To begin with, we have to accept that if we only had $400 dollars that it is not much to invest with. All smart investors compare their potential investments with the benchmark ultimate investment. The ultimate investment is a bank deposit and it is seen as a benchmark to compare other investments to because a bank deposit is 99.99999999 percent safe because it is backed by the government on a handshake style basis. Essentially no government on the planet can allow their banking sector to crumble and therefore it is very safe.
Unfortunately a bank deposit is tied to the overnight cash rate and the level of official interest rates so typically the investment yield is very low. Usually in the single digits annually. Now 6% or 8% on the dollar per year is not very exciting and will not make wealth. It is however a safe place to park money if you have a million dollars or more because the interest even at these low levels is quite usable. Anyone can live quite comfortably on $60 to $80 thousand dollars a year and for this reason, this type of investment is very useful and safe. But what if you are like most of us and do not possess this type of large capital yet. What if all you have is $400 to start with?
You have to be more creative and more aggressive with your funds at that level because putting it into a bank deposit which is our benchmark to compare investments to, we would only get a return of $30 to $40 at the end of the year. This is not a realistic return if your goal is to build wealth and therefore must be used only to compare your ideas. You should be shooting for much higher returns at that low level seed capital, so your capacity to assess investment opportunities must be developed.
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