Limited Capital Not an Excuse to Avoid Investing
Investment decisions can prove to be challenging for many people due to varied reasons. Contrary to popular belief, investing does not need huge chunks of money to get started. Every person, couple, group or entity is in a difference financial stage in their lives hence should understand how this relates to their investment goals. It is always important to not fall prey to comparability that mostly drains the urge and determination to start or continue investing respectively.
Capital is elemental towards an investment. Different amounts of capital dictate varied levels of returns. This does not mean beginners or persons with small monies cannot or should not invest. It is true that there are people investing tens of thousands and some millions of dollars in the financial markets. However, this should not discourage anyone starting or someone continually investing with little funds.
If one feels their funds are too little to invest, he or she should first analyze his or her financial goals. This will provide a clear sense of direction and development of financial behavior towards actualizing the intended goal. Someone with minimal to zero investment capital can set a weekly obligation to set aside at least $ 12 a week for a year. This will amount to $ 624 in a 52-week year. Any amount from $500 upwards is a good investment base. Although this amount cannot invest in many opportunities, it offers a good ground for higher potential. Persons with these amounts are advised to invest in low risk investment instruments such as mutual funds, index funds and exchange traded funds (ETF’s). These funds will generate returns that can be reinvested over time hence building more leverage to take on riskier options such as individual company stocks.
Significant Challenges Investors face
A million USD might be huge for one investor and little to another. This presents the challenge that most investors face in the financial markets, unrealistic expectations. Expecting to make it big in the markets will develop habits such as trying to beat the markets for maximal returns. The result mostly is losses and to greater extents psychological torment and lifestyle suppression.
Another challenge that is unknown to many novice investors is understanding leverage. Leverage should be kept within sound risk management levels that offer more room for capital preservation while making money. Importantly, some investors are in a rush to multiply their limited capital in a bid to push themselves to their next financial phase quicker. This is detrimental and should be avoided at all costs. A commonly proven reason for the rush in the markets include investing capital meant for basic life needs such as rent, food and utilities. Investing funds meant for these essentials are a trigger for emotional investing and retrogressive towards achieving financial growth and freedom.
- Develop habits that will eventually build discipline, for instance, putting an amount away regularly every month as said earlier herein.
- Cut unnecessary expenses thereby freeing more money and divert it towards investments.
- With the advent of stock trading apps, you can give yourself a try with small amounts of money and build on the gains realized especially experience.
- Invest in medium to low risk investment vehicles such as mutual funds and exchange traded funds as has been mentioned here before.
- Cut down debt obligations especially high interest ones. If not taken care of such debts will negate capital gains realized from investments made.
- Build extreme patience in the stock markets while keeping emotions away.
- Have a long-term approach and reinvest returns and diversify to relatively riskier financial assets. Enjoy the magic of the compound interest factor.
Summarily, Warren Buffet’s description of investing as the “process of laying out money now to receive more in the future” best talks to investors with limited capital. You do not need much to start and if you have much keep it within sound risk levels unless your risk levels dictate otherwise.
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