How to start investing from scratch with a small amount of money

Longread about investing for beginners

An excellent option to increase income and make money work is investing. It may seem to many that it is difficult and requires specific skills, but you just have to go a little deeper to understand that investments are available to everyone. The article will tell you in detail about how to start investing the right way. 

Myths about investing

Now the share of the population engaged in investment is small. Only about a percent of the country's population is present on the stock exchange, while in the United States even housewives manage their funds. Such a little-known area looks frightening and overgrown with myths that do not even closely correspond to reality. Here are the most common ones.

• Myth #1: Investing is for the rich.
  In fact, only a few thousand conventional units are enough to enter the stock market. For example, the minimum price of mutual funds is 5-15 thousand conventional units, and some brokers do not have a minimum threshold for starting trading.
• Myth two: it is impossible to make money without in-depth knowledge and skills.
  Of course, you need to navigate in the terms and basic principles of the economy, but a bank deposit is also an investment. Studying the available information on the network is enough for a start.
• Myth three: the risks are too high, so the game is not worth the candle.
  The same bank deposits are now subject to mandatory deposit insurance. Here the principle works perfectly – the higher the profit, the easier it is to burn out. It is better to choose investment instruments with a cool head.

Investments and investment: what is it and why?

For a better understanding, you should understand the terminology. Basic definitions that will help you understand the situation and not get confused:

• investment – investment of capital with the aim of making a profit;
• investment – the process of increasing capital and the accumulation of investment instruments that bring profit;
• investment instruments – types of investments for generating income;
• portfolio – all instruments in which money is invested;
• diversification – the distribution of finance over several assets to reduce risks and increase profits;
• broker – an intermediary in transactions between the seller and the buyer;
• brokerage account – an account for buying and selling securities and other investment instruments on the stock exchange. You can open it with a broker or in the brokerage division of banks;
• individual investment account – an investment account that has tax benefits and some restrictions;
• a demo account is a practice account where you can perform the same operations as on a regular brokerage account, but with virtual money without the risk of losing real money.

The success of any business largely depends on the quality of preparation and consistency in actions. Of course, financial investments are risky, but a reasonable approach and error analysis will allow you to evaluate the undoubted advantages of investing:

• the possibility of obtaining passive income that does not require daily routine work all day;
• no salary ceiling;
• profits in excess of inflation;
• increasing financial literacy. 

Where to invest: tools and strategies

There are a huge number of investment options. Focusing on the object of investment, the following areas can be distinguished:

• real estate – land, construction objects, equipment;
• intellectual property – patents, research, education;
• finance – securities, bank deposits, precious metals. 

Minimum investment is possible only in financial instruments. Most in demand:

• deposits in banks – risks and complexity are minimal, income is similar, deposits up to 1.4 million are insured;
• shares – the level of risk depends on the choice of the company that issued these shares, income is possible in the form of dividend payments or from the growth in the value of shares;
• bonds – a debt instrument with a yield usually higher than on deposits, but slightly higher than inflation;
• Mutual investment funds – equity participation in the formed portfolio, the profit is divided among all participants in proportion to investments. It is possible to start investing from one thousand conditional units;
• precious metals – it is possible to buy both physical metal and various options for exchange instruments.

When choosing an investment instrument, do not forget about the strategy. Here it is worth relying on investment goals, the level of knowledge and the availability of free time. There are two main strategic directions – by timing and by risks. There are three options for return on investment:

• up to a year – short-term;
• 1-3 years – medium-term;
• over three years – long-term.

According to the level of risk, there are two main styles – conservative and aggressive. The first involves mainly passive income in the long term, the profit is small, the risks are less. The second will require more time, deep knowledge, but will provide the opportunity to make big profits in the shortest possible time. Associated with high risks.

As experience is gained and capital is increased, a change of benchmarks and the choice of new instruments are not excluded. The first steps are recommended to be taken in the most reliable options.

How to start investing as a beginner

Proper preparation will largely be the key to a successful start. Learning from experience and expert advice will help you avoid common mistakes. To save time, a brief instruction on how to start investing with a small amount is suitable.

• Step 1. The main thing is the goal
  Only a clear understanding of what you need to invest for will give you the right direction and help you not to give up everything after the first failure. The goal should not be abstract, it would be nice to fix the desired result in writing with maximum specificity.
• Step 2. In terms of concepts
  Investing is a specific area, rich in various terms. For successful perception of information and non-stop learning, you should familiarize yourself with the basic concepts in advance. It is worth paying attention not only to general definitions, but also to the main indicators and names of working tools.
• Step 3: Learning Above All
  Whether managing your investments personally or through intermediaries, everyone should have a basic knowledge of economics and how the market works. Understanding the cyclical nature of market processes, the relationship between profits and risks can save you nerve cells.
  Opportunities to learn the basic concepts and laws are sufficient. These may be books by famous authors about investing. There are enough free trainings and webinars on the Internet, you can also study the official pages on social networks of modern investors. Private training or consultations are also available for a fee. Naturally, any information received must be considered and weighed before work begins.
• Step 4. Correct attitude
  No one is immune from mistakes. Even the most famous traders and investors have repeatedly stuffed themselves into things like getting rich.

Thus, Martin Schwartz, who paved the way for the principles of day trading, commented on his success with the following words: “I will tell you how I became a winner. I've learned to lose."

It is important to make a contingency plan ahead of time. This will help you stay calm and in control when you need to make a quick decision.

• Step 5. Getting
  Started No investment will be possible without a minimum start-up capital. Borrowed funds are a bad option for stock trading. In the accumulation of the required amount will help:
  – regular savings of part of the income;
  – Additional income;
  — optimization of your expenses.
  It is worth investing when there is free money and there are no burdensome obligations – loans, mortgages.
• Step 6. Choice of style
  Prior to trading, you need to set expectations, assess your own capabilities and decide on acceptable risk. If you are afraid to lose, classic instruments in the form of stocks and bonds will come in handy. Let's take a risk? You can try trading futures and options. Only by trial and error can you find your ideal combination when both the process and the result are comfortable. 

How much to start investing

You don't need millions of investments to start: the prices for exchange instruments are quite loyal. Mutual funds start from five thousand conventional units, their replenishment – from a thousand. To buy shares, a couple of thousand conventional units are enough.

It is clear that for greater returns, good investments are needed. However, immediately entering a new industry with a large sum is too risky – you can lose all the funds. The optimal amount for starting trading will be from 30 thousand conventional units – it will not bring fabulous money, but in practice it will completely allow you to delve into the nuances of behavior on the market and let you feel the taste of the first victories.

Placing small amounts in different instruments, after a while it is easy to highlight the most convenient options and analyze errors. After that, you can increase the volume of investments. 

Rules and tips for beginners

It is impossible to protect yourself from risks in the stock market, but it is not difficult to minimize losses. To do this, study the experience of well-known investors and financiers. Here are some tips to help you avoid unnecessary mistakes.

• Portfolio diversification.
  You should not invest in one instrument or company, under such conditions, the inefficient activity of the issuer will lead to a loss of money. It is better to use 3-4 directions in different industries – the loss on one instrument will be smoothed out by the profit of the others.
• Action and discipline.
  Even with minimal investment, the sequence of steps, analysis of the situation and regular replenishment of the portfolio will lead to the desired income. You should not relax when receiving the first earnings – it is better to reinvest them in order to achieve the goal as soon as possible.
• Persistence and calmness.
  The path of any person is a series of ups and downs. Investors are no exception. A cold mind and control of emotions will not allow you to make mistakes in a critical situation. And the accumulated experience will help to avoid their repetition in the future.
• Correct environment.
  Communication with like-minded people will set you in the right mood. Studying thematic forums and pages from social networks will introduce you to interesting strategies and common mistakes.
• Constant learning.
  The world does not stand still – yesterday's successful decisions can be left with nothing today. Constant self-education, observation of experienced colleagues, reading financial literature will expand opportunities and open up new promising directions. 

Mistakes of novice investors

It is impossible to avoid mistakes, but minimizing their number, based on the experience of the majority, is quite acceptable. Obstacles in the way of a novice investor.

• No airbag.
  No one can guarantee success, and in case of unforeseen circumstances it is better to have some funds in reserve. This is usually the sum of current expenses for 3-6 months.
• Lack of funds to start.
  There is no magic pill, drinking which you can get millions by investing a thousand. At the very beginning, minimal amounts will be enough, but only reinvestment and regular replenishment of investment capital will give a really significant profit. Only free personal funds can be used.
• Lack of basic education.
  After reading a couple of books or articles on the Internet, someone is able to feel like a stock market guru. Unfortunately, this is not enough. Understanding the principles of the chosen instrument and a thorough analysis of the economic situation are at the origins of a successful investor.
• Desire for quick money.
  When looking for information on where to start investing profitably, one can often come across promises of multiple capital increases in the shortest possible time. Most often, this is how scammers make money. A reasonable assessment of income prospects and the choice of well-known intermediary companies will minimize the risks.
• Using poor quality sources.
  Many tools have been developed for market analysis, enough books have been written and a huge amount of educational materials have been created from official brokers. Do not rely on the opinions expressed in the media or on the pages of coaches, the success of which cannot be confirmed.

Investments are a great opportunity to create passive income in the absence of significant start-up capital. An extensive theoretical base, the available experience of successful financiers, training programs of well-known brokers – all this allows you not to waste time and start investing today by opening a brokerage or individual investment account.

Ready to start?