Many people believe that to invest you need to either have lots of money or earn lots of money. Those who think that way couldn’t be any more wrong. To invest, it’s not about how much you have to get started, but simply that you get started. Good money management involves saving money for the future. Great money management means having that savings earn a respectful return while you wait for the future. Low income people should invest. While investing may require them to be frugal and creative, it shouldn’t discourage them from investing. Here are three investment options that a prospective low income investor may want to consider.
Join an Investment Club
If you don’t have a lot of money to invest, find some people in the same financial position to invest with you. Investment clubs were created to provide such an opportunity. To join, investment clubs usually require a modest initial investment, maybe in the $100 to $300 range. After you join, there is normally a defined minimum contribution to be made at pre-determined intervals. Those contributions may range anywhere from $25 to $100. Investment clubs also require members to help in determining in what the club should invest. This doesn’t mean you need to learn how to become a financial planner overnight, but you will contribute by doing research in prospective investments. Find an investment club in your area to see how you can become a member. If you can’t find one, start one.
Invest in Mutual Funds or ETFs
Mutual funds and Exchange-Traded Funds, or ETFs, can also be a viable option for low income investors. Each provide an opportunity to invest in multiple financial assets with little money and without the fees associated with purchasing each asset individually. Mutual funds and ETFs are similar in nature, but they trade differently. Both are managed by a fund manager who uses research to determine what assets should make up the funds. Mutual funds are normally handled by brokerage firms and require an initial minimum investment to purchase shares in the fund. After the initial investment, regular contributions can be made to purchase more shares. The fund pools together the monies collected and purchases the assets that will make up the mutual fund. Shares of an ETF, however, are traded on an exchange like shares of stock. The net asset value of a mutual fund share is determined at the end of the day. The net asset value of an ETF share fluctuates while the market is open. Also, there is no initial minimum investment requirement for investing in an ETF.
Contribute to Retirement Account with Employer
Most companies today provide retirement account options to their employees after six months or a year of employment. This may be the best, and easiest, option for the low income investor to get a portfolio up and running. Usually, there is no initial minimum investment required to start a retirement account with your employer. When eligible, you simply have to complete the required paperwork to get the account started. You also get to choose how much of a regular contribution you want to make with each paycheck. Some employers will even match your contributions up to a certain percentage. That’s like getting free money. Also, some retirement accounts take contributions from your income before taxes. This can be quite helpful come tax time.
Don’t let your level of income discourage you from investing. Starting now and investing regularly will help prepare you financially for an uncertain future. With time and patience, your money will grow and some investments can even provide you with income. Create a feasible budget to determine how much you can set aside to get your investing started. Educate yourself, make sacrifices, and save. You’ll be glad you did.