Guide to start investing with small amounts
Starting as soon as possible is one of the keys to earn more money in the long term and with less effort.
The reasons can be diverse: because the bank where the savings are deposited has started to charge for it. Because you want to try to earn extra money without sweating it out…or because you really see it as a necessity.
In the end, the motive matters little, the important thing is to want to take the step to start investing. But once you have decided, where do you start?
How Much Money is Needed
One of the most common mistakes when wanting to invest solo or with a crypto trading bot, is to think that with little money you cannot start.
It is true that until recently it was not easy to find products that allowed entry with small amounts, but now if you want to start with $100 the range is wide.
The important thing, in any case, is to make a move as soon as possible. For example, with an initial $100, and a complementary contribution of $100 a month for 20 years, $45,000 could be obtained, of which more than $19,600 would correspond to the profitability.
This would require the contracting of a product with a 5.16% annual return, according to the calculations of a long-term investment calculator.
On top of that, if the vehicle you want to access requires a higher entry you can always save the first contributions in one without risk that provides some profitability to achieve the necessary amount.
When to Start
“The best time to start investing was yesterday and the second best is today”. The earlier you start, the higher the returns will be.
Compound interest and the long term are two of the best resources available to the small investor, and they are also free. Investing for the long term reduces the volatility (risk) of the investment and increases the effect of compound interest.
This term, named by Albert Einstein, as the “most powerful force in the Universe” consists of adding the profitability achieved to the initial capital and the contributions and investing them together.
In this way, over time, profits are multiplied. The best way to see this is with an example. If $1,000 are invested at 10% interest for one year, the profit, whether the money is withdrawn or not, will be $1,000.
On the other hand, in the second year, the investor who withdrew the $1,000 will get back $1,000. However, the one who has chosen to reinvest the profit will get $1,100, having started from $11,000.
In other words, in two years, one investor will have $100 more than the other. But how much will he have at the end of 10 years? The simple investor will have $20,000 and the compound investor will have $25,937, $5,937 more.
How to Start
Before starting to invest, it is essential to know the investor profile and to be aware of the objective for which you want to invest.
It is not the same to want to do it to try to gather before the entrance for a house, to do it for the education of the children, to do it to improve the life in retirement, or for a trip.
One of the most important differences between these options is the time horizon of the investment. The shorter the time horizon, the greater the volatility and therefore the greater the risk.
Therefore, it is advisable to opt for lower risk products. On the other hand, the longer the time horizon, the lower the volatility and thus the lower the risk. It is best to have as many portfolios as there are objectives.
In each one of them you will invest according to the risk that allows you to sleep with peace of mind, always bearing in mind that the higher the risk, the higher the profitability.
Which Product to Select
The universe of alternatives when choosing an investment product is wide. There are alternatives with zero risk, such as deposits or remunerated accounts; others with little risk, such as short-term fixed income; and others with greater risk, such as variable income.
There is also a wide range of vehicle types: insurance, investment funds, which can be actively or passively managed, promissory notes, bonds, or shares.
However, to get started easily and with low commissions and big potential, crypto trading is a good alternative.
Thanks to the high volatility and potential of cryptocurrencies, investors are able to achieve much better short and long term profits than doing it manually.
Moreover, it should be noted that cryptocurrencies are still in their infancy – which means that there is no better time than now to opt for a serious and secure exchange platform.
What to Keep in Mind
One of the points that most small investors forget when they start putting their money to work is diversification. The saying “don’t put all your eggs in one basket” is essential to reduce the level of risk.
Investing in a single company, in a single geographical area or in a single sector is more risky than broadening the range and building a portfolio with different products, or with one that ensures diversification.
To continue with the example of cryptocurrency, one alternative is to opt for a trading bot to automate trades – 24/7.
Trading bots have been around for decades, since in many circumstances they have been the perfect tool for those who know how to use them.
Obviously, this has also translated into the world of cryptocurrencies and it is not surprising to see the internet plagued with crypto bots.
However, as the experts at Bitsgap say, you have to choose the right bot and use it correctly to get the most out of it. Only then you will be able to achieve the investments you have always dreamed of and more.