Anyone can begin investing! Even the little guy! You can start with as little as $10!
Set aside 10% of your income and designate it solely for investing. Now, I know you are asking, “Where do I invest it?” The piles of information available can amount to a life-time of research, but to cut to the chase, here’s how you can start now:
One of the best methods for growing an investment account is through something called DOLLAR-COST-AVERAGING into a stock account, and choosing to have the DIVIDENDS REINVESTED. I will explain what these terms mean below. Try to memorize them, you will be glad. You don’t need to know much more to begin your investing life.
Dividend Reinvestment through Online Brokers
So many online brokers exist, it can be overwhelming to choose. One important question for the small investor to ask when seeking out an online broker is whether or not the online broker allows “Dividend Reinvestment.” A dividend is an amount that companies pay to their shareholders based on a companies earnings. A dividend payment amount is called a yield and is listed in terms of percentages.
When a company pays a dividend to investors for shares in their stock account, it should automatically be used to purchase more shares, or even a percentage of shares. This feature is important for a small investor who will gain little from dividends being deposited into a cash account, but much more if the small dividend is used to automatically purchase more shares, or parts of shares.
In time, a small investor can exponentially increase their return on interest (ROI)by reinvesting dividends. Not all online investment brokers provide this service, so check before making your deposit. Ask them whether or not they will automatically reinvest your dividends for free. There need be no charge for this service.
Dollar-cost-averaging is a method of buying more stocks when they are cheap and fewer when the price has risen. This happens automatically if a specified dollar amount has been allocated to purchase stocks each month through your online broker.
A small investor can set up automatic withdrawals from a bank account into the stock account for amounts as small as $10.00. The same dollar amount is used to purchase shares or percentages of shares of stock or index funds each month, regardless of the cost of the shares. Over time, the value of the index fund or stock accumulates, dividends are reinvested to buy more stocks, and the investment grows.
Dividend reinvesting, and dollar-cost-averaging are two of the best ways the small investor can commit to an investment plan with very little cash up front. Don’t delay waiting till you have ‘enough money to invest.’ You can start with $10, $20, or $100 a month to begin, when you see the trickling in of additional funds, you may find you want to tighten your eating out budget and increase your monthly allotment.
You don’t need to be an expert set up a dollar-cost-averaging account. Pick a solid company that you like. What kind of shoes are you wearing now? How about stock in that company? Strong companies do not always have stocks that rise quickly, but rather they pay out in small quarterly dividends, usually a few cents on the dollar. Owning stock in a strong reliable company, that will pay you for owning their shares, and which you will hold till retirement or longer, is not only intelligent, but can be fun.
Try setting up a dollar-cost-average, dividend reinvestment account for a kid. My husband had an aunt who set up an account for him when he was a young. She started with $100 and added a small amount each month, and had the dividends reinvested for some time. She passed on, and he forgot about the account, till the day when we bought our home. His mom reminded him of his stock account, which had accumulated by then to over $20,000! What a good gift. Thanks Aunt Millie!