So you don’t have a lot of money to invest but you have a couple thousand stashed away and you want to put it to work. If you want to invest in the stock market with little money, it is now possible thanks to the discount brokers fighting for your business.
How should you invest it? Since I don’t know exactly how much you have, I’m going to break it down and tell you exactly what I would do with $1000, $5,000, and $10,000. With each amount, I will take a different approach.
Before you get started, you have to select a broker and my broker of choice is interactive brokers. Their low cost pricing structure makes them the ideal broker for small accounts and in my opinion, any account size.
Now I know all the major brokers are offering commission free trading but there is a catch to this and I will be putting out another article talking all about it so look out for that.
But it’s not just the low fees (or no fees with their new lite account) that makes me a happy customer, they also have the best margin rates in the business by far and they pay you really competitive interest rates on idle cash balances.
The only drawback with them is that their online portal absolutely sucks but I’m not going to vent about it in this article. With everything else they offer, it’s an acceptable trade-off.
Investing with $1,000
Now that you have the best broker and you only have $1,000 at your disposal, you can’t have a properly diversified account but that’s ok. Personally, I would only put it into high growth stocks because you’re not going to get too far buying coke or proctor and gamble so look for stocks in the technology sector.
Try to look for stocks that are under $20. I say this because you want to be able to trim some of your positions without selling your whole position. You will want to hold at least 5 companies in your portfolio. As you make more contributions to your account focus on becoming more diversified.
Use the proceeds from trimming your overvalued holdings and new funds going in your account and allocate it towards purchasing new companies. Do this as quickly as possible. Now if you only have $1000 and you are unable to add new funds to your account, i’m going to be completely honest with you.
Don’t invest in the markets at all. I am going to safely assume you need the money so you are better off waiting until you are in a better position to invest. If you have credit card debt, pay off that first and knock off that 20% interest.
Investing with $5,000
Ok so you’re account is growing and it’s now up to $5,000. I’m jumping to $5,000 because I think that’s the bare minimum you need to be properly diversified.
I’m going to get more creative once I get to $10,000 in this article but $5,000 is a pretty good start. I would still keep the majority of it in tech so I would put 75% in tech stocks and 25% in dividend paying stocks.
So now you have a steady flow of dividends and regular contributions coming in, get ready for some real compounding action! With the new money being added to your account, keep putting it in dividend paying stocks and buy tech stocks with the dividends.
Investing with $10,000
Once you build your account up to $10,000, you will want an even split of growth stocks and dividend paying stocks. Now how you structure your account comes down to your own personal preference but as your account grows beyond $10,000 I like to keep the majority in dividend paying companies.
These can be Reits, BDC’s, Telecom, Utilities, pipelines.. it’s up to you but I aim for at least a 4% dividend. I will always allocate a maximum of 75% in these names and a minimum of 25% in tech. I will never touch cyclical stocks. That includes airlines, auto manufactures(with the exception of Tesla) home builders.. it’s a long list but I avoid those industries.
I’m a big fan of selling puts and with at least $10,000 in your account you can now do this with lower priced stocks and remain well diversified. If you are unfamiliar with put selling, you can check out my other article that I made on it or you can do some research on it.
It really is my favorite income strategy so I highly suggest you learn about it. Zanga and Huntington bankshares are companies I like. Both have a low share price and an active options market so they are well suited for this strategy in a $10,000 account.
As you can see, if you want to invest in the stock market with little money, it’s not complicated. If you stay the course, remain disciplined and invest for the long term, you too can take control of your investments and your future. If you have a money manager, make sure you fire his ass cause you don’t need him. If you have your money in a mutual fund, get out of it because you are getting ripped off and starting today you can put those ridiculous fees they charge back in your pocket.