8/23/2012 8:21 PM ET|
Start investing with just $1 a day
Step 3: Create an action plan -- and practice it
You may be inclined to just grab the $30 or $60 necessary to make your stock purchase on Day One. But remember, the discipline of saving is important -- and equally important is the time you're buying yourself. Because while you're saving up, you can practice your investing in a no-risk environment on paper.
Let's say you want to start investing in growth stocks. Start by scouring the Web for as many resources as you can on the topic and practice some armchair fundamental analysis of stocks -- Wall Street-speak for measuring sales growth and earnings growth. Familiarize yourself with the big players and the big news that's out there.
And most importantly, start investing on paper. If you like a stock, write down the current price and how much you would invest in the stock if you were really trading. Check in on it two or three times a month to see how your idea shakes out over the next year. This is a much cheaper way to learn the market than by making a bad buy.
Over time, you will become conversant in the issues of the day and will have some "real" investing experience based on your paper trading.
Step 4: Don't do too much
Here's the hardest part. If you see big success with your investment plan, chances are you'll be eager to do more -- buy more stocks or mutual funds, and get aggressive about your retirement. That's only natural, and, of course, I don't think you'll be investing just $1 a day for long.
But remember that this is a long-term game. As the saying goes, "don't try to eat the elephant in one bite."
Equally troublesome is the pitfall of letting short-term setbacks cause you to panic. You may see a stock drop and sell too soon, or you may pull your money out of a mutual fund too early and face a penalty.
Relax. Slow and steady wins the race.
The fact is that with a small amount of money, trading often will eat up your nest egg with fees. As I mentioned earlier, sometimes you can find brokers that offer a handful of free trades when you first sign up, or cut-rate offers for $1 trades -- shop around for the best deal on your brokerage account. But fees always matter, and even more so when you don't have much cash to play with.
Also, time and time again investors who try to "time the market" get burned. Aside from owning a functioning crystal ball, there is no way to know for sure when it is safe or when it is unsafe -- and you do as much harm as good trying to anticipate the big moves of the market and the economy.
Staying the course is key, not just as a way to learn the market and practice discipline, but also to reduce your costs in the long run.
Step 5: Do it all over again
If you can manage to get to the other side of this 365-day regimen, you will have taken some very important steps in securing your financial future. But it's a long road to retirement, so it's time to do it all over again!
Remember, the idea of compound interest involves a little bit of money here and there that grows modestly over time, with your reinvestment of those gains continuing to snowball until you retire.
Don't buy into this scheme? Well consider this: If you get just a 3% return on your initial investment and invest an additional $365 each year, 30 years down the road you will have a nest egg of more than $18,700!
That's not enough to buy your own private island -- and as I said, you'll want to ramp things up as you go along --but it's very impressive on just $1 a day. Especially when you consider that if you just put that cash under your mattress without the benefit of compound interest, you'd have only $10,950 (that's $365 multiplied by 30 years). You're giving up a 70% return on your investment of an amount most of us would hardly notice.
So get started today, saving a little at a time. It all adds up big in the long run.
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It is very much about the discipline. Before you do invest, however, there are two FAR more important things to do -
1. Save an emergency fund and keep yourself revolving-account-high-interest-debt free
2. Contribute to your retirement account (never withdraw, take a loan or take a contribution 'holiday').
Don't skip these two steps - no matter what. The emergency fund is just that, a liquid source to draw on for emergencies (the next big electronic gadget or those 'hot' bleeding edge shoes are not, btw, an emergency). Once you have these two started, then you are ready to start putting a regular amount aside to invest on the side - and do remember, there is always the risk of losing all when you are learning to invest. Because of that very real risk, you have absolutely no business playing in the market until you have a safe and adequate emergency account and retirement plan started. It isn't what you make, it's what you keep, so strive to pay yourself first - you'll thank yourself later.
Take your $365 to Las Vegas and put it on Black, you will get a better result than betting on Wall St.
the only way peasants get ahead on compound interest , is not paying it!
"Depending on the offers at the time and the provider, you may even get free trades -- meaning you literally have no barriers to investing even a small sum."
With a dollar a day?
I wonder if this author has ever heard of transaction fees?
I'm not aware of any brokerage without some minimum amount to open an account.
His concept is a good one but his story is unrealistic.
You don't need a fortune to start investing -- or to get back in the game. By Jeff Reeves
If you do this and you are twenty one years old now by the time you reach sixty five years old
you will have a wonderful $16,060.00. This will not pay for a half year retirement considering
you will be getting zero interest on your investment. It looks like zero interest on savings forever.
had the habit of saving. Whatever the amount,
set it aside with discipline and a timetable,
eventually it'd be big enough to invest and grow
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