There is a certain misconception that unless you make a certain amount of money each year, you can’t possibly begin to invest in your future. And that could not be further from the truth. The simple fact of the matter is that anything you can save towards retirement is a help that you can definitely use.
But there are ways to make your money work for you even if you are what is considered a low-income investor. But there are a number of options to make what little money you have to spare work for you and help you save for the future.
Keep these things in mind if you are a low-income investor.
Watch out for Minimums and Fees
Depending on the investment firm or site that you go with, they may have initial balance minimums, initial deposit minimums, or a variety of fees. Watch out for things like inactivity fees that punish you for infrequent trades, account transfer fees when you move from one brokerage to another, or expense ratio which is based on a percentage of your overall fun. Anything higher than 2% should be avoided entirely.
These are made to be nickel and dime transactions but they add up to quite a lot over a long period of time and can severely limit the amount of money that you have to invest with.
Index Funds Are Your Friend
What is an index fund? It is a mutual fund or exchange traded fund that is based on consistent rules. Because they lack a fund manager, index funds are considered “passively managed” and can benefit investors in two ways. The first is through performance. Index funds offer better after-fee returns than managed funds. And secondly, because they don’t have managers to pay, their expense ratios are much lower than actively managed funds.
A Roth IRA is an investment account built towards retirement. What differentiates it from a traditional IRA or 401(k)is that money that goes into a Roth has already been taxed at your current low rate and when you withdraw funds during retirement, they aren’t taxed at all.
Retirement accounts like an IRA and 401(k) can be contributed to at the amount and pace that you determine; there are no hard-line requirements for these accounts and whatever you can contribute will add up exponentially over a long period of time. These are as smart of an investment as you can make.