When you think of an investor what do you see? A Wolf of Wall Street playboy living it up in his mansion? Men and women decked out in suits and ties shouting at one another in the American Stock Exchange Building?
You might think that you need to be a financial star, or a wiz with numbers to become an ‘investor’, or maybe you believe that the little disposable income you have each month simply isn’t enough to get started. Well, I am here to tell you that this belief is wrong.
These days the barrier into the world of investing has all but been eradicated, there are countless options available to get started with little to no experience and just a few dollars, and by simply developing good financial habits, like regularly saving a bit of money each month you can quickly build enough funds to dip your toes into the water. Here are a few tips to help you get started.
Save Before You Invest
Right from the get-go, it is important to temper your investing dreams a little before jumping off the deep end. You want to start small, investing with just a little money and building steadily, instead of racking up credit card debt.
Therefore, it is important to use money for investing that you are OK with losing if things don’t go your way and, as such, before you start investing you should get into the habit of saving.
Saving and investing practically go hand in hand, to invest money you must first save a bit up. By setting aside a small amount of your monthly pay-check you can quickly build up a dedicated nest egg ready for investment.
It is important to note that these savings should be kept separate from your emergency funds, as the worst thing you can do is invest and possibly lose the money you might need when disaster strikes.
Discover The World Of Mutual Funds
One of the easiest ways to get started in the world of investing is through a mutual fund. Mutual funds are a way of pooling together funds from several small investors to buy stocks and bonds in a variety of industries.
As such, individual investors can quickly get a diversified portfolio with a minimum upfront investment and a single transaction, taking a lot of the guesswork out of the equation. Some different types of mutual funds include:
Mutual funds are run by professional managers, who determine what companies to buy into and sell. They typically involve a wide variety of low-risk companies with a solid financial track record. This can be good from the perspective of the sole investor, as their money is not being used for risky endeavours. However, with low risk often comes low reward, so returns on investment can be a bit slow.
Exchange-Traded Funds (ETFs)
Exchange-traded funds are like mutual funds, with a few key differences. Companies create ETFs by investing in stocks and bonds and then selling shares of the ETF on the market. So, when you buy a share in an ETF you are tracking the return of the investment in the original asset. Some of the best Canadian ETFs will have a diversified portfolio of assets, making them a safer choice for early investors.
Unlike mutual funds then, which are bought and sold based on their price at day’s end, ETFs are bought and sold throughout the day and are passively managed, rather than actively.
Index funds are a type of mutual fund that contain shares of all the companies in a particular market, they are designed to follow certain pre-set rules to mimic the composition and performance of a financial market index and as such have generally outperformed other types of mutual funds. Like exchange-traded funds, they are often passively managed.
Make Investing Easy With A Robo Advisor
Robo advisors, otherwise known as automated investing services, use AI and computer algorithms to build and manage investment portfolios.
They work by asking a few simple questions to first determine your goal and risk tolerance and then investing your money in a diversified, low-cost portfolio of stocks and bonds. They can automatically rebalance your funds and portfolio when needed and even optimize it for taxes.
As there is little human interaction, and generally low maintenance or management needed for Robo-Advisors to run, the cost to return ratio is typically a lot lower than if you paid a traditional financial advisor. It works in the same way, fees are paid as a percentage of your assets under the Robo-Advisor’s care, and the industry standard is around 0.25%, so for an account balance of 10,000 dollars, you might pay as little as 25 dollars a year.
As well as this, Robo-Advisors typically have much lower minimum balance requirements to get started, requiring around 500 dollars or less to begin investing. Because of this, and their low fees, Robo-Advisors can let you get started investing cheaply and quickly with little to no experience.
Invest In Real Estate
Now I know what you’re thinking, this is supposed to be an article about investing on a budget, you need tens of thousands of dollars to get into property, right? Well, believe it or not, you no longer need a huge stockpile of cash to start investing in property.
A new class of property investment known as real estate crowdfunding makes it possible to own fractional shares in commercial properties. Allowing you to own a piece of a real physical asset, without the stress of being a landlord. You share the cost and risk with other investors and take no responsibility for the maintenance or upkeep.
However, the initial investment (though not nearly as large as it would be a sole property investor) is still considerably more costly than it would be with a mutual fund or Robo-Advisor – think a few thousand dollars rather than a few hundred. As well as this, crowdfunded real estate, like the real estate market in general, is generally riskier than the likes of mutual funds or ETFs as all your investment will go into a single property rather than a diversified portfolio.
Having said that, real estate crowdfunding is a viable way to dip your toes into real estate, learn about the market and diversify your assets without a huge monetary investment.