Despite the dire economic reality that millions of Americans face today, the stock market has been on a tear. Intervention by the Fed and a strong performance by tech companies helped the market rebound quickly. Plus, the election of Joe Biden as our next president and the development of COVID-19 vaccines have investors more hopeful than ever that things will return to normal soon.
That’s great news for investors who had skin in the game and enjoyed major returns as the stock market rebounded from its March low. But the average person without a big portfolio or high income might be wondering how they can get in on the surge in stock values, too.
The good news is that you don’t have to have a lot of money to invest in the stock market. Here’s how to get started.
1. Don’t wait.
Sitting on the sidelines of the stock market means harming your bottom line. If you haven’t started investing yet, don’t wait any longer.
“New investors often get analysis paralysis when learning about investing,” said Emily Flippen, investor, and senior analyst at The Motley Fool. Not only are newbies often afraid of making mistakes, but they may even believe that investing only a small amount isn’t worthwhile.
“However, stocks move in percentages, not dollars,” she explained. “Therefore, even if you are only investing a relatively small amount of money, it will still compound over time.”
Still not convinced? Consider this: If you had invested $100 in Amazon’s IPO back in 1997, you would have $129,186 as of the end of the trading day on Feb. 20, 2020. Of course, trying to pinpoint the next Amazon, Apple, or Tesla isn’t the best strategy for the average investor, but it sure doesn’t hurt if you get lucky.
2. Start with your 401(k) match.
If your job offers a 401(k) or another employer-sponsored retirement plan, you should definitely contribute. For one, you won’t really be able to retire if you don’t set aside a portion of your earnings in the market; it’s nearly impossible to save up enough money to live off comfortably for 20 or more years without investing.
Your 401(k) offers a couple of opportunities to invest for less. First, money invested in a 401(k) comes out of your earnings before they are taxed, meaning your money goes much further (contributions are taxed later when you withdraw the money). Second, your employer may offer to match a portion of your contributions.
“If your employer does offer you a match, take full advantage of that by making sure you’re contributing enough to get the full benefit,” said Pam Krueger, CEO, and founder of Wealthramp. “The match your employer is making for you is literally found money.”
3. Buy fractional shares.
I wish you could own a chunk of Google, but don’t you have a spare $1,800? Consider buying fractional shares through a brokerage that offers this option.
“These firms buy whole shares on the market and then sell pieces to investors, giving them access to investments that might otherwise be out of their price range,” said Jeremy Quittner, editorial director at Stash. “With fractional shares, you don’t have to wait for the ‘right time’ to start.”
Even if you’re starting small, Quittner said that fractional shares can still offer you a return on your money, and depending on your investment, dividends. “Little amounts can earn interest, and that interest can compound over time.”
If you want to be even more hands-off, you can sign up for a robot-adviser such as Stash, Betterment, or M1 Finance that chooses your investments and manages your portfolio for a small fee. Your investments are based on your risk tolerance and goals ― all you have to do is contribute.
To get even more out of your investing venture, consider signing up with a brokerage that offers free shares or bonuses to new customers ― many do.
4. Try an index fund.
You don’t have to be an expert stock-picker to enjoy market gains. In fact, you may be better off putting your money in index funds rather than individual stocks.
“These funds are passive ways to invest and track the overall market index,” Flippen explained. For example, you could buy into an index fund that follows the S&P 500. Alternatively, if you don’t have enough money to buy into an index fund, consider looking for an ETF (Exchange Traded Fund) that tracks the same index. “Since ETFs are traded on public exchanges, they do not have minimum buy-ins beyond the cost of a single share,” she added.
5. Watch out for fees.
Nothing eats away at your returns, like high investment fees. To be sure your investment contributions go as far as possible, avoid any brokerages or funds that charge high fees.
“Fees can be confusing because they are presented as tiny numbers, but over the long-term, they can have a huge impact on your financial future,” said Brian Walsh, a certified financial planner with SoFi.
There are two types of fees that you should pay attention to; he said: trading commissions and advisory fees. “Fortunately, innovative companies that leverage technology has been helping to drive both of those fees down.”
Many online brokerages and Robo-advisers typically charge much lower advisory fees than traditional firms or even no fee at all. Many also allow you to trade hundreds of stocks with no commission.
Investing For The Long Term
Watching your money grow as the stock market surges upward is an exciting feeling. But even though the stock market is going up right now, there are bound to be ups and downs. You need to be prepared for the day your portfolio inevitably takes a hit and understand that you should be investing for the long haul.
That means you shouldn’t invest any money you might need in the next couple of years. Make sure your emergency savings account is well-funded before you dabble in the market. Investing for the future is important, but so is making sure you can afford it today.