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How to Start Investing on a Shoestring

Building wealth means more than just having a solid emergency fund or maxing out your retirement account. It’s instead good to develop an investment strategy, as one can supplement existing savings and potentially bring in some bigger returns. One of the most common mistakes people make when it comes to investing, however, is assuming they need a big chunk of change to get started. If you’re ready to dip your toes into the market, here are five ways you can do it that don’t require a lot of cash.

Find out now: How much do I need to save for retirement?

Build a CD Ladder

A CD, or certificate of deposit, is a relatively low-risk investment vehicle that typically yields better earnings than what you’d get from a regular savings account. When you purchase a CD, you’re locking the money in for a certain period of time, but if you don’t need it, that’s usually not a major concern. Once the CD matures, you can cash it out, along with any interest it’s earned.

Setting up a CD ladder allows you to take advantage of slightly higher rates without tying up all your money at once. You can purchase CDs that mature at different intervals, ranging from 12 to 60 months. Once it matures, you can either roll it over to a new CD or invest it somewhere else, and you always know exactly when you’ll be able to collect on your earnings.

Play with Penny Stocks

If you’ve only got a few hundred bucks to work with, you might consider using some to purchase shares of a penny stock. These stocks literally cost pennies on the dollar, so you can buy a lot of them at one time. They’re not without their risks, though. A penny stock can become the next big thing with share values skyrocketing overnight, or its price can plummet. If you’re comfortable with the possibility of losing a few bucks on the deal, penny stocks may be worth a look.

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Try an ETF

An ETF, or exchange traded fund, is a kind of security that tracks a specific market index, such as the S & P 500. The ETF has grown in popularity as an investment option because it allows you to inject some diversity into your portfolio without having to purchase stocks or mutual funds directly, and it typically has a low expense ratio. Unlike with a regular mutual fund, you can trade ETFs at any time during market hours, which is great if you’re looking for some added flexibility. Exchange traded funds do involve more risk, but the trade-off is that you could bank some bigger returns.

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Check out Bonds

Like CDs, bonds are more conservative investments that offer a certain degree of stability that may be appealing if you’re nervous about losing money. These kinds of securities usually mature over a longer time period, stretching to as much as 10 years for a Treasury bond. If you don’t need to access the cash right away, buying bonds may be a good fit. You can buy bonds from a brokerage firm or directly through the Treasury. Depending on the type of bond you’re purchasing, you can start investing with as little as $25.

Reinvest Your Dividends

If you work for a company that offers shares of stock as part of your benefits package, you may be able to participate in a dividend reinvestment plan. Whenever you buy new shares of stock, you can elect to have the dividends automatically reinvested. Stocks are usually sold at a discount, and depending on the plan, you may be able to invest with as little as $10 a month. Opting to reinvest your dividends is a fairly easy way to grow your portfolio without having to cough up a ton of cash all at once.

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The hardest part of investing is usually getting started, especially if you don’t know much about the different vehicles that are available. The five options we’ve outlined here are just a few that newbie investors should consider when working on a tight budget.

Photo credit: flickr

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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