If you intend to invest a small amount of money or capital certainly does not mean that you cannot make a very profitable investment. Even a single dollar can make a very, very profitable investment. Here, some leads and tips to make such an investment have been given.
First off, before we get to the answer to the query, I would like to show you a very, very simple method with the help of which you can ascertain the performance or profitability of the investment.
Return on Investment
This concept is known as Return on Investment (ROI). The formula goes as follows:
Return on Investment (ROI) = Gain from Investment/Output (-) Initial Cost/Original Input (divided by) Initial Cost/Original Input
This formula will give you a very important figure which will give you the performance rating of your investment. Now it must be noted that the Return on investment is not the actual return that you receive after investment, but rather a ratio that tells you how well your investment is doing.
You can also use the return on investment in a variety of ways, that is if you invest in shares, then you do not know how much you are going to make as the final output. Hence you may forecast the profit or rate of return that you want, which will give the final amount at which you should ideally sell the investment of share. This formula comes in handy in times where you have small amounts to invest.
How to Make Money with Small Investments
The problem with smaller investments is that you cannot opt for something like mutual funds, annuity, collective investment schemes, insurance or any such investment channel that requires high recurring payment over a number of years. This considerably shortens the list of your potential investment channels. Thus you are left with quite a few of them, namely, currency, gold, silver, shares and stocks, etc.
You can use the aforementioned formula to ascertain profitability in such investments, as lets face it, the result is definitely unpredictable. Which remains, me, disclaimer: any investment mentioned below is an unpredictable and proper analysis of the investment channel is advisable, before you actually make the investment.
1. Common Stock
One of the best ways to invest small quantities of money is to purchase common stocks of companies. One share of the stock does not have a very high denomination and in cases where the share is a new one and purchased after an Initial Public Offer (IPO) or even through an IPO, then you will have to pay a small sum. Apart from that, after taking up such a share, there is always a possibility that if the company performs really well, then the price of the share would rise substantially. You can conduct such transactions with the help of Direct Purchase Provider (DPP) Accounts.
2. Penny Stocks
Penny stocks is another great choice that works just like common stock. The definition of these stocks is a bit different. Such stocks are the ones that have a trade value of less than $5. The best thing about penny stocks is that you can purchase multiple shares with the help of a small amount, considerably reducing the risk. Apart from that you can also hedge the shares that you have bought, that is, buy the shares of competing or rival companies.
3. 401(K) or IRA
The 401(K) and IRA are the two safest forms of investments, due to the fact that these accounts are managed by none other than the government. There is no minimum limit yet there is a maximum limit as to how much maximum you can invest. Yet the merit of this investment is a good assured return on investment.
4. Gold and Silver
Among all the short term investment options, the bullion market offers some great choices. The scarcity principle applies to gold and silver. The market scenario is that the supply or availability of gold and silver is limited and sparse, as opposed to that, the people who would be willing to buy gold and silver is quite large and increasing. Hence, if you buy official and recognized government bullion, you can make a handsome profit by selling off the same after a few years, provided that you sell at an appropriate time and at the highest possible price.
5. Weird Ideas
You can also try out something offbeat, innovative and different. For example, you may visit garage sales and junk yard, purchase good stuff and sell it online for a profit. Or you can plant your own organic garden of fruits, vegetables and flowers. Basically any short term investment strategy which is innovative, creative and do-able would work just fine.
The aforementioned investments can result into loss if you take them up very hastily, hence it is recommended that you research, calculate and deduce, three important things, when to invest, where to invest, at what price to invest and the same goes for the sale of securities to realize maximum profit.