ôô

4 Ways to Invest in Stocks with Little Money or Experience

New to investing? Don't sweat it. Learn 4 simple methods to investing with confidence so you build plenty of wealth for the future, regardless of how much money or experience you have.

By
Laura Adams, MBA,
Episode #515
4 Ways to Invest in Stocks with Little Money or Experience

How Much Should You Invest?

Let’s get back to Moadd’s question. He said, “I’ve done research about different types of stocks like REITS, Roth IRAs, and mutual funds—but still feel like a rookie. If I invest $10,000, how long will it take to see a profit and how much could I make?”

I want to be clear that none of the investments Moadd mentioned is a stock. He may be using the terms “stock” and “investment” interchangeably, but that’s not correct. There are many other types of investments, such as bonds, real estate, currencies, and precious metals.

REIT stands for real estate investment trust, which is a company that owns real estate. A Roth IRA is a type of retirement account, in which you can own just about any type of investment. And, as I mentioned, mutual funds are a collection of assets, which could include stocks, if you choose one of the four options I reviewed.

Because it’s so risky, I don’t advise investing money for short-term gains. So, asking how long it will take to see a profit isn’t the right question. A better question is, “How much should I invest each year to achieve my long-term goals, such as retirement?” Exactly how much your account will grow depends on many factors including how much you invest over time, the investments you choose, how long you own them, and whether you use a taxable or tax-advantaged account.

If Moadd doesn’t have a retirement fund, such as a 401k or 403b through work, then I’d recommend that he open an IRA and max it out each year. For 2017, you can contribute up to $5,500 to either a traditional or a Roth IRA. If you have a workplace plan, you can contribute up to $18,000 per year.

See also: Is Owning Gold a Smart Investment?

How Much Stock Should You Own?

After you open a retirement account, you’ll need to choose the investments to own inside of it. You’ll have a menu of options to choose from and may also have access to an advisor or custodian who can help. As I mentioned, every investor should own stock through a fund. But how much stock is right for you?

Subtract your age from 100 and use that number as the percentage of stock funds to own in your retirement portfolio.

The answer depends on your appetite for risk, plus other factors like your age and when you want to retire. While there’s no one-size-fits-all asset allocation, in general, the younger you are, the more stock you should own.

Here’s an easy shortcut to figure out how much stock you should own: Subtract your age from 100 and use that number as the percentage of stock funds to own in your retirement portfolio.

For example, if you’re 40, you might consider holding 60% of your portfolio in stocks. If you tend to be more aggressive, subtract your age from 110 instead, which would indicate 70% for stocks. But this is just a rough guideline that you may decide to change.

You might allocate your stock percentage to a variety of stock funds or put it all into one stock fund. The remaining amount would be in other asset classes such as bonds and cash.

Make a goal to invest a minimum of 10% to 15% of your annual gross income for retirement. If you can’t set aside that much, start small. Even investing 1% or 2% is a great start. Then increase your contributions by a percent or two each year.

Having the option to start small is another benefit of owning stock funds. Unlike other types of investments, such as real estate or businesses, you don’t need much money to buy them.

See also: How to Make Money Investing in Stocks

Minimize Risk with a Buy-And-Hold Strategy

One of the most powerful ways to build wealth and financial security is actually pretty boring. Simply choose low-cost funds inside a retirement account and contribute 10% to 15% of your income over a long period of time.

Don’t get fooled into thinking that you need to take a lot of risk to be an investor. If anyone recommends that you buy this or that individual stock, smile politely and say, “thanks for your suggestion,” and never act on the information.

Don’t get fooled into thinking that you need to take a lot of risk to be an investor.

For most investors who don’t want to make a career out of stock picking, buying individual stocks is a bad idea. Trying to find one or two winning stocks is gambling, not smart, strategic investing.

Buying and holding one or more diversified funds minimizes investment risk. If the price of one stock in a fund takes a dive, it’s no big deal because you own hundreds or thousands of other stocks that may be holding steady or going up.

Get More Money Girl!

Want to know the best financial and productivity tools that I use and recommend to save time and money? Click here to check out 40+ tools I recommend!

If you're ready for help managing debt, building credit, and reaching big financial goals, check out Laura's private Facebook Group, Dominate Your Dollars! Request an invitation to join this growing community of like-minded people who want to take their financial lives to the next level.

To connect on social media, you’ll find Money Girl on FacebookTwitter, and Google+. Also, if you’re not already subscribed to the Money Girl podcast on Apple Podcasts or the Stitcher app, both are free and make sure that you’ll get each new weekly episode as soon as it’s published on the web. The show is also on the Spotify mobile app!

Click here to subscribe to the weekly Money Girl audio podcast—it’s FREE!

There’s a huge archive of past articles and podcasts if you type in what you want to learn about in the search bar at the top of the page. Here are all the many places you can connect with me, learn more about personal finance, and ask your money question:

Dominate Your Dollars Facebook Group

Click here to sign up for the free Money Girl Newsletter!

Download FREE chapters of Money Girl’s Smart Moves to Grow Rich

To learn about how to get out of debt, save money, and build wealth, get a copy of my award-winning book Money Girl’s Smart Moves to Grow Rich. It tells you what you need to know about money without bogging you down with what you don’t. It’s available at your favorite bookstore as a paperback or e-book. Click here to download 2 FREE book chapters now!

Charging Bull in Lower Manhattan image courtesy of Shutterstock

Pages

The Quick and Dirty Tips Privacy Notice has been updated to explain how we use cookies, which you accept by continuing to use this website. To withdraw your consent, see Your Choices.