How do I start investing with only $25?
I am new to stock trading and I have $25 on a TD Ameritrade Account that I can use for stock trading. Is $25 too small of an amount to begin investing with? What should I look out for when trading with such a small amount? Should my orders initially be market orders or limit orders? What are some tips for earning a return when investing with this amount?
If you are just starting out as an investor and your future contributions are going to be relatively small (a few hundred dollars a month or less), I recommend you not use a traditional custodian and instead go with a robo-advisor like Betterment, Wealthfront, FutureAdvisor, SigFig, etc. The costs are lower, investing is more efficient, you aren't trying to select your own investments or asset allocation, and you can invest small amounts at a time very easily.
If you are new to stock trading, the biggest tip I have for you is actually to not focus so much on earning a return, but focusing on your inflows. Until your portfolio is big enough that your potential annual return is a higher dollar amount than your annual contributions, you really should be thinking about putting away as much money as possible and not spending time and thought on extra returns. Your return on a low balance is not that much. Returns become much more important when you have a larger pot of money to work with.
Yes, I think so. TDA charges $6.95 per trade. Thus the commission on your first trade will eat up more than 25% of your portfolio. The return you can earn on $25 isn't going to make a difference in your life anyway.
Every month, when you sit down to pay your bills -- rent, utilities, credit cards etc. -- make a point of "paying yourself" too. Put a set amount away into that TDA account. Get into the habit of living without $100 or $200 every month. Then as you start to earn more, increase the monthly deposit. Pretty soon you'll have some real money.
In addition, if your employer offers it, get enrolled in a 401(k) and put away money every month tax-deferred. Take advantage of your company match, if there is one. Between retirement savings and regular savings, your goal should be to have 20 times your annual living needs (after Social Security) by the time you retire.
Congratulations on starting to invest. No amount is too small to start with and if you add periodically and consistently, then over time, with a well thought out and disciplined investment plan, you will be pleasantly surprised with the results. Keep in mind though that for most stocks the brokerage fees on TD is $6.95 each way and that is a significant portion of your $25 investment. A better option would be to invest in products that are offered without any commissions on TD- there are a few ETFs for example that you can explore: https://research.tdameritrade.com/grid/public/etfs/commissionfree/commissionfree.asp?fromSectionLeftNav=true
Over time you can increase the amount you are putting away from your income for investing. A good idea is to have an automatic deduction from your paycheck so that you don't have to work extra hard to have a surplus from your cash flows, for investing. Portfolio construction should primarily be based on your risk profile which comprises both your willingness and ability to take risk.
You are asking a great question and congratulations for investing. 25$ is not too small an amount to begin investing, and 25 cents is not either. You have to start somewhere, and it all adds up, especially if you invest over a long period of time. If you are just starting out, I would strongly consider owning an S&P 500 ETF offered by a large mutual fund company like Vanguard, Fidelity, or T. Rowe Price. The costs to buy them and own them are minimal, as low as can be found, and the difference between a limit or market order is minimal, so just go with a marekt order. You will get the market return, which will clearly fluctuate each year but over the long term, has averaged about 8%. I certainly would make sure all dividends are reinvested, especially if you have a long time to invest. I hope this helps answer your question and good luck with your investments.
Yale Bock, CFA
Y H & C Investments
Because of the way trading commissions will eat up small amounts of money very quickly, I wouldn't start investing until you had a larger pot to work with. By all means, continue to SAVE, but my guess is, if we only have $25, it's not likely you have much of an emergency fund saved yet, and that HAS to be the higher priority.
The other issue you have is, we're at all-time record highs in the stock markets right now. You anything you do buy will likely have never been at higher prices than now.
Save 3-6 months of your expenses (not "income" - expenses) and then shift that savings toward an investment account. Then, start with one of the zero-commission ETFs TD Ameritrade offers, and keep investing into one diversified ETF until you have several thousand dollars.
But baby steps. Do it right. Get some emergency savings built, THEN start working on your investments.
Best of luck to you! :)