How to Build Your Personal Financial Fortune, Even if You Don’t Have A Lot of Money to Start With
Contrary to popular belief, you don’t need a lot of money to make a lot of money. You just need to invest your money prudently and be willing to leave it invested for at least five to ten years. Be disciplined even to accept the ups and downs of the economy and the markets.
The bottom line is investing in bonds and leaving your money in your bank accounts might be safe, but it won't make you a millionaire. They barely keep pace with inflation.
If you have as little as $2,000, you can get started.
REIT Mutual Funds
REITs—or real estate investment trusts—are companies that invest in a range of properties. With the real estate market bouncing back in many critical areas across the US and booming in many areas, this is again a stable place to invest.
The expectation of these companies to produce some great returns shortly looks promising as local economies in many regions of the country continue to not only bounce back but flourish. In fact, experts state REIT funds could outperform blue-chip stocks over the next three to five years, returning as much as 15% or more.
But the best reason to invest in REIT funds is that their success isn’t as dependent on the same economy and business cycles as most other stocks.
So the smart strategy is to invest in REIT funds in addition to—not instead of—stock mutual funds. REITs will likely do well during a period when stock funds do poorly since REITs don’t often rise and fall with the stock market.
Small-Cap Diversified International Funds
These funds invest in small companies outside of the US—typically concentrating in mature markets such as those of Europe. Over the past five (5) years, these funds have returned over 15%.
Micro Cap Funds
These funds invest in the market’s smallest stocks—generally those with market capitalizations of less than $300 million or so.
The preference are microcap funds whose managers have a “value” style of investing—their managers select underpriced rather than growth stocks. Research shows that these stocks provide the best returns over time. Over the past five (5)years, these funds have returned over 15%.
Tip: Look for a fund that has less than $300 million in assets. Higher asset levels can hinder a microcap fund manager’s performance.
These funds invest in companies in developing markets, such as Latin America, Africa, Eastern Europe and the Far East.
Choose a fund that spreads its investments among emerging markets around the world instead of concentrating on just one region, such as Latin America. That will remove some risk.
Warning: Emerging markets can produce some tremendous long-term returns, but also some of the world’s greatest short-term volatility.
Dividend Reinvestment Plans
DRIPs let individuals invest directly in select stocks. Because these investments are made through the company that issued the stock, not a broker, you save the commission, which could otherwise eat up the profits on small stock purchases.
As a result, this is an effective way for investors to buy individual stocks when they don’t have a lot of money. Small investors are best served to stick with mutual funds and leave stock selection to professional money managers.
Good Starter Investment
Municipal bond funds are good starter investments for people with small amounts of money to invest—$40,000 or less—who want to generate tax-free income. Buy funds with low expenses to maximize yield.
Drawbacks of municipal bond funds: Yields may vary—they are not fixed, as in the case of individual muni bonds, funds buy medium-quality muni bonds, you must sell funds to get your money back and, therefore, have market risk. Look for funds that give tax- free income in your state.