If you're considering investing in the stock market, give yourself a pat on the back. Investing is one of the best ways to build wealth over the long term, and the sooner you begin investing, the more money you can potentially make.
However, investing can be confusing. There are seemingly unlimited investment options, and if you choose the wrong one, you could put your money at risk. In addition, some stocks cost hundreds or even thousands of dollars per share, which many investors can't afford.
The good news is that it's easier -- and more affordable -- than you may think to get started investing. These three options are a great place to begin.
1. Your 401(k) or IRA
If you have access to a 401(k) through your employer, that's one of the easiest ways to start investing. Most plans offer a handful of mutual funds or target-date funds to choose from, which are great options for beginner investors.
In addition, one of the biggest advantages of investing in a 401(k) is the opportunity to earn employer matching contributions. Some employers will match your 401(k) contributions up to a certain percentage of your salary, which is essentially free money. This can give your investments a boost with zero effort on your part.
If you don't have access to a 401(k), your next best bet is to invest in an IRA. IRAs are similar to 401(k)s in many ways, and they're also an affordable way to start investing. Once you set up your account, all you have to do is contribute regularly and give your money time to grow.
ETFs, or exchange-traded funds, are collections of stocks grouped together into a single investment. An S&P 500 ETF, for example, contains all the stocks within the S&P 500 index. There are also niche ETFs that track certain industries. A tech-focused ETF, for instance, only contains stocks from the technology sector.
Investing in an ETF can be a smart move for a variety of reasons. For one, it can help limit your risk. By investing in a single ETF, you're instantly investing in dozens, hundreds, or sometimes thousands of stocks at once. If a few of those stocks take a turn for the worse, it won't sink your entire portfolio.
Another advantage of ETFs is that they can be more affordable than investing in individual stocks. To build a diversified portfolio, it's best to invest in at least 10 to 15 different stocks from multiple industries. That can easily amount to hundreds or thousands of dollars if you're investing in individual stocks. But with an ETF, you can easily diversify your portfolio with just one investment.
3. Fractional shares
If you'd prefer to invest in individual stocks, there's a more affordable way to invest: fractional shares. A fractional share is a small slice of a single share of stock.
Say, for example, you want to invest in Amazon. At the time of this writing, Amazon's stock price is a whopping $3,094 per share. If you're just getting started investing, you may not want to dole out thousands of dollars on a single share of stock.
With fractional shares, though, you can buy a small portion of Amazon stock for whatever price you can afford -- whether it's $500, $50, or just $5. You can still buy quality stocks, but for a much more affordable price.
The downside to fractional shares is that the earnings on your investments won't be as high as if you'd purchased full shares. However, fractional shares are a great starting point. Rather than investing thousands of dollars up front to buy full shares immediately, it's sometimes easier to invest a few dollars at a time and gradually work your way up to owning full shares of stock.
Investing in the stock market is a smart move, and you don't need to be wealthy to get started in the stock market. By taking advantage of these three investment options, you can start generating wealth without breaking the bank.
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