I mean, who knew, right?! But facetiousness aside, it’s a good thing that you don’t need to be rich to invest wisely, because most of us aren’t rich!
Gone are the days when investing was only for the ultra wealthy. Today, people from all walks of life are investing their money, taking advantage of the many opportunities available in the market. With the advent of new investment platforms, advanced technology, and a growing awareness of financial literacy, investing has become more accessible than ever before. In this article, we will explore why investing is no longer exclusive to the rich, and why anyone can start building their portfolio today. It’s true – you don’t need to be rich to invest wisely. I just followed the triangle of wealth which I wrote about previously here.
The Democratization of Investing
For years, investing was seen as a luxury reserved for the rich. Once upon a time, to access the stock market, investors had to work with expensive brokers who charged high fees and had high minimum investment requirements. This meant that only those with a lot of money could afford to invest in the stock market, and the average person was left out.
However, with the rise of the internet and the introduction of online trading platforms, investing has become more democratic. Today, there are a plethora of investment platforms available that offer low fees, no minimum investment requirements, and user-friendly interfaces that make investing accessible to everyone. These platforms have opened the doors to the stock market for millions of people who would not have been able to invest otherwise.
One of the most significant advantages of online investment platforms is that they provide access to a wide range of investment options. Instead of being limited to a handful of stocks or mutual funds, investors can choose from thousands of options, including individual stocks, exchange-traded funds (ETFs), REITs and index funds. This allows investors to diversify their portfolio and spread their risk across different asset classes.
Most importantly, it means that normal people can administer their own passive income solutions.
Additionally, many online investment platforms offer educational resources and tools to help new investors learn about investing. This includes everything from basic tutorials on investing to advanced research tools that allow investors to analyze individual stocks and funds. With these resources at their fingertips, new investors can make informed decisions about their investments and build a portfolio that aligns with their financial goals.
The Rise of Robo-Advisors
Another major development in the world of investing is the rise of robo-advisors. Robo-advisors are online platforms that use algorithms and computer programs to manage investors’ portfolios. These platforms offer a hands-off approach to investing, making it easy for people to get started with investing, even if they have no experience.
Robo-advisors typically require investors to answer a few questions about their financial goals, risk tolerance, and investment preferences. Based on this information, the platform will create a customized portfolio of stocks and funds that is designed to meet the investor’s needs. Once the portfolio is created, the robo-advisor will automatically buy and sell securities as needed to keep the portfolio aligned with the investor’s goals.
One of the main advantages of robo-advisors is that they are often less expensive than traditional financial advisors. This is because robo-advisors use algorithms to manage portfolios, which reduces the need for human advisors. As a result, robo-advisors can offer their services at a lower cost than traditional advisors, making them more accessible to people with smaller portfolios.
Another advantage of robo-advisors is that they offer a high level of diversification. Because robo-advisors invest in a wide range of securities, investors can spread their risk across many different assets. This reduces the risk of losing money if any one stock or fund performs poorly. Some robo-advisors are clever enough to do your tax-loss harvesting too.
Micro Investing Apps
Micro investing apps have become increasingly popular in recent years, especially among younger investors. These apps allow users to invest small amounts of money, often as little as a few dollars, in a variety of investment options.
One of the advantages of micro investing apps is that they make investing accessible to people who may not have a lot of money to invest. Because these apps typically have low fees and no minimum investment requirements, users can start investing with just a few dollars.
Another advantage of micro investing apps is that they often use a “set it and forget it” approach, which means that users can set up automatic contributions and let the app handle the rest. This can be especially helpful for people who may not have the time or knowledge to actively manage their investments.
However, it’s important to note that micro investing apps may not be the best choice for everyone. Because they often invest in exchange-traded funds (ETFs) or other pre-selected portfolios, users may not have as much control over their investments as they would with a self-directed brokerage account. Additionally, because the fees on these apps are typically low, the investment options may be limited.
Some popular micro investing apps include Acorns, Stash, and Robinhood. These apps each offer their own unique features and investment options, so it’s important to do your research and choose an app that aligns with your investment goals and preferences.
Overall, micro investing apps can be a useful tool for people who want to start investing with small amounts of money. However, it’s important to remember that investing always carries risk and that users should take the time to learn about investing and diversify their portfolio to minimize their risk.
Small Amounts Compound
Small amounts probably do not matter if you are rich, but they matter to the rest of us.
Investing small amounts regularly may seem like a drop in the bucket, but over time, these small contributions can add up to significant gains. This is the power of compounding, which allows investors to earn returns not only on their initial investment but also on their accumulated earnings over time. Small amounts – think birthday money or rounded up cents on a lifetime of purchases and suchlike.
For example, let’s say an investor starts investing $50 per month in a low-cost index fund that earns an average annual return of 8%. After 10 years, they would have invested a total of $6,000. However, because of compounding, their investment would be worth over $9,500, assuming they reinvested all of their earnings.
After 20 years, their investment would be worth over $24,000.
Of course, this is just a hypothetical example, and there is no guarantee that any investment will earn a positive return. However, it illustrates the potential power of investing small amounts regularly and letting compounding work its magic.
Additionally, investing small amounts regularly can help investors develop a habit of saving and investing. By automating their contributions, investors can make investing a priority and ensure that they are consistently working towards their financial goals.
One popular strategy for investing small amounts regularly is dollar-cost averaging. This involves investing a fixed amount of money at regular intervals, such as weekly or monthly. Because the investor is buying shares at different prices, they may be able to buy more shares when the price is low and fewer shares when the price is high, potentially reducing their overall cost per share.
Overall, investing small amounts regularly can be a powerful tool for building wealth over time. By taking advantage of compounding and developing a habit of saving and investing, investors can work towards their financial goals and achieve long-term financial security.
Investing as a Tool for Wealth-Building
One of the main reasons why investing is no longer exclusive to the rich is that it has become a powerful tool for wealth-building. By investing in the stock market, investors can earn returns that are higher than the rate of inflation, which can help their money grow over time. Additionally, because many online investment platforms offer low fees and no minimum investment requirements, investors can start building their portfolio with just a few dollars.
Over the long-term, investing can be a powerful tool for building wealth.
For example, if an investor had invested $10,000 in the S&P 500 index in 1980 and reinvested all of their dividends, their investment would be worth over $656,000 today, a compound annual growth rate of over 11%. That’s without adding another single cent.
While past performance is not indicative of future results, this example illustrates the potential for long-term wealth-building through investing.
Of course, investing always carries risk. The stock market can be volatile, and there is always the possibility of losing money. However, by diversifying their portfolio and investing for the long-term, investors can minimize their risk and increase their chances of earning positive returns.
The Importance of Financial Literacy
While the democratization of investing has made it easier for people to get started with investing, it’s important to note that investing still requires a certain level of financial literacy. To make informed investment decisions, investors need to understand basic financial concepts such as risk, diversification, and asset allocation.
Fortunately, there are many resources available to help investors learn about financial literacy. Many online investment platforms offer educational resources, including articles, videos, and tutorials, that can help new investors learn about investing. Additionally, there are many books and courses available that cover the basics of investing and personal finance.
I hope all our articles and various page here at My Passive Income Journal can whet your appetite to becoming financially literate.
Financial literacy is especially important for people who are new to investing, as they may not be familiar with the risks and potential rewards of different investment options. By taking the time to learn about investing, investors can make informed decisions that align with their financial goals and risk tolerance.
How to Get Started with Investing
We discuss this everywhere here on My Passive Income Journal, nevertheless, if you’re interested in investing but don’t know where to start, there are a few steps you can take to get started:
- Set your financial goals: Before you start investing, it’s important to set your financial goals. This includes both short-term and long-term goals, such as saving for a down payment on a house or planning for retirement. Your financial goals will help guide your investment decisions and ensure that your portfolio aligns with your needs.
- Learn about investing: As mentioned earlier, financial literacy is crucial for successful investing. Take the time to learn about the basics of investing, including risk, diversification, and asset allocation.
- Choose an investment platform: There are many online investment platforms available, each with its own advantages and disadvantages. Do your research and choose a platform that aligns with your investment goals and preferences.
- Start small: You don’t need a lot of money to start investing. Many online investment platforms offer low fees and no minimum investment requirements, making it easy to start with just a few dollars.
- Diversify your portfolio: To minimize risk, it’s important to diversify your portfolio across different asset classes, such as stocks, bonds, and real estate. This will help spread your risk and increase your chances of earning positive returns.
Invest Wisely – In Summary
Investing is no longer exclusive to the wealthy. With the rise of online investment platforms, robo-advisors, micro-investing and a growing awareness of financial literacy, anyone can start building their portfolio and working towards their financial goals. By taking the time to learn about investing, setting financial goals, and diversifying their portfolio, investors can build wealth over the long-term and achieve financial freedom. Just decide to start educating yourself today? You don’t have to be rich to invest wisely.
Cheers
