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As a poor investor, there are 3 very simple things you can do to make yourself a better investor right now. You may already practice them, but it's still worth exploring and will be particularly helpful for new investors on a budget.
Saving money is insanely important. You have to learn how to manage your finances and save money. I hear frequently people talking about increasing your income - that's fantastic and worth pursuing, but the reality is 80% of the people out there are making lower/middle class income. That's not necessarily a bad thing; a friend of mine is a hairdresser and she loves her job and is very happy with the present situation, yet she makes only 20k a year. If you can save money well, you have more freedom to chase your goals, whatever they may be. Whether it's starting a business, investing in stocks or just wanting security and certainty, you can greatly increase your chances of success by managing your money well and saving.
Saving money starts with making independent decisions for the betterment of your financial future. It's about realizing that if you give up small luxuries now, it can lead to huge financial gain in the future. It's learning that material things do not add fulfillment and enlightenment to one's life. It's about getting healthier and eliminating health/wealth destructive practices like excessive drinking, smoking and spending. Saving money is something most people cannot do, so take pride in knowing that your going against the grain and taking control of your future.
Secondly, you need to be aware that you can get rich over time by diligently investing small amounts of money periodically. It's basic math. For example, say you invest $50 per week for the long term in a stock index fund. If you can do that, and are lucky enough to get the normal 10% average annual return from stocks, after 30 years you would have about $456 000 dollars. That figure increases the more you save. Think of how easy you spend $50 dollars. With small tweaks in your lifestyle, most people can save that money even on a lower class income.
Third, as a poor investor you need to minimize fees and commissions for your investments. Instead of investing in mutual funds (high fees), consider exchange traded funds or picking stocks (if you are willing to do a little work). This means you need to open a brokerage account to purchase your investments. For poor investors, I recommend online discount broker Interactive Brokers - they have some of the lowest fees around and an easy to use trading platform. I would also stay away as much as possible from the big 5 banks if you are Canadian. There are way better options out there and their fees are just laughable - $20-$30 a trade and $15/month for a checking account!? It's absolutely ridiculous and should be avoided.
By saving and investing small amounts periodically in low fee exchange traded funds, as well as using a no frills broker with low fees, even a person making income below the poverty level can have a meaningful investing plan.
John Laframboise is founder and author at http://www.riseofamillionaire.com, a personal finance Blog that follows his progress to become a millionaire. John has held positions within the Canadian banking industry and has a Bachelor of Commerce from the University of Windsor in Canada.
When in Cebu City, please visit gregmelep.com for your real estate and retirement needs.
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