Editor’s note: This article was first published in September 2010. Its remark that no fixed-term deposit pays more than credit interest reflects 2010 conditions in Spain.
How can I invest if I don’t have any capital? This question reached me by email. I’ve decided to answer some questions publicly so that the answers can help other people with similar doubts.
Well, the best way to answer this question is with another question: can I play football if I don’t have a ball? Obviously there’s no way to do it. In fact, perhaps a fundamental, elementary step for an investor is to earn and save the capital needed to invest later. That is part of an investor’s learning.
I imagine anyone asking this question has thought about taking out a loan or credit, and that’s something you shouldn’t do, since it is one of the serious mistakes investors make. Taking out a loan or using credit cards to put money into a risky investment vehicle such as the stock market won’t necessarily go badly, but you need to start thinking like an investor:
- If you get a 6% return on your stock market investment, that’s a good return, but if you’re paying 8% interest on your credit card, you’re 2 points down. This happens with volatile investments; if you’re thinking of a fixed-term deposit instead, it goes without saying that you won’t find one paying more than the interest rate on the credit.
- If your return on the investment is negative, say -2%, not only will you have lost part of the capital you put into the stock market, but on top of that loss you’ll still owe the credit plus its interest.
So, to invest in the stock market without having capital:
- Save money. Go without some luxuries for a few months or a year.
- While you save, try to put your money in savings accounts or some fixed-income financial product.
- Get rid of debt. If you have outstanding credit balances charging high interest, consider making early repayments to clear them before you invest.
- While you’re saving, learn everything you can about finance and investing and, if you can, take part in free investment simulation platforms.
Once your first investment capital is ready, as we usually say, invest small amounts and diversify until you gradually build the ability to manage your investments differently.
Further reading
- A free beginner’s course in investing
- Your first stock market investment
- 12 quotes from the world’s greatest investor, Warren Buffett
Featured image: Images Money, CC BY 2.0, via Flickr.
