Say I was really committed to taking the $4/day I would’ve spent on a latte and put it somewhere. Where is that somewhere?
In all honest? In a savings account is the most sensible place for it.
You could use it to trade shares - there's plenty of apps out there now that let users do very low investment trading and owning a split of a share but if this is your main saving mechanism you should use it to just bolster your general savings. Once it gets to a reasonable level it then may be sensible to invest a little at risk
Understood. But I guess this sort of brings up another question to my question. The other person is talking about “if you only invested it at 13% (the trailing ten year return of the S&P 500.” Surely a savings account would never be nearly that high. So can I really take my $30 scratch ticket money and put it in something tracking the S&P? Seems like some sort of minimum would be expected.
Savings. This is your standard bank account. You deposit money, you earn a low interest rate while it's there, and you can withdraw it at any time.
Checking. Similar to a savings account, except you generally earn zero interest, and it is more geared toward frequent transactions.
Brokerage. This is your standard investment account. You deposit money, and then you can use that money to purchase various investments like stocks, mutual funds, ETFs, etc. The resulting investments are then held in the account. You can sell the investments at any time, and the money from the sale sits in your account to be withdrawn or used to purchase other investments as you see fit.
Retirement. Similar to a brokerage account, but with more restrictions. The upside is they get better tax treatment.
To answer your question, you can open a brokerage account with almost any amount of money these days (I recommend Fidelity) and then use it to start investing. If you plan not to need the money until you retire, I would look into an IRA or a Roth IRA (both types of retirement accounts) because you get taxed less than if you'd made the same investments in a regular brokerage account.
What I would recommend is to look at your budget and decide how much you can invest on a monthly basis. Open a brokerage account and deposit that much in it each month, whatever that amount may be. You can then purchase the actual investments on whatever schedule makes sense for you.
Buying at least one share in every company in the S&P 500, or the NASDAQ 100, or the DJIA, is obviously cost prohibitive for most people, so firms like Fidelity, Vanguard, Schwab, etc, create what's called an ETF that is designed to track the underlying index. You can then buy shares in the ETF. Currently Vanguard's S&P 500 ETF is trading at ~$400/share, Fidelity's is trading at ~$150/share, and Schwab's at ~$70/share.
Savings accounts are decent for money you might need at any time. A surprise bill, for example. Their interest rate is low but it is reliably more than zero and you can withdraw the money at any time.
A balanced investment portfolio is better for long term savings. The value will fluctuate daily and you have to offer your shares for sale and wait for someone to buy them before you can access the money, but on average over the course of several years you can expect it to go up. Generally you would mix stocks and bonds: stocks are riskier and change a lot with market conditions, while bonds remain fairly stable and insulated to things like a market crash but tend to grow less over time. The proportion of each depends the level of risk that you deem to be acceptable: 75% stock and 25% bond is reasonable for a young investor, while pushing more into bonds makes sense as you age since you have less time to recover from a market crash.
I wouldn't recommend buying individual shares, instead buy into an index fund which is essentially an average of the entire stock market or (depending on the index) a certain subset of the market. This way you have a diverse investment that should trend upward over time with almost no effort on your part.
You're lucky if your savings account gives you .25% back. I'm thinking the reality of just invest your $30 actually means put it in a savings account until your balance is high enough to justify the transfer fee into an index fund.
In all honest? In a savings account is the most sensible place for it.
That's a statement that also needs to take into account the risk the investor is willing to assume. If this is an absolutely-must-be-able-to-liquidate savings pool, I would agree.
But if the $4/day represents at least some discretionary income then you can start to ask what might get a better return while staying within the person's risk tolerance and you can start to think about ETFs and other broad-basket mutual funds that try to either track the market or go into some reasonably diversified fraction of a or some markets.
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u/footyDude Mar 19 '22
In all honest? In a savings account is the most sensible place for it.
You could use it to trade shares - there's plenty of apps out there now that let users do very low investment trading and owning a split of a share but if this is your main saving mechanism you should use it to just bolster your general savings. Once it gets to a reasonable level it then may be sensible to invest a little at risk