How To Invest In The Stock Market With Little Money

0 Comments | Rating: 0 | |

You work hard for your money so you are looking for ways to make your money work harder for you. The stock market, though risky, offers high returns and is one of the better ways to grow your money over the long term. But what if you don't have a pile of money to invest? Do you find yourself wondering how to invest in the stock market?

If you are a beginner, familiarize yourself with stock investing basics before proceeding to invest in the stock market. You can invest in many different products such as buying penny stocks, blue chip stocks, mutual funds, index funds, and options. There are excellent web sites that provide a vast amount of information. Keep in mind the ultimate rule: do not invest money in the stock market that you cannot afford to lose.

Investing can be costly because of the commissions involved when buying and selling stocks. Furthermore, some people are reluctant to invest in the stock market because they don't have a "lot of money" to work with. There are ways you can invest in the stock market cheaply and with little money.

Online Discount Brokerages

Internet stock trading has gained in popularity over the years. Investors are drawn to online stock trading because it is a convenient and economical way to execute their stock transactions. There are many online discount brokers to choose from such as E-trade, TD Ameritrade, Zecco, Sharebuilder, and Charles Schwab. Opening an online discount brokerage account is ideal for investors whom are hands on and like to do things themselves instead of going through a traditional broker.

Online discount brokers offer lower commissions than conventional brokers so investors enjoy higher returns on their investments. Make no mistake, the compounding effect of even small dollars can amount to alot of money.

Direct Stock Purchase and Dividend Reinvestment Plans (DRIPs)

Did you know that you can buy stocks directly from issuing companies at basically zero commission? And then by participating in the company's dividend reinvestment plan (DRIP), you can buy additional shares without paying a fee or commission. To enroll in a company's DRIP, you need to be a registered shareholder of one share of the company's stock. After that, you can continue to buy more shares on a regular basis with as little as $25 - commission free! Depending on the company's share price, $25 will get you full shares or partial shares. With regular contributions, you can build up a sizeable portfolio over time. Investing in DRIPs is an excellent way to invest in the stock market with little money.

Low Cost Index Funds

Warrent Buffet recommended that people who are unable to competently evaluate and pick stocks should invest in low cost index funds. If there's anyone worth listening to, it's Warren Buffet! Basically, an index fund is a mutual fund intended to emulate the performance of one of the major indices such as the S&P 500. Index funds are passively managed, unlike traditional, actively managed mutual funds. Index funds do not have to bear the expense of paying portfolio managers, analysts, and other research activity overhead. Therefore, index funds offer much lower management fees which translate to higher returns for you over the long run. Furthermore, an index fund is a cost effective method to acquire hundreds of stocks without the associated brokerage commissions.

Summary

Now that you've learnt how to invest in the stock market cheaply or with little money, good luck on your investing journey. Before investing in penny stocks because you're drawn to their low share prices, give the above suggestions some serious consideration.