There are a variety of reasons why people may put off investing. These include money, time and fear. Each of these factors is closely related.
You may have a small budget that limits investment choices. Mutual funds, brokerage accounts and even bank CDs often have minimums beyond smaller sums. Juggling a busy schedule may leave little time to research investments and make informed decisions. With little money or information, we may not feel comfortable investing.
Thankfully, there are investments suitable for smaller budgets and time.
Here are a few ideas:
Direct Stock Purchase Plans (DSPP):
Attractive Features of DSPPs include:
- Low Minimum-often just 1 share is required.
- Brand Name Companies
- Easy to Diversify on a Low Budget
Numerous companies offer a direct way for you to buy shares. These are typically brand names with established market positions. As a result, you will likely recognize the company at first glance. You should still make a performance based decision to buy shares, but higher recognition may increase comfort levels.
You can often buy just 1 share of stock to get started. Smaller investors or mutual fund companies may all consider DSPPs.
With a limited budget, you can purchase shares of companies in different sectors to easily diversify.
Cons of DSPPs include:
- Time-you should still research the companies, despite brand names. Note: This is on a relative basis. DSPPs are time efficient compared to more complex choices.
- Management- You will make the buy and sell decisions.
Benefits of Mutual Funds include:
- Minimums may be just $50 if you commit to monthly contributions
- Diversify among asset classes, countries and styles
- Professional Management
- Easy Tracking
Several mutual funds offer professionally managed portfolios of stock or bonds with low minimums. Different mutual funds have unique objectives, which can range from American stocks to overseas investing, among others.
A mutual fund also saves you time from having to research stocks and closely follow market conditions.
Cons of Mutual Funds:
- Little control.
- May not be cost efficient.
Mutual funds have expense ratios, which vary greatly and affect your returns. Time should be taken to consider upfront and ongoing fees.
Cost efficient choices: Index funds are low cost options that track major benchmarks, such as the S+P 500.
Additionally, mutual funds offer little control, as you are turning decisions over to the manager.
REITs (Real Estate Investment Trusts):
- Liquid form of real estate investment
- Real Estate exposure without owning property
- Passive income from dividends
- Prices often move separately from other stocks
Investing in real estate requires capital, market savvy and financing. For those with limited budgets and time, a REIT offers exposure without owning property.
REITs are publicly traded and can be bought through a discount broker, often with just one share. You can also earn passive income on a monthly or quarterly basis, as REITs pay out money from collecting mortgage interest and rental income.
Since real estate has a negative correlation to stocks and bonds, buying REIT shares can lower risk in your portfolio.
With monthly and quarterly income, REITs offer an additional revenue source. When real estate in the portfolio is sold for a profit, REIT shares can increase in value. Unlike owning real estate, you can sell shares at any time.
Things to consider:
- Volatility, REITs may have large price swings
- Real estate should be considered after core investments such as stocks or bonds are made.
Compounding is incentive to get started now with smaller budget. The above choices allow you to invest based on time horizon, risk tolerance and personal factors.