Is it realistic to start Online Investing with just $5?

If you are just beginning in online investing should you take advantage of a programme that offers a very low $5 initial deposit. Just to be clear here I am focusing on online investing programmes that are based on a passive investment approach i.e. you make an investment on the basis of the programme paying a fixed or variable rate of interest per day or week.

With such a low entry point are the online investments being realistic about their offer? Well in one sense I think you can say they are. As many people distrust these forms of investment, companies need to come up with ways to allow people to try what is on offer at little risk. One way to do this is to set the entry point low and assuming things perform as planned the investor would be persuaded and therefore happy to invest more. So as a marketing ploy this approach could be considered acceptable.

For the more cynical observer there could be a view that the programme is going out to attract as much cash as possible before heading off into the sunset. Personally I find this rather short sighted, of course some programmes do fail but as long as a potential investor does their homework it should be possible to root out the bad apples fairly easily before parting with funds.

More importantly perhaps is the practicality for beginners to realistically fund a programme with say a $5 investment. Unfortunately you can’t just walk into the nearest branch, put your $5 on the counter and walk out with a receipt. In practice there are a number of hurdles to jump before your investment can start earning.

Let’s take a closer look at just what sort of fees you could encounter. I can’t be precise here but the figures I’m presenting are typical and should be considered when investing in any online programme. I’ll use US$ for comparison purposes (I’m making the assumption that bank wires aren’t an option as they generally require quite a high level of investment to be used).

In most cases your funds would need to leave your account and go to an e-currency exchanger. There is generally a minimum fee attached to any transaction which is normally in the region of $25. If you are converting funds from another currency you will also be penalised on the exchange rate (this can be fairly significant).

As the funds go from the e-currency account to the payment processor there may also be a charge from the payment processor for receipt of the funds. You wouldn’t normally be charged any fee for making the investment to the online programme itself.

In summary you are therefore looking at a minimum of $25 and perhaps a maximum of $30 to $40 to get your investment started. Clearly for a $5 investment this doesn’t make a lot of sense.

So, as a beginner how much should you consider as a starting amount to invest? In reality I believe you have to consider $100 as an absolute minimum (excluding the charges discussed) and how long it would take to not only recoup your seed money but the associated charges as well.

The $5 option is more suitable for those who already have payment processor accounts and receive interest from their existing investments.

Does online investing take us for mugs or are we just risk takers?

Over the years that I’ve been investing online I’ve noticed that those who use vitriol to discourage others generally believe they are doing something for their benefit. They are quick to call any online investment a scam and warn everyone to steer clear.

Their arguments often centre around the belief that many of the returns offered online are impossible to achieve, hence untrustworthy. The question of course is what qualifies them to make statements like this and what, if any, notice we should take of them.

Of course everyone must come at this from a personal perspective and my own stimuls for being involved is as a reaction to the abysmal interest rates available from the major banks and financial institutions. It always seemed odd to me that the pittances you are offered to leave your money in a savings account earned such a poor return and I was convinced that more profitable ways must be available.

As I’ve learnt more about the field of online investing I’ve even more convinced that good returns are possible and accept that to achieve them you must be prepared to take more risks.

However trustworthy an online investment demonstrates themself to be there is always the potential for unforseen circumstances occurring that make it difficult for the online programme to function whether that is just for a short time or for ever.

Many investors who see the allure of higher interest rates don’t fully appreciate the sort of problems that can occur. This lack of awareness can create panic if something they are not expecting happens. If the programme Admin does not respond quickly the result could well be a fall off of confidence and ultimate demise of the programme.

I still see too many people using online investing as a source of funds for short to medium term bill paying and that is not what it is designed or sensible to use for. Yes, higher interest rates are possible but the returns are not necessarily ATM fodder. Investors need to plan things on a longer term basis and give the programmes time to use the funds in the most efficient manner.

At the time of writing there are several programmes that if they payout will provide large sums of money to their members for relatively small investments. These are especially targeted by sceptics and whilst I do understand why they may see them as scams it doesn’t give them the right to dictate to others whether to invest in them or not.

Online investors are adults who are never forced to partake in these types of investments and choose to do so of their own free will. To me that suggests they are risk takers rather than being duped by scamsters. Of course some of the programmes may fail and fund lost but that’s the risk we decide to take.

Warnings about the Madoff crisis weren’t rife before the collapse and many people lost their life savings to a so called respectable investment advisor. Personally I would never put all my investment funds in one place and perhaps the world of online investing has reinforced that maxim over the last few years.

I don’t consider myself a mug but I do know I’m taking calculated risks and am happy to do so.