Need Money To Start?

           When a person decides to start investing, they often do not know where to start.  What type of investments should an individual pursue?  Well, the potential investor has to know what their time horizon, risk tolerance, hands on or hands off, invest themselves or have someone else invest on their behalf.

          A real estate investor is more hands on then an investor in the stock market. See, a real estate investor might have to deal with tenants directly in gathering rent, doing maintenance, and showing the property to them.  The real estate investor might be involved in choosing the proper, buying the property, getting a mortgage and advertising them. It is said that real estate investing is a business. But a individual must ask themselves if they want to fix toilets, deal with tenants, look for new tenants etc.

           On the other hand, investing in the stock market can be done real hands off or hands on.  If an individual decides they want to be a strict hands off investor, they have to find a stock broker or consult with investing professionals who will manage their money for them. A hands on investor can purchause instruments like precious metals, stocks, bonds, debentures etc by doing their own reseach and clicking a mouse.

         The method the rest of this article is about is investing in the stock market.  The big advantage of the stock market is that an individual can close a position really quick.  However, unless an individual investor has basically no control over the direction of the company unless they own a significant amount of shares already. The stock market is highly liquid.

       A question that always comes up is "Where to I start or how to begin?".  Starting out an individual might not have a lot of money.  I believe an individual should read about how the stock markets works.  He or she should also understand how to read financial statements.

       An individual investor does not need a lot of money to begin.  How to you come up with money to invest in the stock market.  Starting off, an investor needs to keep adding cash to the account.  The investor can buy stocks for cheaper commissions than ten years ago.  An investor can purchase stocks the "old way" which was purchasing stocks directly from the transfer agent or purchasing a share from a person.  The investor can purchase additional shares without commissions.  The downside to purchasing shares directly through the transfer agent is that he or she does not know what the price of the stock at the time of purchase.  If they company overs a discount on their DRIP shares, the investor is guarantee to receive this discount whereas a pseudo DRIP by a brokerage might not pass the discount onto the investor.

        Another method of purchasing stocks, is to pick stocks that pay monthly. For example, the investor saves $100 a week and their position size if $300.  So the position that pays monthly can have it's monthly dividend along with new cash to buy another position of the same stock or a new one.  A way to speed this up is to purchase commission free ETF or a REI,  rather than purchase an individual stock.  The reason for this is the ETFs and the REITs have a higher yield, for all intended purposes.  ETFs and REITs pay distributions whereas a stock pays a dividend.  Unlike a dividend, which is all the same type of income, a distribution can have its payment broken into dividends, return on capital, capital gains or interest.  The investor can take the distribution payment and add it to his own capital to purchase shares.  ETFs and REITs have  pay out 90% of their profits to unit holders. The downside to investing in ETFs or REITs, is that their is not much room for growth unless these raise more money through increasing the amount of units.

         When buying a stock that pays quarterly, an individual has to weigh 3 months to see any income from the investment. This psychologically is difficult to see at the beginning as the payments will be small. With having more money to invest at the beginning, can see an investor stay in the game though more patience and able to not throw in the towel so to speak.

Conclusion:

          Investor's will not see huge returns starting off on their journey.  It takes a while for the snowball to gather momentum and grow, but they can help speed up the process.  An individual is actually doing this right now live in real time. Dan of Sharpe Trade LLC is demonstrating starting from $500 and adding $25 each week, how an individual can build an account that pays you an income. This portfolio, which is called Sharpe Income, has an investing section and a capital gains section. The capital gains section will eventually be used to speed up the income investing side of the book. 

         If an investor buys a monthly dividend paying stock, ETF or REIT, he or she can put that capital back to work quicker.  The downside to this that dividend growth stocks, provide higher returns over the long haul as their businesses tend to grow quicker.  The companies that are considered dividend growth companies can use some of their profits to grow the business.

      The most important thing is to start.  I think a person should pay off their debts first as fast as they can and then save as much as possible this allows you to become financially free at an earlier date.
   

Disclosure:  I have no affiliation with Sharpe Trade or any of their subscription based projects. However, I do follow their public side at www.sharpetrade.com.

DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.