SMALL INVESTMENTS:Investing may seem daunting when you are a beginner, but it plays a crucial role in achieving different financial objectives and accumulating wealth.
You will encounter many different market environments throughout your investing life, so don’t worry too much about whether it’s the perfect time to start.
But before investing, it’s important for new investors to know their risk tolerance level. It’s crucial to be aware of the varying levels of risk associated with different investments to avoid any unpleasant surprises after you have made the investment.
Consider the duration of time you can afford to have your invested money inaccessible, and whether you are willing to forego access to it for a few years or longer.
Here are some good ideas for small investments for beginners.
The best small investments for beginners that pay off
1.Automate your investments with Mon Petit Placement
There are a number of “robo-advisors,” online investment platforms that offer professional management of your portfolio at very low fees.
One of the best for small investors is Mon Petit Placement.
You start by filling out an online questionnaire that allows the site to determine your risk tolerance.
Based on this assessment, a portfolio is created for you. You essentially buy a diversified portfolio of stocks that you don’t have to manage.
Thanks to this allocation, your only responsibility is to fund your account – you don’t have to worry about selecting investments or rebalancing them.
2.High-yield savings accounts
This is one of the simplest ways to increase the yield on your money beyond what you earn on a traditional checking account.
High-yield savings accounts, which are often opened through an online bank, tend to pay higher interest rates on average than standard savings accounts, while allowing customers to regularly access their money.
This is the ideal place to put money you’re saving for a purchase in the next two years or that you’re keeping in case of an emergency.
3.Certificates of deposit (CDs)
CDs are another way to earn additional interest on your savings, but they tie up your money longer than a high-yield savings account.
You can buy a CD for different periods of time, such as six months, one year, or even five years, but you generally can’t access the money before the CD’s maturity without paying a penalty.
Mutual funds give investors the opportunity to invest in a basket of stocks or bonds (or other assets) that they may not be able to easily create themselves. The most popular mutual funds track indices such as the CAC-40 index, which includes approximately 40 of the largest companies in Europe.
These lower fees allow investors to keep a larger portion of the funds’ returns and can be an excellent way to build wealth over time. You can invest in mutual funds through online brokers such as Bux Zero. Read our full review here.
5.Exchange-traded funds (ETFs)
ETFs are comparable to mutual funds in that they possess a collection of securities, but unlike mutual funds, they can be traded during the day like a stock.
ETFs are not subject to the same minimum investment requirements as mutual funds, which generally require a few thousand euros. You can buy ETFs at the cost of a stock and pay additional charges or commissions for the purchase. However, if your broker permits investing in fractional shares, you can start with an even smaller amount.
Buying individual company stocks is the riskiest investment option presented here, but it can also be one of the most rewarding. But before you start making trades, you need to ask yourself if buying a stock is right for you.
Ask yourself if you are investing for the long term, which typically means at least five years, and if you understand the company you are investing in.
The stock price is set every second of the trading day, and for this reason, people often get caught up in a short-term trading mentality when they own individual stocks.
But a stock is a partial ownership in a real company, and over time, your wealth will increase with that of the underlying company in which you have invested.
If you don’t think you have the expertise or stomach for individual stocks, consider the more diversified approach offered by mutual funds or ETFs.
Why should you start investing?
It is essential to invest if you want to maintain the purchasing power of your savings and achieve long-term financial goals such as retirement or building wealth.
If you let your savings sleep in a traditional bank account earning little or no interest, inflation will eventually reduce the value of your hard-earned money. By investing in assets such as stocks and bonds, you can ensure that your savings keep up with, or even exceed, inflation.
Investments with a short-term horizon, like money market mutual funds or high-yield savings accounts, may allow you to earn higher returns on your savings while you aim to purchase a big-ticket item like a home down payment or a car.
Stocks and ETFs are considered better for long-term goals, such as retirement, as they are more likely to produce better returns over time, but they come with additional risk.
Important considerations for new investors
- Risk tolerance: Before starting to invest, you should understand your own risk tolerance. Volatile investments like stocks can make some people very uncomfortable when they drop, which can push you to sell at the worst time. By knowing your risk tolerance, you can choose investments that are best suited for you.
- Financial goals: Set short- and long-term goals that you want to achieve by saving and investing. Having a clear comprehension of your objectives can aid you in creating a well-defined strategy.
- Active or passive: You’ll also need to decide whether you want to be a passive or active investor. A passive investor typically holds an asset such as mutual funds or diversified ETFs that charge low fees, while an active investor may choose individual investments or mutual funds that aim to outperform the market. Studies have shown that passive investing tends to outperform active investing over time.
- Do it yourself or hire someone: You can also choose to manage your own investments through an online broker or enlist the help of a financial advisor (or robo-advisor). Managing your investments by yourself may come at a lower cost, however, a financial advisor could provide valuable assistance to those who are new to investing.
What is the minimum amount required to begin investing?
It’s fortunate that investing does not require a large sum of money to start. Majority of online brokers do not have a minimum account requirement to begin investing and some even provide the option of fractional investing for individuals who are commencing with small amounts.
For just a few euros, you can buy ETFs that allow you to build a diversified portfolio of stocks. Micro-investment platforms will even allow you to round up debit card purchases to start investing.
If you’re new to the world of investing, make sure to consider your risk tolerance and financial goals before committing money to an investment.
Some investments, such as high-yield savings accounts, allow quick access to money in case of an emergency. In the meantime, stocks should be part of a long-term investment plan.
Many novice investors also turn to robo-advisors, where an algorithm automatically selects and manages a diversified portfolio of exchange-traded funds for you based on your individual financial needs and risk tolerance.