Invest with no money – how can you invest as a teenager or a person without a job? In this article we discuss how to start your investment journey from zero to hero.
What Is An Investment And Which Investment Options Exist?
Investing means setting aside money today in order to receive more money later. Investing is an important component in fulfilling your financial goals. This can be done in several ways. Some of the most popular ones are:
- Savings account: pros are safety of deposits and low risk of losing capital, cons are relatively low returns
- Bonds: government or company bonds are other names for debt issued by these instances. When a company issues a bond it creates a loan that individual investors can invest in. This loan bears a specific interest rate that is your rate of return.
- Mutual funds: pros are diversification across several company stocks and the possibility to focus on a specific geographic area or industry, cons are management fees and you being dependent on the fund managers skill
- Individual stocks of companies: this means buying pieces of real companies. These companies will earn money and this money can be returned to investors through dividends or stock buybacks. The stocks also have a price which can go up or down based on what happens to the underlying company fundamentals. Eg, if the company is making more or less money.
- Real estate investment trusts (REIT): these are investment vehicles owning physical real estate (buildings). The returns come from the rents paid to the REIT and price appreciation of the buildings. REITs can be a good option to home ownership as it allows you to participate in the real-estate market in a diversified way.
- Collectibles: for example exotic cars, antiquities or cryptocurrencies. These items appreciate in value as more and more people want to buy the item you’re holding. They don’t produce anything but they have a value that comes from them being special and desired by other people. The returns will come from price appreciation.
- Commodities: such as gold and oil. These are often “cyclical” in nature, meaning that their price changes violently based on the state of the economy. For example, during the covid-induced lockdowns of 2020, the price of oil fell precipitously as there was less air travel and car usage. Now the demand has increased as the lockdowns have eased and thus the oil prices have gone up as well.
There are of course many more potential investments than the ones mentioned in this list. Our goal is to inform the aspiring capitalists of at least some of the available alternatives for investing. Simply put, when investing people set aside money today to their chosen investment vehicle that they expect to create excess returns over time.
What is an investment portfolio?
An investor usually wants to build out a portfolio (=collection) of different kinds of investments. In these collections, you often hear the word “diversification” used.
Diversification means owning different kinds of assets. If you for example only save your money on your savings account your risk of losing your money will be low but at the same time your potential reward is very limited as the interest rates are so low.
If you instead decide to own some stocks or real estate to balance out things your returns might be better while still maintaining the stability of the savings account.
It would usually also be wise to diversify within different asset classes. For example, if you own stocks it wouldn’t be wise to only own one stock. Rather, owning several high quality stocks would be a better alterantive. The simplest way to reach this is to buy a mutual fund. The more complicated but potentially rewarding one is by choosing your own stocks.
Typically, an upper middle class investment portfolio consists of a savings account, family house and a stock portfolio. This portfolio is already diversified across three asset classes and secures the family’s fortunes against the loss of job or other financial turbulence.
Your portfolio should respond to your needs. If you’re a young person who still has several earning years before you, investing in more “risky” or “volatile” (=price changes violently up or down) asset classes might be worth it.
You can stomach a loss of 30% of your investment much better than someone in their 60s nearing retirement. You can even take advantage of economic downturns as during these times you hopefully still receive your salary and can invest it into good assets whose value has unfairly dropped due to market panic. This can be characterized as contrarian investing.
What are the first steps you can take to start your investment portfolio from scratch and start to invest with no money?
- Maximize your earnings potential. Find a job that pays the highest possible salary. Often it can be worth it to go through longer schooling at a university in order to be able to work as a highly paid specialist in something. Gather well-paying skillsets and apply for jobs that utilize these. To invest with no money saved is hardly possible so if low on cash, focus on growing your earnings first!
- Don’t make rash decisions. When you start with nothing it’s tempting to assume that you need to find the “moon shot” investment” that goes up 10.000%. This is not necessarily the case. By earning more modest 7% returns and a median American salary you can become a millionaire in some decades of disciplined investing. If anything, risking your money on moonshot opportunities often leads to you losing the little money you initially had. If this isn’t the case, be sure not to stretch your luck too thin and always quit gambling while still ahead. The expected returns of speculation and trading are negative.
- Educate yourself on investment alternatives and pick the one(s) that best suit your personality and skillsets. For some people, investing in the stock market might be a bit too exhilarating. They might prefer the more steady returns from bonds and bank interest. Other people have the stomach for more volatile (called “riskier”) investments. Know who you are and what works best for you in order to prevent panic selling.
- Own what you know and why you own it. If you buy a house with the expectation of it turning out to be a great investment “because that’s what my parents told me”, think again. There are factors at play in the housing market that can drive prices way higher than the real value of your home. Don’t overpay and rationalize your decisions as “investments”! Same goes for owning individual stocks. If you find a hot “growth stock” that’s going to “10X in 10 days” you might want to read into it a bit more before investing. Don’t speculate, invest!
- Make a savings strategy. Set aside a set percentage of your monthly salary as investing money. A good number to start with might be for example 10- or 20%. This is an amount most people can afford. Set it aside when you receive your salary and “pay yourself first”. Invest in the asset class that you understand the best and that responds to your investing needs. If you want higher returns, only saving on a savings account will not get you to your financial goals. Then you need to consider the stock market or REITs. Do your research on these asset classes and choose the ones that fit you the best.
Summary On How To Invest With No Money
To invest with no money, it goes without saying, is impossible. But what you can do is to maximize your earnings power, make a savings plan and choose an investment asset class that fest fits your needs. By following these steps you set yourself up for long-term financial success.