Investing is pitched as something easy to accomplish even with capital as little as $100. While technically true, investing is not about betting a small amount of money and hoping for lottery-like wins. Even if your capital fund is small, you should carefully navigate risk so you don’t end up losing what little money you have. Read below for steps to follow when you are about to start investing for the first time:
Don’t Invest All Your Money in a Single Sector
This perhaps goes without saying. Investors have always been cautioned against putting all their eggs in one basket. When you are operating with a limited amount of capital, it’s easy to end up doing exactly that. You may spend the entire $100 buying bonds from a single company or purchasing gold bars. The smart choice to make is to split your $100 into smaller pools to invest in different sectors. Don’t assume that your tiny investment in a single sector would pay off. You could end up losing all the money. Portion off your capital for the purposes of diversification. If one investment doesn’t pan out, you would still have some of the initial $100 left.
Control the Pink Sheet Temptations
The pink sheets contain the listings for penny stocks, which are stocks that cost less than $5. These stocks are unbelievably cheap. Cheap stocks are a favorite asset class among those with limited capital. A $100 is akin to a fortune when it comes to pink sheets. You can end up purchasing too much low-cost stock with $100. But don’t. As mentioned above, your portfolio needs to be diverse in the most basic sense. Penny stocks may be easy to purchase, but are extremely risky. You can only safely purchase these stocks as long as you limit your exposure. Carefully research the pink sheets stocks you want to purchase before spending your money. Understand the type of risk you are taking on before spending all your cash on this type of stock.
Don’t Invest Solely on the Short-Term
Want your investments to generate supplemental income? Then you need to be in it for the long haul. Buying and selling assets as rapidly as possible is not a sound investment strategy. If you want to get the best out of your investments, you need to be able to hold on to the assets. Experienced investors like Warren Buffet generally hold onto stocks and bonds for years to come. If the company that generates these investments is doing well, your assets would be quite valuable in the future. Imagine how much initial investors of Google stock earned in the late 2000s? Likewise, when you are willing to stick with an investment in the long term, it can pay off. Take note that paying down personal or household debt is also a solid form of investment. In fact, this is possibly the most sensible form of investment for newbies. Reducing the balance on the debt not only releases you from immediate financial woes, it also frees up your finances for retirement savings.
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