How to Start Investing Even If You're Not Rich

by Asha Ritu

We often assume that the word investment is for the wealthy - the people who work in high profile MNCs or own a business that have large turnovers. There’s the misconception that a normal person, without a ton of wealth, cannot play around with investments!

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But we’re here to tell you that investments are a tool for EVERYONE. Having said that, let’s dive into some smart tips on how to start investing even if you’re not rich.

Start Learning to Save

The first step in learning to invest is to learn to save. Only when a person has enough for his or her needs can they have more to invest. Audit your expenditures and see where you could actually cut costs and start saving. The focus should be on building this saving habit step by step - you could start with the 50-30-20 rule, or have a goal of reducing your impulse shopping. You could then open an online savings account and start to save money there. Once there is enough savings, you could use that for actual investments.

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Clear off Your Debt

The next smart tip we have for you is to reduce your debt. Looming credit card debts, student loans, and home loans will eat away at savings accounts and investment possibilities. So the best thing to do is focus on reducing those liabilities, the first one being your credit card debt.

If you need some tips on weighing the pros and cons of having a credit card, you can watch this video.

Reducing your debt, will also lower your stress levels and free up your mind space to focus on your different investment options and create space for better financial planning. However, ensure that once you repay your debt, you put that same amount towards investments.

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Increase your Income

If you would like to see more of your money getting invested, you might want to look into taking up some side hustles to increase your income. From blogging to freelancing to starting a Youtube channel, in this digital world, your options are endless. Click here to get a deep dive into some side hustles that you can start almost immediately!

Robo Advisors

Once you are ready to invest, starting out can be a bit challenging. One of the best options for those who are beginners in the investment space are Robo Advisor services. Most Robo Advisors use mutual funds or exchange-traded funds rather than individual stocks to build your portfolio. They typically follow an index fund or another passive investment approach based on modern portfolio theory research, which emphasizes the importance of your allocation to stocks or bonds.

Robo Advisors use a process to determine exactly how to invest on your behalf. The steps are simple - you sign up and take a short survey to provide answers to a few investment-related questions. The robot plugs your answers into an algorithm that determines the kind of portfolio and asset allocation that’s appropriate for your age, risk tolerance, and time horizon.

But do remember that Robo Advisors help you manage your account, but doesn’t provide guidance on how and where to invest. Some robo advisors you can look up are upwardly.in, 5paisa.com etc.


Try Indexing

Both index funds and ETFs fall under the heading of "indexing." Both involve investing in an underlying benchmark index. The primary reason for indexing is that index funds and ETFs can often beat actively managed funds in the long run. Unlike actively managed funds, indexing relies on what the investment industry refers to as a passive investing strategy. Passive investments are not designed to outperform the market or a particular benchmark index, and this removes manager risk—the risk of inevitable eventuality that a money manager will make a mistake and end up losing to a benchmark index. Passive investments such as index funds and ETFs have extremely low expense ratios compared to actively managed funds and are the best option for someone who is starting out.

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Direct Stock Purchase Plan Account

If investing in stocks from individual companies is your goal, you might want to consider Direct Purchase Plans, or DPPs for short. As the name suggests, you purchase these stocks directly from the company. There’s no brokerage account, no middleman, and you work directly with the company that issues the stock. One drawback is that not every company offers a DPP so you may be somewhat limited in your selection. Companies are not allowed to advertise their own direct purchase plans, so it’s up to you to find them. You'll probably have to spend a little time visiting the company’s website and looking through their investor relations section to determine whether or not they offer a direct purchase plan and how to get started. The real benefit of a DPP is that you aren’t paying a hefty commission to a broker and you’re given the ability to purchase fractions of shares.


Online Brokers and Investing Apps

Another way to start investing with a small amount of money is to sign up with an online discount broker. For just a low cost, you can create an automatic investment plan that will help you start building your portfolio. Keep in mind that they may impose some account restrictions and fees, but generally speaking, it’s a great way to start investing today without much money. Another option is to use one of the investing apps - some let you round up the change from purchases and invest the difference, while others allow you to invest in fractional shares -- but they share a common goal: to help investors build a diversified portfolio with the money they have at hand.

With that, we’re wrapping up our top tips to start investing and building up your portfolio. The sooner you start the more chances of making investments work in your favour. So what are you waiting for? Let’s start investing.

References:

https://www.cnbc.com/2018/06/04/when-a-robo-advisor-is-or-isnt-the-right-choice.html

https://www.thebalance.com/index-funds-vs-etfs-2466395

https://www.thebalance.com/how-to-start-investing-with-small-amounts-of-money-1289723