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How to invest in the stock market with little money

If you are a beginner, familiarize yourself with stock investing basics before proceeding to invest in the stock market.

Investments are not only a way the elite consolidate their riches but a wealth-building tool the average worker can employ quite easily. An encyclopedic knowledge of finance isn’t even necessary if you possess common sense and patience. Investors typically lose in the market in only one of three ways, those being panic, inattention to transaction costs, and failing to account for unknowns.

First let me tell you the fact that your friend has deliberately revealed half the truth! How?  People conceal their mistakes that they make in the stock market of losing money.  Let me further drive home the point that you can’t make money consistently by trading daily in the stock market or one fat buck overnight.  You will be losing more than what you make by trading often.  The odds are more against you if you want to successfully trade and take home money daily.  In short, you cannot win the daily bread and butter in the stock market or one fat buck in a single shot! Never heed to anybody.  You should be able to justify yourself the price for which you bought a scrip. Of course, the money used to buy here has not to be borrowed or cash kept aside for some other purpose.

We’re not here to tell you where to invest your money. We won’t lay out a handful of stocks on a “buy” list. But what we can tell you is how you can invest your money — the mechanics of investing small, large, and medium amounts of cash. We can even help you choose a broker.

Let’s start with $20. We’re going to assume that you’ve already paid off any high-interest debt and that you have some money stashed in a safe place (like a savings or money market account) that you can get to quickly in case of an emergency expense. Now you find yourself with a little extra dough, and you want to begin investing for your future.

Is it even worth it to invest such a pittance?

Heck yeah it is! One of the best ways to invest small amounts of money cheaply is through Dividend Reinvestment Plans (DRPs), also known as Drips. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.

More than 1,000 major corporations offer these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you’re in the plan, you can set up an automatic payment plan, and you don’t even have to buy a full share each time you make a contribution.

How to invest couple of hundreds dollars?

Once you’re up to $600, your investment options open up a bit more. You can still buy an index fund, and now you’ll have your pick of fund companies that require higher initial investments. This freedom will enable you to shop around for a fund with the lowest expense ratio. You should also seriously consider opening a discount brokerage account.

Think buying stocks as buying fractions of businesses that have strong fundamentals whenever they are sold cheap with little or whatever spare cash you have.  Analyze the financials of
the business that you think is attractive. Be it a bull market or bear market, be it a black Monday or a dark Friday, an election year or a non-election year, if you find an attractive business selling at a discount price, never have a second thought.  Buy whatever quantity you can and forget it.  Forget about the humbugs of technical analysis and historical prices.

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29. Jan, 2012

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