Stock market investing is increasingly accessible to all who would like to take the plunge. This is a function of some of the modern changes that have taken place in recent years.
For example, information is easily accessible. Advice and guidance are at one’s fingertips at investing sites such as the Motley Fool Canada. Also, the option to buy fractional shares has opened up stock market investing to those investors with a small budget. They can finally afford to develop an investment portfolio that’s well-constructed and diversified.
Let’s take a look at how to take advantage of this and start investing with little money in today’s uncertain economy.
Source: Getty Images
TFSA: Tax-free investing made easy
The first thing investors should do is open up a tax-free savings account (TFSA). This account allows your investments to accumulate dividends and capital gains that are sheltered from taxes, thereby increasing one’s total returns.
Investing in high-yield dividend stocks like Enbridge Inc. (TSX: ENB) within this account gives investors meaningful tax-free income. Enbridge is an attractive stock for an uncertain economy, as its business is relatively defensive and the company has a solid track record in good times and bad. Enbridge stock is yielding a very generous 5.7% at this time.
Fractional shares
For those investors who are on a tight budget, fractional shares eliminate an obstacle that has been a real barrier in the past. With fractional shares, investors can buy and sell a fraction of stocks and ETFs. This allows them to start investing with less money as well as own expensive stocks.
This is an important positive development that greatly affects investors with a small budget. In the past, these investors might have had to invest in the smaller companies if they wanted to participate in the stock markets. And we know what this means. The smaller companies are often the riskiest, leaving investors with high-risk stock market exposure.
Now they can buy established stocks that have strong track records and solid financials. Stocks that can survive and even thrive in an uncertain economy. A stock like Fortis Inc. (TSX: FTS) is a good example. Fortis is one of North America’s largest utilities. It’s also one of the Canadian stocks that has the strongest and longest track records of dividend payments. In fact, Fortis stock has increased its dividend annually for the last 52 years.
Gaining exposure to a stock like this can make all the difference for investors who are on a tight budget. This exposure can set them up with an acceptable risk profile for their investments, enabling them to participate in the stock market in a smart, value-creating manner.
Diversification
Finally, investing in stocks in this uncertain market should be done with capital preservation and risk management in mind. Diversifying your holding across industries is a smart way to spread one’s risk. This means holding stocks in the interest-sensitive financial sector, as well as stocks in the energy sector, and the consumer sector, to name a few.
Fractional shares give investors on a small budget the ability to construct a well-diversified portfolio that minimizes risk and maximizes returns. The value of this cannot be understated. Also, with the information that’s available online on sites such as ours (the Motley Fool Canada), these investors can have agency over their money.
Motley Fool: The bottom line
In closing, I would like to highlight the importance of the new investing environment that exists today. It has opened up stock market investing to those who want to start investing with only a little bit of money, and it serves to break down barriers. This allows smaller investors to build a well diversified portfolio that gives them exposure to strong companies that create long-term wealth – companies like Enbridge and Fortis.
