You are not an investor yet but you would like to start. You are probably young and do not have a lot of money. But you are watching the stock market go up and up and would like to stake your claim to part of the American dream. How do you start out investing and how do you avoid losing your money right away? We suggest three safe ways to start investing with small amounts of money. You do not necessarily need to start out investing in the stock market! However, that is where you probably want to put your money eventually and for the long term.
Three Safe Ways to Start Investing with Small Amounts of Money
- Money market accounts and certificates of deposit at the bank
- Pay off your credit cards
- Buy your home instead of renting
From these three safe ways to start investing with small amounts of money you can build an investment portfolio over the years.
Money in the Bank
The first of our three safe ways to start investing with small amounts of money is to stay safe and liquid. The first step in investing in the stock market is not to buy stocks.
The first step is to take a look at your finances and your expenses. In fact how to start investing in stocks is to get your financial house in order first and then start picking stocks.
If you want to be a successful investor, discipline yourself. Put $50, $100 or whatever you can in the bank every payday. As your bank account grows create a ladder of certificates of deposit. These will pay better interest than your savings account and if you set them up so that every month or so one of them comes due you will always have some cash on hand for emergencies.
Stop Paying Credit Card Interest!
The interest rate on the outstanding balance on your credit cards can be as low as 13% and as high as 22%. If you are a really successful investor you will still have trouble making 13% a year on your portfolio year in and year out. And certainly you will find it difficult to make 22%. So when you start investing with small amounts of money pay off your credit cards first and foremost.
Your Home Is Still Your Best Investment
A major cost of investing in a business is interest paid on money that your borrow. The great part about buying a home is that the mortgage interest is tax deductible. Bank Rate has a tax deduction calculator that will show you how much you can save each year via state and federal mortgage interest deductions. For a $200,000 mortgage you can save around $1,700 the first year alone. Commonly you will pay less for your mortgage for the same size home than you would pay to rent. And then it gets better because the mortgage interest is deductible. The last of our three safe ways to start investing with small amounts of money is to buy your home instead of renting.
And What Is the Next Step?
The US stock market is the best bet for long term profits. While you are putting money in the bank, paying off credit cards, and buying a home instead of renting, start learning about common stocks, ETFs and other ways to invest in the stock market.