Even as a newbie investor, you may do a lot with a small sum. You may start investing with little money today—right now, in fact—if you have $1,000, $100, or even $2.26.
You will never be wealthy if you do not invest in some way. Even lottery winners, in theory, invest their money (by purchasing tickets) before becoming billionaires (by getting very, very lucky).
I’m not proposing you play the lottery, though. Instead, I recommend that you start developing an actual investment portfolio right now, with whatever money you have available.
I’m here to inform you that you don’t have to be the Wolf of Wall Street in order to begin investing. Even if you only have a few dollars to spare, compound interest will allow your money to increase.
In this article, we’ll go through some of the best ways you can start investing with very little money.
The Importance of Investing
If you’ve been paying attention, you’ve probably noticed that inflation has reached a four-decade high. As a result, life is getting more expensive than ever before. Everything will be more expensive, from grocery shopping to fueling up your car merely to get to work.
You may also have observed that your income has not increased at the same rate. Despite rising living costs, you are most likely not earning enough to keep up.
That is why, regardless of your stage of life, we cannot emphasise enough the necessity of investing your money now. You may believe that investing is too hazardous, but failing to invest some money for the benefit of the future is far riskier.
So, what is the importance of investing?
- You desire that your money works for you. You have to work hard for your money. Allow your money to work for you by earning reasonable returns.
- In a bank account, your money loses value. When you leave your money hanging around and without earning interest, it loses purchasing power as inflation rises.
- A savings account just does not provide enough interest. My bank emailed me about a special offer of 2.5% interest on a savings account. This is nowhere near the current inflation rate.
- You don’t want to work until you’re 70 years old. The sooner you begin investing, the sooner you will benefit from compound interest. The whole objective of investing is to ensure that you do not have to work indefinitely.
- You’re passing up “free money” if you don’t invest. Your investments should be profitable. When you don’t use your money to produce money, you’re essentially throwing away free money.
To develop the habit of investing, you need to begin early. The purpose of investing when you don’t have much money is to learn how to invest so that you’re ready when your income increases.
It is now simpler than ever to begin investing your money. With the proliferation of platforms, it is much easier to get started with investing. You can programme it and then forget about it. To begin investing, you do not need to spend hours studying stock charts or sitting in front of a computer.
Top Ways to Start Investing With Little Money
1. Try the Cookie Jar Method
Saving and investing money are strongly intertwined. You must first save money before you can invest it. That will take much less time than you think, and it can be done in very tiny steps.
If you’ve never saved before, you can start with just $10 every week. That may not seem like much, but over the course of a year, it adds up to more than $500.
Put $10 in an envelope, shoebox, small safe, or even the cookie jar, the famed bank of last resort. Though it may appear ridiculous, it is frequently a crucial first step.
The online savings account is the technological version of the cookie jar; it is distinct from your checking account. If you need the money, you can withdraw it in two business days, but it is not tied to your debit card. When the hoard is substantial enough, you can withdraw it and put it in legitimate investment instruments.
2. Register in Your Employer’s Retirement Plan
If you’re on a limited budget, even enrolling in your 401(k) or other employer retirement plan may appear out of reach. However, you can start investing in an employer-sponsored retirement plan with little amounts that you won’t even notice.
Plan to put 1% of your salary into the employer plan, for example. You probably won’t even notice a contribution that little, but what makes it even easier is that the tax deduction will reduce the amount even further.
Once you commit to a 1% commitment, you can gradually increase it each year. In year two, for example, you can increase your contribution to 2% of your earnings. You can increase your contribution to 3% of your pay in year three, and so on.
You’ll notice the higher contribution even less if you time it with your annual wage raise. So, if you earn a 2% raise, the money will be shared evenly between your retirement plan and your checking account. And if your employer matches your contribution, the situation will be even better.
3. Fractional Shares Investment
Investing in fractional shares allows you to control a small portion of a firm without purchasing a whole share.
Assume you wish to invest in a company but the stock price is more than $200. Instead of buying a complete share of a company, modern brokers will let you buy a “fractional share” for a lower price. So you could perhaps buy half a share for $100. Alternatively, 1/20th of a share costs $10. This enables you to invest in top firms even if you are unable to purchase a complete share of stock.
- Even better, many micro-investment programmes do not charge commissions or fees for buying fractional shares. If you want to learn how to trade shares, then now is the time to start!
4. Robo Advisors
Even if you create a brokerage account with a bargain broker, investment managers and financial consultants are expensive.
Many would-be investors have expressed concern about having enough money to invest and pay investing fees and charges.
However, the cost is no longer a concern. Betterment, for example, can now manage your portfolio for a low annual cost of 0.25% of your account balance (if $20,000 or more, else $4 per month).
Management costs on balances less than $20,000 are $48 per year.
If that’s too expensive, you may utilise M1 Finance, which has no yearly fee to automatically distribute your money across several index funds and bonds. The entire process is handled by computer software, which is why it is referred to as a “robo adviser.”
You may start with as little as $100, making it an excellent choice if you want to avoid big fees and have easier access to your money.
5. Precious Metals Such as Gold and Silver
Investing in precious metals such as gold can be profitable. There are detractors and supporters, but the assumption is that metals retain their worth because they are solid tangible goods.
The disadvantage is that you will not receive dividends—it is literally a piece of metal or rock that you would lock away and hope to sell for more than you paid for it. However, the price of gold has increased by more than 300% during the last three decades.
It’s a risk, and you’re basically betting that demand for gold and other precious metals skyrockets and people become desperate for them. When there is market instability, like when the COVID-19 outbreak began, demand tends to rise.
If you believe it is a good investment, you can purchase gold or precious metals through your brokerage or from the U.S. Mint.
6. Dive Into the Real Estate Market
To invest in real estate, you no longer need a lot of money (or even good credit). A new investment category known as “real estate crowdfunding” allows you to purchase fractional shares of huge commercial buildings without the hassle of becoming a landlord.
Crowdfunded real estate investments have higher minimum investment requirements than robo-advisors (for example, $5,000 rather than $500). They are also riskier investments because you will put your entire $5,000 into one property rather than a diversified portfolio of hundreds of separate investments.
The benefit of owning a piece of a real physical asset that isn’t always associated with the stock market is appealing.
As with robo-advisors, investing in real estate through a crowdfunding site incurs fees that you would not incur if you purchased a building directly. But the benefits are evident in this case: you share the expense and risk with other investors and have no responsibility for maintaining the property (or even performing the paperwork to buy it!).
Real estate crowdfunding, in my opinion, can be a fascinating method to learn about commercial real estate investing while also diversifying your holdings. I wouldn’t put all of my money into these platforms, but they are an interesting alternative investment.
7. Create an IRA
Employer-sponsored 401(k)s are excellent, but they do not provide the same tax benefits as other retirement accounts, which is why starting an IRA is also critical.
For starters, because you are starting your own personal IRA rather than going via your employer, you will have more control over your account.
Furthermore, one of the most significant advantages of an IRA (particularly a Roth IRA) is the opportunity to grow tax-free. Your account will grow tax-free, and you will be able to make tax-free withdrawals beginning at the age of 5912.
8. Invest in Low-Initial-Investment Mutual Funds
Mutual funds are financial vehicles that allow you to buy a portfolio of stocks and bonds in a single transaction, making them ideal for first-time investors.
The problem is that many mutual fund providers need initial minimum investments ranging from $500 to $5,000. If you’re a first-time investor with limited funds, those minimums can be prohibitively expensive. However, some mutual fund firms will waive account minimums if you agree to make recurring monthly investments of $50 to $100.
If you can accomplish it through payroll savings, an automatic investment arrangement is especially convenient. You may usually set up an automatic contribution through your payroll, much like you do with a company retirement plan. Simply ask your HR department how to get started.