3 Investments that Anyone Can Get Started With
Getting started with investing can be a daunting task. Many of us assume that you have to spend a lot of money to be a successful investor, or that it is hard to figure out which investments to use. The truth, though, is that getting started as an investor is fairly simple.
If you want to invest (and you should, since it’s one of the best ways to build wealth), there are some investments that are easier than others to get started with. Starting out with the more complex investments, like options and futures, can be very disappointing — and you can lose a lot of money. Instead, here are 3 investments that almost anyone can start successfully with:
1. Index Funds and ETFs
Some of the easiest investments to get started with are index funds and ETFs. An index fund is basically a collection of investments. An index fund follows a particular index, such as the S&P 500 or the Russell 2000. ETFs are groups of investments, lumped together as one. It’s possible for an ETF to follow an index as well. Plus, ETFs are among the easiest things to trade: They are exchanged like stocks on the market.
Index funds and ETFs offer instant diversity. You don’t have to worry about picking the “right” individual stock. You just need to pick an index that you think will do well overall. And, if you are concerned about even that level of choosing investments, it’s possible to invest in an all-market index fund, or an all-market ETF.
You can start investing in an index fund or ETF for as little as $25 or $50 when you go with an online discount broker. Index funds and ETFs come with very low costs, so you don’t lose your returns to fees.
2. Treasury Securities
If you are looking for something considered safe, Treasury bonds can be an option. You need $100 to start, but it’s very easy to get started at TreasuryDirect. Even with the current economic troubles, US debt is still considered one of the safest and most stable investments in the world. Especially with European problems continuing.
You have some options when it comes to buying Treasuries, including notes and bonds of different maturities. However, you should realize that, because Treasury securities are considered so safe, they offer very low yields. If you want to keep pace with inflation, and not lose to a reduction in purchasing power, consider using TIPS (Treasury Inflation Protected Securities) and I-bonds. The returns are adjusted regularly to account for inflation, and help you avoid falling prey to its devastating power.
Treasury securities, when you buy them directly, are relatively inexpensive (you’ll pay hefty fees if you buy through brokers, so just go straight to the source), and they are easy to understand and hold.
3. DRIPs from Dividend Aristocrats
If you are looking for something with a little more “oomph” in term of returns, you can consider individual stocks. However, if you are concerned about stock picking, you can turn dividend paying stocks. Dividend paying stocks provide regular payouts, based on how many shares you own. You can further boost your portfolio by participating in Dividend Reinvestment Plans (DRIPs).
Picking stocks is always something fraught with uncertainty. You can ease some of that uncertainty by choosing dividend aristocrats. If your risk tolerance allows for it, look for dividend aristocrats in different sectors. These are companies that have raised dividends consecutively for at least 25 years. Dividend aristocrats are generally considered to be solid companies that have strong fundamentals. If you want the potential returns that stocks offer, dividend aristocrats can help you better balance it.
Join a DRIP program, and you receive even more bang for your buck. With a DRIP, the payout you receive is used to buy more stock. Instead of receiving a check, you get more stock. As your shares increase, your dividend payouts increase as well. With DRIPs, the cycle repeats itself. It’s possible to buy partial shares of a company, and it’s also possible to find brokers and transfer agents won’t charge a transaction fee when your dividends are reinvested. This can be a real advantage in the long run, since you can keep building wealth without seeing your returns eroded by additional fees.
It’s easy to start investing when you keep it simple. There are simple investments that almost anyone can begin with and find a measure of success. While there will always be disappointments and the risk of loss, it is still possible to build wealth with the help of investment. And these 3 investments are great places to start.
Image source: Jacob Garcia via Wikimedia Commons