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Baby Steps: Investing With a Little Extra Cash

money can be easy
money can be easy
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If you're interested in learning how to invest but either don't have much money to work with or are just cautious about your finances, there are a lot of smart ways to get started with minimal expenses. Common advice says that $1,000 is a good starting amount for any kind of small investment plan. If you have that much or close to that much to work with, here are some of your options and what kind of money you can expect to make in the long term.

Stocks

If you want to start investing in stocks, there are a few things you should know. First of all, most stocks require an account with a brokerage firm in order to make investments. There are two major categories of brokerage service, though only one for minor investments. Full service brokers tend to be pricey, both because they charge fees for various services like advice and portfolio management, and because they require higher minimum investments. Unless you have tens of thousands of dollars to start with, a full service package will be out of your reach. For small investments go through discount brokers, who are authorized to initiate investments at your request but usually do little else. If you're going to work with a discount broker, you'll want to learn how to spot good stocks on your own.

DSPP Investment

There is another way to invest in stocks without a brokerage account. Some publicly traded companies offer direct stock purchase plans (DSPP) that usually have small minimum investment requirements. To reach out to smaller investors, many companies that offer DSPP allow investors to purchase partial shares, allowing you to pool your money with other small investors to minimize your risk. The payout in such cases is often small, but it's a great way to generate seed money for later, larger investments.

Retirement Plans

Perhaps the safest and, if you do it right, most predictable form of investment is in a retirement plan. The best way to buy into a retirement plan is to see if your employer offers a 401(K) plan. Put simply, a 401(K) allows you to divert a portion of your pre-tax paycheck into a high-yield retirement account, further bolstered by matching funds up to a certain dollar amount from your employer. If you don't have access to a 401(K), you can work with your broker to set up an Individual Retirement Account (IRA), or a lower-cost Roth IRA. These are accounts that use your investment to purchase stocks, funds and bonds, while also providing tax incentives that regular investment accounts don't receive. Retirement plans are subject to fluctuating interest rates, though, so you'll want to get information on interest rates from trusted sources like books by Ken Fisher before you invest.

Securities

The lowest-risk (and lowest-reward) form of investment is in securities from the United States Treasury such as bonds. These investments allow you to purchase a number of notes at relatively small amounts, some as low as $25, which then appreciate in value over time. Once the bond reaches "maturity" it is worth a stated amount, gaining value for time beyond the maturity date. Most securities are not subject to depreciation via inflation rates, making them safe as long-term investments. They do take a long time to reach maturity and have a realistic limit for how much they will be worth in the long run, so securities tend not to generate enough return on investment to be your sole source of financial stability later in life.

Planning and Control

However you decide to start investing, you'll want to develop the patience and smart planning necessary to really profit from every dollar you put into an account. Don't give into the temptation to cash in early, make sure to diversify your investments to avoid sinking everything into a single stock that may fail and do plenty of research if you want to get serious about investment.

As the old saying goes, you have to spend money to make money. It doesn't take much to get started, though. A small seed investment can teach you what you need to know to make bigger, more profitable investments in the future.