From reviewing your accounts to ensure you’re hitting savings milestones to checking your 401(k) regularly, you may feel you’re doing everything you can to build a solid financial future. However, when it comes to investing, you may be having trouble convincing yourself to pull the trigger.
Between every other headline proclaiming doom in the stock market and the most famous investors who earn millions playing with more money than you’ll likely make in your lifetime, starting to invest can feel to daunting to know where to begin.
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Fortunately, Alonso Rodriguez Segarra, CFP, founder and CEO of Advise Financial, says it’s not only possible — it’s smart. “The key to success lies in automating your contributions,” he said. “Even small ones build strong habits.”
Indeed, with the right mindset and a few simple tools, you can start investing today, even on a tight budget, without taking on big risk. Here are a few things the money expert recommended keeping in mind as you start your investment journey.
1. Fractional Shares Reduce Your Risk
If you’re leery of dipping your toe into the market, it might be because you’re worried you’ll drown. After all, if you think you need thousands of dollars to get started, it may feel like you could lose it all on a single bad day. Of course, those fears may be a bit overstated, according to Segarra.
“Nowadays, anyone can begin with as little as $1,” he said. This refers to fractional shares, which allow you to buy a small piece of a stock or exchange-traded fund (ETF), which is a type of investment that holds many stocks in one place.
Let’s say you want to buy a stock trading at $500, but you only have $50. You could buy 0.1 shares — or a fractional share — instead. Fractional shares not only let you invest without blowing your personal piggybank, but enable you to build a portfolio that’s diversified, even with limited funds.
“Try to invest in an index fund or ETF, where a small amount can be invested in hundreds or thousands of companies across different sectors of the economy,” Segarra recommended. “The more diversified your portfolio is, the less risk you take on if one of those investments underperforms.”
Many major brokerage firms offer fractional shares, so it’s worth investigating.
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2. It’s Mind Over Money — You Control the Approach
As you begin to invest, Segarra emphasized that your mindset is just as important as your money. While you can’t control the stock market’s ups and downs, you can control how you approach investing.
“One of the first pieces of advice I could give to someone just starting in investing is not to think of the stock market as a casino where people become millionaires overnight,” he said. “Or to imagine themselves as one of those day traders who buy and sell stocks, thinking they’ll become millionaires. Eighty-five percent of people who go that route actually lose money.”
Instead of daydreaming about being a bigshot, Segarra recommended sticking to investments that are low-cost and easy to understand. If you need help figuring out how to diversify your portfolio or understand a stock, tools like robo-advisors can help.
“If these issues seem complicated, rely on a robo-advisor,” he suggested. “It will create a widely diversified portfolio tailored to your profile and manage it to keep it on track.”
3. Automation Can Help Build Your Habits
Segarra is a big fan of streamlining your investing through automation. “The simpler you make it for yourself, the stronger your investment habits will be,” he said. “If you have to overthink or follow a complicated series of steps to invest, it becomes harder.”
If you contribute to a retirement fund like a 401(k) through your employer, you’re technically already doing this. You can apply the same principle to your taxable brokerage account or an individual retirement account (IRA). Set up recurring transfers, and your investments can grow quietly in the background over time.
“Even if it’s a small amount, automate it,” Segarra said. “Over time, those small contributions add up, and you won’t have to stress about timing the market or making lump-sum decisions.”
And when you do come into extra cash — a bonus, tax refund, or raise — you can add it to your existing investments.
“If you receive money that you won’t need for the next two or three years, make an extra contribution,” he said. “Likewise, if you start earning more, remember to increase your automatic contributions.”
Bottom Line
Investing may seem complicated and intimidating, but it doesn’t have to be. Especially if you’re starting out with limited funds, tools like fractional shares, low-cost diversified funds and automation can be integral to getting started without taking on big risks.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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