If you earn income, you should be saving and investing. Yes, it really is that simple. The single most important rule of saving and investing is to start saving and investing. Establish the habit early on and putting aside money for investing becomes just another routine "must do" like paying the rent or the electricity bill.
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More Money = More Options
Once you begin, you will see that there is a simple reality in the investment world - the more money you have, the more options you have. If you have millions of dollars to invest, the world is your oyster and you can invest in almost anything you wish. For us regular people, though, our options depend on how much we can put aside each month. (There are a lot of options for investors who hate the hassle of investing. We go over some that will help your financial future in Hate Dealing With Money? Invest Without Stress.)
If You Have $50
Folks who can put aside $50 a month may think that they have too little to invest, and that nobody will want their business. Not true!
Admittedly, $50 a month does not buy a lot of options initially, but that is no reason not to start. The first step at this level is opening an online savings account. Have your $50 deducted straight from your account every month so that it becomes a habit, and build a little nest egg. Do not look at this savings account as the "goal". This is simply your first foothold into the investing world.
Your best bet at this level of investment is mutual funds, but many mutual fund families have minimum investments of $2,000 or more. Do not be discouraged. First of all, there are numerous fund groups that have lower minimums - $1,000, $500 or sometimes even less. You can start by using screeners at sites like Morningstar.com or Kiplinger for mutual funds with low initial requirements.
Second, almost every fund group will offer you a lower minimum if you commit to a monthly automatic purchase program. These programs usually have a minimum level of $50 a month; the money is automatically deducted from your account and used to buy shares of the mutual fund(s) you select. (Money is tight when you're young, but don't let that stop you from pursuing future riches. Learn more in How To Invest On A Shoestring Budget.)
If You Have $200
At $200 a month, your options get more interesting. Not only can you invest more in mutual funds, or invest in more than one fund, but you can also meet those minimum levels much faster.
Individual stocks also become more accessible at this level. Many companies offer what are called direct investment programs where you can buy stock directly from the company (or through an intermediary) for no commissions. These are real companies - Microsoft (Nasdaq:MSFT), Dell (Nasdaq:DELL), Nike (NYSE:NKE), Pfizer (NYSE:PFE), Disney (NYSE:DIS) and Coca-Cola (NYSE:KO) as well as hundreds of other companies.
ShareBuilder acts more or less like a no-frills stockbroker, but in exchange for a regular investment commitment (like $100 a month), you get a less punishing commission than you would pay at a regular broker. With services like ShareBuilder and direct purchase programs, you can establish a portfolio of a couple mutual funds and a couple stocks in a relatively short time.
If You Have $500
If you can put aside $500 a month, there are not too many things off limits to a normal investor. With only a few months of saving, you can clear the minimum investment amounts for almost any mutual fund aimed at retail investors. You can also serious consider "regular" equity investing - that is, opening a brokerage account and buying and selling stocks without any sort of commitment to scheduled purchases. At this level you can also think more about diversification (multiple styles of mutual funds, including bond funds) and taking on more risk.
Don't Forget Your Employer
Many companies offer employee retirement or investment plans like 401(k)s or direct employee stock purchase plans, and you should take full advantage of these. Don't have so much deducted from your paycheck that you struggle to make ends meet or have to fall back on credit cards, but if you have extra money at the end of the month you should seriously consider increasing your contributions to these plans.
Investing through an employer's plan has several advantages. First of all, there is a tax benefit to doing so, as your contributions are deducted from your pre-tax income and taxes are deferred. Second, many employers match the contributions of their employees, so you effectively get free money. Last and not least, most 401(k) plans have mutual fund options where investment minimums are waived; so even if you can only contribute $50 or $100 a month, you can often invest in multiple mutual funds with no fear of minimums.
For those who are self-employed, there are other options to consider as well. Special retirement investment options like SEP-IRAs and Keogh plans are available to self-employed workers and these plans can allow you to contribute a significant amount of your pre-tax income. (President Obama has proposed creating a new type of IRA designed to help Americans without access to a company retirement plan invest easier. What makes this new idea so different, and how does it work? Find out in What's The Deal With An Opt-Out IRA?)
Anyone Can And Everyone Should
If you can pay your bills and clear $50 a month, you can save and invest. At the low, low price of $50 a month, plenty of mutual funds are at your fingertips and as you manage to put more aside each month, even more options come into view. Save $50 a month and earn a market rate of return (8%), and you will have almost $9,500 in ten years. That is a goal that is well worth a little time and effort.
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