How To Invest In Stocks For Beginners With Little Money
12:03, 3 December 2019
CNBC and other financial media outlets are dominated by hosts and guests with fancy sounding titles and very expensive clothes. Young people with little money might think it easy for them to speak about investments. They may seem left out of the investment universe and often ask “can you invest in stocks with little money?” Maybe 10 years ago, the answer was a resounding no, but today the answer is a clear yes.
Financial technology companies, also known as fintech companies, now offer new and exciting products to young investors who want to start investing in the stock market with little money. And the best part about this is you can buy shares of any company you want. Yes, even the “big players” like Apple, Google and Amazon. Want to invest in stocks with little money? Then keep reading.
How to start investing in stocks for beginners with little money
Step one in learning how to get into investing in stocks is to understand what a stock is. A stock is a piece of ownership in a company which is listed on a public stock exchange. The total number of shares outstanding is publicly available for everyone to see.
Suppose there are 100,000 shares of company ABC and you own 100 shares. This means you own 0.1 per cent of the company. Congratulations! If the company is sold your portion of the total proceeds will be 0.1 per cent.
The value of your shares will go up and down depending on multiple factors but there are two major ones: company specific developments and broader market environment.
Here is an example. Your company ABC just announced it will expand operations to Asia and expects to increase sales by 20 per cent. Naturally, this is good news for the company and good news for your shares. Alternatively, suppose the company announces it failed to comply with local regulations and it can no longer operate in a country. Unfortunately, the value of your shares will fall because it will now bring in less revenue and profit.
Similarly, if economists are predicting a recession is imminent then consumers will think twice about buying ABC’s products and seek cheaper alternatives. This scenario will likely impact nearly every company in existence, including your investment in ABC.
What is your sentiment on NFLX?
Best way to invest in stocks with little money
The minimum amount to invest in share market is very low thanks to a slew of brokers allowing customers to buy fractional shares. Online e-commerce giant Amazon’s stock trades north of $1,500 (£1,155, €1,354) per share but now investors can buy half a share, or even one-tenth of a share.
At first glance this may seem suspicious, but rest assured it is not. Some of the largest and most recognisable brokers, have jumped on the fractional share ownership bandwagon to cater investors looking to start investing in stocks with little money.
So how much money do you need to invest in shares? Technically it would be possible to start with as little as $10 – yes, ten dollars.
To get started all a new investor needs to do is open an account with their preferred brokerage. Some of the millennial focused firms that cater to investors with little money include CFD trading providers, offering the opportunity to get profit from the stock’s price fluctuations, without actually buying them.
* Fractional Shares will be available in the nearest future.
This is another popular opportunity available for investors looking to invest with little money. Contracts for difference, or CFDs are leveraged products, which means that a trader needs just a relatively small amount of money to open a trade, and the rest is covered by a CFD broker. Leveraged trading can give bigger return but comes with higher risk.
Capital.com CFD trading platform offers investors an ultimate online platform for trading contracts for differences. Investors can speculate on more than 2,000 shares and discover trading opportunities with more than 75 indicators and drawing tools.
Ready to Invest? Here Are Some Tips
Once you have found out how to begin investing in stocks with little money, here are some tips to better help your investment grow.
Before investing in any company make sure people want to buy the products or services a company sells. Ask your friends and family what new products or services they use to get some ideas.
Imagine your friend telling you in 2010 about this incredible new company called Netflix that lets you watch movies online when you want?
It is not too late to find new trends that will stick around for years, if not decades. But you need to do your homework and constantly be on the lookout.
Think about it: billions of people use one of Facebook’s multiple social media or messaging platforms. Led by CEO Mark Zuckerberg, Facebook has the financial resources and global might to squash competition -- or buy them out. Facebook is not going anywhere but the stock has already gained more than 500 per cent since its debut.
Savvy investors likely recognise Facebook will not increase in value five-fold yet again but there are plenty of opportunities to be found. Facebook has a need for data storage and spends hundreds of millions if not billions each year.
Who supplies all the hardware Facebook needs to store its large trove of data, which likely rivals spy agencies in size? What component maker will Apple count on to supply it with next-generation technologies used to power hundreds of millions of devices? When you buy something on Amazon and have it delivered, which companies work behind the scenes to ensure Amazon delivers a package to you in two days or less?
Play it safe
Investors who do not have much money to invest and may want to consider an Exchange Traded Fund, or ETF. An ETF is a collection of stocks which track the direction of major stock market indices like the Dow Jones Industrial Average and the S&P 500.
Through an ETF, investors can immediately gain exposure to a number of the biggest companies in the world, including Visa, Nike, and McDonald’s.
For example, the SPDR S&P 500 ETF tracks the performance of the S&P 500 index which is composed of the 500 largest companies existing on the US stock market.
Final thoughts
Investing is a great way for younger people looking to save for the future. Investing even a small amount today represents the first step towards a house down payment or retirement income. If both events seem a lifetime away from you now, ask some older people around you just how fast life moved for them.
Markets in this article