7 min read · Aug 5, 2023
--
Investing can seem intimidating, especially when you’re just starting out with a small amount of money. But the truth is, you can start investing and setting yourself up for future financial success with just $100 or less. By following a few simple steps, your small investment today can pay big dividends down the road.
Determine Your Investment Goals and Time Horizon
Before you put your money anywhere, it’s crucial to clarify:
- Why are you investing this money? What financial goals do you want to achieve?
- What’s the timeframe you’re investing in? 1 year? 5 years? 20+ years?
Common investing goal timeframes include:
- Long-term: Retirement funds, children’s college savings: 15-30+ year time horizon
- Medium-term: Saving for a house, car, dream vacation: 5-15 years
- Short-term: Building an emergency fund, saving for a wedding: 1-5 years
Knowing your timeframe helps determine how aggressively you should invest. If you want to grow your money over decades for retirement, investing primarily in stocks makes sense. The longer runway lets you ride out near-term volatility.
But if you need the money soon for a house, conservative fixed-income investments may be preferable to protect your capital against losses.
Of course, your risk tolerance also matters…
Understand Your Appetite for Risk
Investing involves risk — you could lose money. So it’s vital to understand how much risk you’re comfortable taking.
Ask yourself:
- Could I sleep at night if my account balance suddenly dropped 20% due to a market crash?
- Would major losses tempt me to sell, even if it meant locking in the losses?
- How worried am I about losing my initial investment versus earning higher long-term returns?
Based on the answers, you can categorize your risk tolerance as:
- Aggressive: You have strong nerves and want to maximize long-term returns. You can accept higher…