One of the most common mantras among financial advisors is “make your money work for you.” While that’s good advice, the problem is that since most of your paycheck gets eaten up by the necessities of living, there’s very little left over to invest.
Admittedly, the more money you have to invest, the greater the return. That doesn’t mean you have to be a millionaire to start investing, though. In fact, some of the most basic investing you can do doesn’t require much money at all.
Savings Accounts for Investing
A savings account is arguably one of the most basic forms of investment. While you won’t get a great interest rate (about 0.10% to 0.15%), you will at least get paid for keeping your money in a financial institution.
The minimum amount you’ll need to open an account varies with each financial institution. For First Alliance Credit Union, though, all you need is five dollars.
Some financial institutions will charge a monthly service fee if you don’t keep your account balance above a certain amount. It’s worth pointing out that most credit unions won’t charge you a savings account service fee.
Certificate of Deposit for Investing
If you’ve been putting away money in a savings account, you can get a higher interest rate if you have no plans to withdraw that money in the near future. A Certificate of Deposit, also called a CD, is basically an agreement between you and a financial institution. You agree to keep a deposit in the institution for a certain length of time, and in return the institution will pay a higher interest rate on your money.
Most financial institutions will have a minimum amount you need to deposit to get a CD. First Alliance requires at least $500, while others might require $2,500 or more. You should also know that the longer you leave your deposit with the institution, the higher interest rate you’ll receive.
Investing with a Roth IRA
Everyone retires someday. Your company may offer a 401(k) to help you prepare for retirement, but you may want to bolster your retirement funds with an Individual Retirement Account, or IRA. There are two kinds of IRAs—Traditional and Roth.
You especially want to look at a Roth IRA. You can fund a Roth IRA with after-tax dollars, so you don’t have to worry about the IRS taxing your investment earnings. You can also leave the money in the IRA as long as you want, unlike a traditional IRA which requires you to withdraw the money after you’ve turned 70 ½.
One of the best parts of funding an IRA is how little money it takes. First Alliance Credit Union only requires $10 to open an account. After that, you can deposit money in your IRA each year up to the amount determined by the IRS, which has been $5,500 for the past few years.
Investing with a Mutual Fund
A mutual fund is created with deposits from hundreds, if not thousands, of investors. That money is then invested in several different assets. One of the most popular types of mutual fund is the index fund, which invests in a number of stocks whose performance mirrors the performance of the stock market as a whole.
Different funds will have different minimum amounts you need in order to start investing. Some have no minimum at all, while others might require anything from $500 to $3,000. The amount you can earn varies, but by and large it depends on how well the market is doing and the amount of risk you want to take with your investment.
Investing by Playing the Stock Market
While investing in a mutual fund might be fine for some people, others like to buy stocks directly. In order to buy a stock directly, though, you’ll need to get a brokerage account, which is nowhere near as hard as it used to be. In fact, several brokerage firms even have a smartphone app, so you can buy and sell stock anywhere you have good reception.
Similar to mutual stocks, different brokerage firms will require you to have a different minimum amount. Some, like Robinhood, have no account minimum. Others, like E-Trade, require $500 in your account. Regardless of account minimum, though, remember that you’ll need to at least have enough cash in your account to pay for the amount of stock you want to buy, plus commission.
Get Started Investing with First Alliance
You don’t need a lot of money to get started investing. With a little planning, you can easily set up a savings account, or put aside some money in a CD or IRA. If you want some help deciding which option is best for you, contact Member Services at First Alliance Credit Union. Our expert team of advisors will help you get started making your money work for you.