDIC-insured Wells Fargo account. You can save a fixed amount per week, have Qapital round up all your credit card purchases and save the difference. Or you can create your own savings rules.


While money stored with the app doesn’t earn interest, there’s no fee to use Qapital, unlike some other savings apps. And given that interest rates are near-historic lows, you’re not missing out on too much if you don’t keep the money with Qapital for too long. But over the long run, it's crucial to earn a return on your savings. So use Qapital only as a way to build up some savings and then transfer that money into a low-fee investment account.




Bank of America’s Keep the Change Program





If you have an account at Bank of America, you can sign up for its Keep the Change program, which automatically rounds up transactions made with your Bank of America debit cardand saves the difference. Like Qapital and Acorns, this program helps you save without thinking about it.


To use the Bank of America program, you must be a customer and use the bank's debit card, making the program convenient for existing customers. However, this service may not work for everyone. Customers who are able to qualify for cash back or other rewards credit cards could instead pair a cash-back credit card and a rival automatic savings service to save even more efficiently.



Save Your Tax Refund





If you find it hard to save money throughout the year and apps like Qapital and Acorns aren’t working for you, then setting aside part of your tax refund is one of the best ways to get started with investing. It’s one of the few moments in the year where you will likely get a large chunk of cash. Depending on the size of your refund, it could be a good time to invest in an ETF with a higher minimum-investment requirement or to put a larger amount of money into a retirement account than you might otherwise feel you can afford.



Getting Started Is the Most Important Part





Technology and competition mean there has never been an easier or cheaper time to get started investing. Robo-advisors help you create a balanced portfolio at low prices. The vast number of ETFs and mutual funds mean that you can invest in nearly any asset class on earth. The hardest part of investing is getting started. Whether you consider a 401(k), a mutual fund or a robo-adviser, starting today is a responsible choice that should pay literal dividends in the years to come.



Get Out of Debt





Even if you are making a healthy income, student loans and credit card debt can weigh down your finances. It might sound counterintuitive, but sometimes getting rid of debt is one of the best investments you can make.


The average annual real return of the U.S. stock market is about 7%. High-interest credit cards can carry rates of over 20%, while some student loans can have interest rates of over 10%. If you’re carrying large amounts of high-interest debt, it might make more sense to pay off some of your most expensive debt quickly instead of investing that money. You can’t predict the exact return on most of your investments, but you can be certain that retiring debt with a 20% interest rate one year early is just like earning a 20% return.



Invest in Yourself





Debt isn’t always bad. In fact, debt accrued to increase your earning potential can be a great investment. A 2017 U.S. News & World Report survey found that graduates of 14 top MBA schools command salaries of over $100,000 in their first year after graduation. The Financial Times found that 2017 salaries for top 100 business school graduates averaged $142,000 a mere three years after graduation. When evaluating your likely return on investment of graduate school costs, compare the average student loan debt with average starting salaries of graduates in your field of study to determine whether the degree would be a good investment for you.


Ultimately, investing is about using money wisely today to have more of it tomorrow. If that means investing in education or opening a business instead of putting more money in a mutual fund, then that’s what you should do.



Get a Quality Checking Account





Saving money and minimizing fees starts with a low-fee checking account. Popular online checking accounts offered by companies like Ally Bank and Charles Schwab offer no-fee checking accounts with free checks. Many online banks offer rebates on ATM fees and some offer overdraft protection. That differs from traditional checking accounts at major banks such as Chase or Bank of America, which not only charge for checks but often don’t pay interest on checking accounts and also charge monthly fees of $10 or more on accounts below a certain balance, usually $1,500.


Policies vary by bank, but these fees usually can be waived with qualifying direct deposits or a large enough minimum balance. While major national banks offer the advantage of having a large branch network, local credit unions often offer local branches with no-fee checking accounts, free checks and other ways to save money without unnecessary fees. Ultimately, the best bank will vary with your circumstances, but you should know that a good bank account doesn’t have to come with unnecessary fees.




Minimize Fees





No matter your net worth, it’s always important to minimize your investment fees, whether it’s on a checking account, mutual fund or any other financial product. But that goal is especially important when you’re investing on a budget, because fixed fees will take a larger percentage of your savings. A $100 annual fee on a $1 million account is trivial, but a $100 fee on a $5,000 account is a big hit to your funds. It’s been said that being poor is expensive, but even if you aren't poor, the same principle holds true. High-fee investing accounts can sap your savings and reduce your returns. If you’re investing on a budget, you need to carefully choose the accounts in which to put your money.




You Can Save Big, Even With a Limited Budget





Investing can get complicated, but the basics are very simple. Minimize taxes and fees and maximize employer contributions and the amount you save. Investing on a budget forces you to make smart choices with your limited resources. In some ways, that’s a good thing. You’re saving your hard-earned cash, so make every penny count. If you have trouble saving enough to get started on investing, use your tax refund or automatic savings programs to fire up your savings engine.


凡事唯有投入,結果才能深入; 凡事唯有付出,結果才能傑出;
凡事唯有磨鍊,結果才能熟練; 凡事唯有不煩,結果才能不凡。
能與智者同行,你會不同凡響; 能與高人為伍,你能登上巔峰。
你雖不能改變環境,但卻可以轉換心境;你雖不能樣樣勝利,但卻可以事事盡力。
Dr. Chao Yuang Shiang (PH.D in management), Assistant professor,Dep.of Finance,Nanhua University,Taiwan.
website:amazon.com/author/drchao
返回列表 回復 發帖