Making smart investments can help secure your future and ensure that you live comfortably during retirement. But what if you don’t have tens of thousands of dollars to put into investments? You can start building a portfolio even if you have a shoestring budget. Here’s how:
ETFs, or exchange traded funds, are a practical option for small-budget investors who don’t have the funds to hire a financial adviser or pick their own stocks.
ETFs are similar to index mutual funds, but are traded just like stocks. They offer diversification and allow you to make one investment into a large number of stocks.
It’s easy to research ETFs and their performances online, so do your due diligence to find one that meets your goals.
2. A 401(k) Plan
Consider participating in your employer’s 401(k) plan, if available, especially if they will match your contribution. Before diving in, make sure that you read and understand the prospectus. The 401(k) should outperform the S&P 500’s rate of return.
Participating in your employer’s 401(k) plan is a smart way to start investing if you have a small budget – or no budget at all. The great thing about this option is that it’s automatically deducted from your payroll, and you can designate how much of your paycheck you choose to invest.
With a 401(k) plan, your contributions are tax-deductible and you won’t have to pay income tax on the income earned from your investment until you retire.
3. Hands-On Investing
Before taking investing into your own hands, educate yourself on how the market works and the best strategies for success. Many online platforms offer educational resources that can help you learn the basics of trading.
4. U.S. Treasury Securities
If you’re risk averse, U.S. Treasury Securities is a more conservative investment option. Treasury Securities, issued by the United States Treasury Department, are used to fund the national debt and are protected from market swings.
The maturity range for securities is anywhere between 30 days and 30 years.
The great thing about this type of investment is that it’s easy to get started. You can invest directly through the portal from the Treasury Department with as little as $100. You can sell your securities here, too.
While you’re on the Treasury Direct portal, you can also purchase Treasury Inflation Protected Securities, or TIPS. TIPS pay interest and also offer periodic principal adjustments that move with inflation.
5. Dividend Reinvestment Plans
Dividend reinvestment plans, or DRIPS, allow you to make small investments into stocks that pay dividends.
If you like the idea of investing directly into companies that you like, DRIPS may be a good option for you. Many major companies offer this option, and you typically don’t have to pay investment fees.
With DRIPS, you can make periodic contributions to build up your investing over time, and when you earn dividends, the money will be reinvested to purchase more stock in the company.
6. Peer-to-Peer Lending
If you have a few thousand dollars to invest, peer-to-peer lending may be a good option and will typically offer higher yields.
Peer-to-peer lending platforms allow non-accredited investors to fully or partially fund loans. Each investor will receive a share of the interest based on how much was initially invested. With peer-to-peer lending, you can expect to see returns in the 5% to 8% range.
If you’re willing to take a risk, some investments can offer much higher returns in the 30% range. While tempting, make sure that you’re comfortable with the risk and understand that you may lose your investment.
Don’t let your small budget stop you from preparing for your future. These six investment vehicles will help you get the most out of your money – even if you only have a few hundred dollars to spare. From 401(k) plans to Treasury Securities, small budget investors have plenty of options. The key most important thing is to make the commitment to getting started.