The market has soared in the past year. Those of us who had stocks, bonds, and mutual funds saw our net worth rise, but many (perhaps as many as 50% of us, according to CNN Money article Millions see no benefit from soaring stock prices) missed out.
If you don’t have any stock market investments, how can you get in on the action?
Traditional investment advice says that you shouldn’t invest in the market until you are financially stable, have an emergency fund and have taken care of other basics, such as insurance of all kinds, debt removal and etc. I heartily agree with that advice, but there are ways you can inch into the market along the way.
Here are some ideas on how you might be able to get into the stock market, even while you are in the first stages of wealth accumulation.
Ask for stocks as a gift.
If your family has stock market investments that they might be able to share with you, think about requesting that they give stocks (or bonds) to you instead of cash at gift giving time. Alternatively, you might save up the cash you do get as gifts until you have enough to buy the minimum required amount for entry to a mutual fund (which is often around $3000).
Partner with trusted friends or relatives to buy as a group.
My father-in-law lined up his grown sons and daughters to chip into a fund, from which he bought stock. Each person contributed minimal amounts, but with all 5 of them, they were able to put together enough to get started.
You must have complete trust in those in your group; lay out the rules that you will all follow; including what to purchase, when to buy, when to sell and much more; and make sure that all transactions are recorded and reported to everyone in the group.
Doing market purchases as a group in no way guarantees that you will make money, my father-in-law didn’t! However, the process showed all the kids that it was possible to start investing and to learn a bit about the market.
Another option might be to join an investment club. Better Investing can give you some tips on how to join or start such a club.
Participate in employee stock purchase plans.
My last employer had a benefit that allowed any employee to sign up for a payroll deduction to buy shares of the company stock. I believe the purchase was at a slightly reduced price.
Seek employment in a company that issues stock awards.
I was lucky enough to be a high enough ranking employee in my last company to be eligible for stock option grants, as well as one restricted stock award program. The company issued the grant as of a certain date, with the stock price as of that date as the ‘strike’ price. If the stock price rises between the time you get the award and the time the company says you can exercise it, you get the difference between the ‘strike’ price’ and the current market price, or you can just buy the stock at the lower price and hold onto it.
The better award is to get a stock award free and clear. My company gave small quantities of shares at the 5, 10 and 15 year anniversaries of each employee.
When you get a raise, start an auto investment program.
IF you are able to cover your all your needs from current salary and aren’t shelling a lot out in high rate debt interest payments, think about starting an automatic investment program the next time you get a raise. Start by ‘investing’ in a separate bank account (or at least an independent budget category) so that you can save up the minimum required investment most funds have (usually around $3000). If you do the bank account, you can manually add money to it (think birthday and Christmas gift money), or set up a payroll deduct program to get that raise out of your sight and into your savings. Once you hit the minimum for the investment fund, open an account with the institution of your choice and authorize them to draw out a certain amount of money each month to invest in your fund.
USA Today talks about this in Investing: How to start with just a little money.
Companies such as Sharebuilder also may be an option for you to get started investing without the upfront cash, but these really may be more expensive than saving up the minimum and then starting an investment at a low cost mutual fund such as Vanguard.
Remember that you need to review your specific situation to determine the course of action you should take. While I think that you should build up ready cash, have an emergency fund and pay off high rate debt before investing, your situation might warrant something different. Dipping your toes into the market using cash YOU DON”T NEED, might help you get started on a life long habit of investing which could bolster your wealth accumulation for years to come. Keep in mind, that although market gains happen, so do market losses.
How did you get into the stock market?