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.
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.
Our 12-year-old son has managed to save a little over $1,000 in his bank account. He asked me last month if he could invest half of it. We set up a custodial account for him at Charles Schwab. We chose Schwab because he can purchase the Schwab Total Stock Market ETF for no cost (other than the bid/ask spread) and a minimum investment of 1 share. The expense ratio is a low 0.04%. If a 12-year-old can invest in the total stock market, so can anyone else.
I told him that while the money in his bank account wasn’t earning much he could have earned a higher return by investing in the total stock market. I have always told him that it is also possible to lose money in the stock market, but that over a long time, like 20 years, it has always come out ahead. I mentioned that his money would likely triple or quadruple after 20 years. I also pointed out how saving and adding additional money over the years would grow even larger. We have made no secret of his college savings in two age-based 529 accounts and how much they have increased in value over the years. Prior to sending in the forms and a check to open his account, I cautioned him again that the stock market can go down and he could lose money in the short term. He said, “I know,” and then went off to play Minecraft on the computer.
Mutual funds may be (depending on your situation and inclination) the best kind of investment with which to start. As you no doubt know, mutual funds pool information from many investors and buy underlying investments for the fund – depending on the fund you choose that could be stocks, bonds, real estate or more. This gives you built in diversification. In my experience, most mutual fund prices are not as volatile as individual stock prices – making for a calmer environment for the beginning investor.
I’ve come to appreciate index mutual funds with lower costs to me as investor.
Always do your own due diligence in buying any investment, and I’d suggest not putting money into any until you have enough ready cash to deal with everyday life and life emergencies.
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.
Great article Marie! The stock market is indeed a good place for those who are looking for good long-term investments.
Thanks! But remember that you probably shouldn’t invest money that you may need for other purposes.
Our 12-year-old son has managed to save a little over $1,000 in his bank account. He asked me last month if he could invest half of it. We set up a custodial account for him at Charles Schwab. We chose Schwab because he can purchase the Schwab Total Stock Market ETF for no cost (other than the bid/ask spread) and a minimum investment of 1 share. The expense ratio is a low 0.04%. If a 12-year-old can invest in the total stock market, so can anyone else.
That is great. What did you do with him to get him to the point where he wanted to invest? I’m trying to get that kind of mentality into my grandkids!
I told him that while the money in his bank account wasn’t earning much he could have earned a higher return by investing in the total stock market. I have always told him that it is also possible to lose money in the stock market, but that over a long time, like 20 years, it has always come out ahead. I mentioned that his money would likely triple or quadruple after 20 years. I also pointed out how saving and adding additional money over the years would grow even larger. We have made no secret of his college savings in two age-based 529 accounts and how much they have increased in value over the years. Prior to sending in the forms and a check to open his account, I cautioned him again that the stock market can go down and he could lose money in the short term. He said, “I know,” and then went off to play Minecraft on the computer.
Mutual funds may be (depending on your situation and inclination) the best kind of investment with which to start. As you no doubt know, mutual funds pool information from many investors and buy underlying investments for the fund – depending on the fund you choose that could be stocks, bonds, real estate or more. This gives you built in diversification. In my experience, most mutual fund prices are not as volatile as individual stock prices – making for a calmer environment for the beginning investor.
I’ve come to appreciate index mutual funds with lower costs to me as investor.
Always do your own due diligence in buying any investment, and I’d suggest not putting money into any until you have enough ready cash to deal with everyday life and life emergencies.
Read this post, it has step-by-step instructions
http://investlikeme.blogspot.com/2014/03/a-step-by-step-guide-to-getting-into.html