“I just don’t have enough money to start investing.”

I often hear this statement from friends who are interested in investing in the stock market but truly believe they don’t have the capital to start. Many erroneously believe that you need a bare minimum of five figures just to dip your toe into the markets.#-ad_banner-#

Some of these people are very knowledgeable about dividend reinvestment or savings strategies for their retirement but are convinced they can’t start investing because they don’t have enough money.

Well, nothing could be further from the truth.

It doesn’t matter if you only have $1,000. The bottom line is the sooner you start investing, the better.

With proper management, sensible stock selection and consistent addition of capital over time, small accounts can easily grow into large ones.

Investors on a budget should look for investments that provide the best bang for their buck in terms of relative safety. This means low-priced, high-yielding securities. My rule of thumb is to stick with investments that cost less than $10 per unit or share if you want to maximize your portfolio.

Sometimes, it requires looking at unexpected places to find investment instruments best suited for small investors. 

Investing through closed-end funds (CEFs) can provide the small investor an entry into the high-yield investing community at a low relative cost and higher safety margin than similarly priced investments.

This is one of the investment vehicles StreetAuthority’s Amy Calistri uses in her Daily Paycheck newsletter. Using her “Dividend Trifecta” strategy, she’s able to use CEFs and other dividend-paying securities to help readers multiply the effectiveness of every dollar invested. 

Let me explain…

During the past three years, the average medium-term bond mutual fund returned 7% annually compared to more than 11% for CEFs, according to Standard & Poor’s.

This is because CEFs issue a limited number of shares to trade on the stock exchange, while mutual funds can issue an unlimited number shares. In addition, CEFs can use leverage to boost returns, while regulations limit the ability of mutual funds to use leverage.

Most CEFs have a leverage ratio of 30%, which means the manager can borrow up to 30% of the fund‘s assets either from banks or by issuing preferred shares to buy more assets. For example, in today’s ultra-low interest rate environment, managers are able to borrow at 1.3% and invest in bonds that yield 4%. The extra gain lifts the CEF’s yield and total return.

And if you believe, as I do, that interest rates will stay low throughout 2013, then CEFs will likely continue to be strong performers.

Here are my two favorite low-priced, high-yielding CEFs for your consideration.

Risks to Consider: These instruments are built on sub-investment-grade bonds, therefore they are very risky. They are also thinly traded, making them susceptible to flash-crash behavior as witnessed this past November. Always position size properly and use stops when investing.

Action to Take –> The low-entry level prices combined with the high yields make these CEFs ideal tools for investors lacking substantial capital. However, it’s critical to understand that in exchange for the high yields, comes correspondingly higher risks.

Having said that, I think these CEFs will continue to offer solid performance throughout 2013 and thus will make superlative investments, particularly for those with on a smaller investment budget.

P.S. — Investments like these are perfect for what StreetAuthority’s Amy Calistri calls a “Dividend Trifecta” strategy. Simply put, it’s a three-part approach to dividends that multiplies the effectiveness of every dollar you invest. The plan is specifically engineered for people who want to retire sooner or for those who would like to get a steady stream of extra income now. Go here to learn more…