An old conundrum holds that you cant get a job without experience, but you cant get experience without a job.
The same dynamic doesn't hold true any more, however, with investing.
Investing doesnt require a boatload of cash to get started. Whether through individual stocks, mutual funds, workplace 401(k)s or other options, the investment industry has shifted to accommodate investors with little in the way of funds to open an account and start saving.
We are living, in my opinion, in the golden age of inexpensive investing, said Mathew Dahlberg of 111th Street Investments in Kansas City, Missouri.
Here are some ways to take advantage of that shift.
Start small
Most cash-strapped investors have heard this refrain: little things add up. Thats particularly true for people looking for extra cash with which to invest. That $4 cup of caramel flan latte five days a week may not seem like much, but shave that spending in half over the course of a month and thats $40. Tack on other expenses that can be trimmed, and the sum available for investing grows even larger.
And there are alternatives for those whose modest consumer savings may not be sufficient for certain kinds of investments. For example, TD Ameritrade has no minimum amount required to open a stock account. Even better, it costs just $9.99 per online stock trade.
Back in the 80s, it was not unusual for clients to be charged a $29.99 commission to buy or sell a block of shares of stock," said Dahlberg. "Thankfully, the advancements of technology and the competitive advantage they have brought have forced down the fees across the investment universe.
There are also cost-effective options like mutual funds. For instance, Charles Schwab often waives the minimum required to open an account if the investor sets up an automatic investment program. A minimum of $100 is withdrawn every month from a specified account, such as checking or savings. Funds can then be invested in any number of mutual funds, many of which have no transaction fees.
Autopilot options
A bane of many investors, including those with limited funds, is the numerous choices of where to spend their money. Writing a check every month for a retirement account when that money could go toward that touring Broadway show coming to town.
To remove the temptation, investors can put their program on automatic.
The more individual decision-making you take out of it, the better, said Doug Kinsey, a Dayton, Ohio, financial planner.
Many mutual funds let investors start with a modest initial investment often $100 or so if they agree to have money automatically withdrawn from a checking or savings account. Regular contributions continually move into your investment accounts without your having to lift so much as a pen.
Another automated investment opportunity can be found where you work. The American Benefits Council reports that nearly 80 percent of full-time workers have access to employer-sponsored retirement plans. And, if your employer offers a 401(k) retirement savings program (a 403b for public sector employees), sign up as early as possible. The advantages are numerous.
Not only can your contribution be automatically taken from your paycheck, your contributions are deducted from your income, saving you money on taxes.
Workplace savings plans become all the more attractive if your employer offers to match a percentage of your total contribution. Between any employer match and tax savings, that can be a substantial return on your investment from the moment the funds land in your account.
If your employer offers a matching 401(k), always try to get the match, said Bryan Marsden of the consumer website FatWallet.com. It's like getting a raise that goes directly to your retirement account.
Time's on your side
The earlier you start investing and the longer you stay with it, the more substantial the long-term results.
Heres one scenario where time beats the amount invested:
A 25-year-old investor saving for retirement at age 65 sets aside $200 a month for 10 years at an average rate of return of 8 percent. At the end of the 10-year period, she stops investing, but the nest egg is in place. Come age 65, the investment has grown to $364,842.
By comparison, her friend waits until 35 to begin saving the same $200 a month at the same 8 percent return. Even though he dutifully earmarks $200 a month until reaching age 65, he has only $283,522, despite investing three times as much.
The results would be all the more sweet if investor No. 1 stayed the course past age 35. In this case, investing that extra $200 a month for an additional 30 years would have boosted her savings total to more than $648,000 by age 65.
Time is the biggest single factor in the success of savings, so getting started early can do much to overcome a minimal amount of disposable income with which to invest, said Rob Drury, executive director of the Association of Christian Financial Advisors. Not only does starting earlier allow one time to sock away more money, but the time one's money has to compound makes a tremendous difference.
First things first
Before allocating one penny to any sort of investment, first consider the reason for investing. That can help identify the sorts of investments that might be most suitable and how much to contribute.
You have to ask yourself what you want to get out of it, Kinsey said. Are you looking to save for retirement, to save for a major purchase or something else?
Also, having adequate insurance, such as health, life and other forms of coverage can protect you from having to dip into retirement and other long-term investments when an emergency occurs.
In addition to insurance, setting aside some easily accessible cash in a savings or checking account is also prudent in the event of an emergency, such as a job loss, medical emergency or a major repair. The ultimate goal, said Kinsey, is 10 percent of your annual income in checking or savings.
That may seem like a lot, but Kinsey said it can be done with minimum impact by setting up an automatic withdrawal program that can build an emergency fund on a modest monthly basis.
The same dynamic doesn't hold true any more, however, with investing.
Investing doesnt require a boatload of cash to get started. Whether through individual stocks, mutual funds, workplace 401(k)s or other options, the investment industry has shifted to accommodate investors with little in the way of funds to open an account and start saving.
We are living, in my opinion, in the golden age of inexpensive investing, said Mathew Dahlberg of 111th Street Investments in Kansas City, Missouri.
Here are some ways to take advantage of that shift.
Start small
Most cash-strapped investors have heard this refrain: little things add up. Thats particularly true for people looking for extra cash with which to invest. That $4 cup of caramel flan latte five days a week may not seem like much, but shave that spending in half over the course of a month and thats $40. Tack on other expenses that can be trimmed, and the sum available for investing grows even larger.
And there are alternatives for those whose modest consumer savings may not be sufficient for certain kinds of investments. For example, TD Ameritrade has no minimum amount required to open a stock account. Even better, it costs just $9.99 per online stock trade.
Back in the 80s, it was not unusual for clients to be charged a $29.99 commission to buy or sell a block of shares of stock," said Dahlberg. "Thankfully, the advancements of technology and the competitive advantage they have brought have forced down the fees across the investment universe.
There are also cost-effective options like mutual funds. For instance, Charles Schwab often waives the minimum required to open an account if the investor sets up an automatic investment program. A minimum of $100 is withdrawn every month from a specified account, such as checking or savings. Funds can then be invested in any number of mutual funds, many of which have no transaction fees.
Autopilot options
A bane of many investors, including those with limited funds, is the numerous choices of where to spend their money. Writing a check every month for a retirement account when that money could go toward that touring Broadway show coming to town.
To remove the temptation, investors can put their program on automatic.
The more individual decision-making you take out of it, the better, said Doug Kinsey, a Dayton, Ohio, financial planner.
Many mutual funds let investors start with a modest initial investment often $100 or so if they agree to have money automatically withdrawn from a checking or savings account. Regular contributions continually move into your investment accounts without your having to lift so much as a pen.
Another automated investment opportunity can be found where you work. The American Benefits Council reports that nearly 80 percent of full-time workers have access to employer-sponsored retirement plans. And, if your employer offers a 401(k) retirement savings program (a 403b for public sector employees), sign up as early as possible. The advantages are numerous.
Not only can your contribution be automatically taken from your paycheck, your contributions are deducted from your income, saving you money on taxes.
Workplace savings plans become all the more attractive if your employer offers to match a percentage of your total contribution. Between any employer match and tax savings, that can be a substantial return on your investment from the moment the funds land in your account.
If your employer offers a matching 401(k), always try to get the match, said Bryan Marsden of the consumer website FatWallet.com. It's like getting a raise that goes directly to your retirement account.
Time's on your side
The earlier you start investing and the longer you stay with it, the more substantial the long-term results.
Heres one scenario where time beats the amount invested:
A 25-year-old investor saving for retirement at age 65 sets aside $200 a month for 10 years at an average rate of return of 8 percent. At the end of the 10-year period, she stops investing, but the nest egg is in place. Come age 65, the investment has grown to $364,842.
By comparison, her friend waits until 35 to begin saving the same $200 a month at the same 8 percent return. Even though he dutifully earmarks $200 a month until reaching age 65, he has only $283,522, despite investing three times as much.
The results would be all the more sweet if investor No. 1 stayed the course past age 35. In this case, investing that extra $200 a month for an additional 30 years would have boosted her savings total to more than $648,000 by age 65.
Time is the biggest single factor in the success of savings, so getting started early can do much to overcome a minimal amount of disposable income with which to invest, said Rob Drury, executive director of the Association of Christian Financial Advisors. Not only does starting earlier allow one time to sock away more money, but the time one's money has to compound makes a tremendous difference.
First things first
Before allocating one penny to any sort of investment, first consider the reason for investing. That can help identify the sorts of investments that might be most suitable and how much to contribute.
You have to ask yourself what you want to get out of it, Kinsey said. Are you looking to save for retirement, to save for a major purchase or something else?
Also, having adequate insurance, such as health, life and other forms of coverage can protect you from having to dip into retirement and other long-term investments when an emergency occurs.
In addition to insurance, setting aside some easily accessible cash in a savings or checking account is also prudent in the event of an emergency, such as a job loss, medical emergency or a major repair. The ultimate goal, said Kinsey, is 10 percent of your annual income in checking or savings.
That may seem like a lot, but Kinsey said it can be done with minimum impact by setting up an automatic withdrawal program that can build an emergency fund on a modest monthly basis.
