Getting rich in the stock market may seem like something that's only possible for wealthy investors or Wall Street professionals. However, it's more affordable than you may think to get started.
Not everyone has thousands of dollars to invest, but you don't need to have a lot of money to build wealth in the stock market. With these three investments, you can get rich without breaking the bank.
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1. S&P 500 index funds
An S&P 500 index fund is a collection of all the stocks within the S&P 500 index, all bundled together into a single investment. When you invest in an S&P 500 index fund, you're instantly investing in 500 of the largest publicly traded U.S. companies.
Index funds are passive investments, so there's no fund manager handpicking stocks to include in the fund. This makes them less expensive than actively managed funds. The Vanguard S&P 500 ETF, for example, has an expense ratio of just 0.03%. In other words, for every $1,000 you invest, you'll pay just $0.30 per year in fees.
Despite their affordability, S&P 500 index funds pack a punch. The S&P 500 has earned an average return of around 10% per year since its inception. If you invested $300 per month for 30 years while earning a 10% annual return, you'd end up with close to $600,000 in savings.
Also, S&P 500 index funds are a fantastic "set it and forget it" type of investment. To see as much growth as possible, it's best to invest your money and then leave it alone. By simply investing a little bit each month, you can earn hundreds of thousands of dollars with no effort.
2. Dividend stocks
Dividend stocks are investments that essentially pay you to own them. Some companies choose to pay a portion of their profit each year back to shareholders, which is called a dividend.
One of the perks of dividend stocks is that you can often reinvest your dividend payment to buy more shares of that particular stock. This allows you to build your portfolio and own more shares without investing any more money out of pocket.
Reinvesting can also have a snowball effect on your investments. The more shares you own, the more you'll receive in dividends. By reinvesting those dividends, you'll own more shares and the cycle will continue. Once you're earning a substantial amount in dividends, you may choose to start cashing them out rather than reinvesting -- which can provide a stable source of passive income.
It's important to choose wisely when picking dividend stocks, because not all investments are created equal. It's also wise to make sure these stocks are part of a diversified portfolio and that you're not putting all your eggs in one basket. But even if you can only afford to buy one or two shares of dividend stocks, you may be able to earn more money than you think.
3. Fractional shares
Fractional shares are small portions of a single share of stock. Some big-name companies have stock prices of hundreds or even thousands of dollars per share, making them out of reach for many investors on a budget.
With fractional shares, you can invest in even the most expensive companies for just a few dollars. Say, for example, you want to invest in Amazon but can't afford to pay more than $3,000 for a single share. By going the fractional shares route, you can buy a small portion of a share for as little as $1.
This investing strategy makes it easy to get started investing, even if you don't have much cash to spare. It also makes it more affordable to create a diversified portfolio.
When you invest in individual stocks, it's best to invest in at least 10 to 15 different stocks from multiple industries. If you're paying hundreds of dollars per share, that adds up quickly. But with fractional shares, you can create a well-diversified portfolio for less than $100.
The downside to fractional shares is that when you own less stock, you also see lower overall earnings. However, investing in fractional shares is far better than doing nothing. This strategy can help you get started investing a little at a time, and if you continue to invest consistently, you'll see higher returns.
High prices don't have to be a roadblock to investing. By investing strategically and choosing low-cost options, you can build wealth while limiting your spending.
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February 19, 2021 at 07:30PM
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3 Cheap Investments That Could Make You Rich - Motley Fool
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