10 Easy Ways to Get Started Investing with Little Money
I have had many people express to me concern about their financial future because of being unable to invest. Usually I hear how they just do not have the money. So often people assume that investing takes a lot of money. You need to have money to make money, right? Wrong.
In fact that are several ways to start investing even with small sums, to have a more secure financial future. How you may be asking, how do I get started investing when I live paycheck to paycheck and have very little money? Well thankfully I am here to offer up what many other successful investors have done.
You can actually take steps right now today even if you are low income. Investing can be swift and simple.
Investing is not just for the wealthy! With some guidance and making good decisions you can feel a lot better about your finances and start generating more income. Having small amounts only to invest should not hold you or anyone else back.
At some point you will want certain things, your own home, an easy retirement, money to send children to college, vacations to Europe and the rest of the world. Even investing and saving small amounts can slowly grow your finances into something to be proud of.
Here I can offer you 10 tips on how to get started.
1. Start saving even the smallest sums!
It is possible to build a small amount of savings just by using a cookie jar or shoe box. With those savings you can then take steps towards investing. Even if you live to your means, are low income, or have other debt you are clearing, you can put aside $5 dollars a week, or even $10.
How do you find that money? Most of us spend on small extras and you can cut back on those. Take a good look at your spending habits. Do you know where everything goes? You need to understand your spending so that you can then do something different. For example,
- Stop buying a coffee at the coffee shop on the way to work.
- Make your own pizza rather than eating take out.
- Write a grocery list so you avoid over spending on food and drink.
- Skip a Friday night out.
- Drink more tap water and less soda or juice.
- Take a walk to the store rather than driving which costs gas.
- Find a colleague to car share with.
- Start a change jar.
- Limit how often you eat out to once a month.
- Shop at thrift stores.
- Use the Acorns app. This will round up debit card purchases and take that money and invest it.
Look at your spending and change your habits. Over the course of a year you could have around $520 saved. Even if you could only manage $5 a week, that is $260 saved.
Alternatively if you do not already have one, open a savings account and have a small amount moved from your checking account each month. When you have enough savings, whichever way you do it, you can start investing.
2. Invest in the Retirement Plan at your place of work
Some of us at some point in our lives have faced such money woes that even contributing to a 401k or a retirement plan at work has not seemed possible. I can tell you from experience it is possible though and this is the easiest step to take. Even investing 1% of your salary can slowly build up your contribution.
As things get better financially you can then change how much you are investing. Everyone should at least try to have a 401k plan or something similar in my opinion because;
- Automatic payments from your paycheck mean you do not miss the money and it is done for you.
- You can invest with very small amounts of money.
- Some employers will match your contributions.
- Starting young can mean you get a large sum later at retirement, but even a later start is better than not investing at all.
- Pay less tax – deductions are made on what you are able to invest in it.
Doubting its value? How about I throw some numbers at you. Let’s say the average amount matched from the company is around $1300 a year. A $1300 that could have been invested every year say for 45 years. When you retire if you estimate each year a 10% return you are going to almost be a millionaire.
Just imagine what your retirement could be like with that kind of fund to turn to! With a little work all done with money you stopped even missing.
3. If there is no 401k get started investing with a Roth
If there is no employment plan you can invest in where you work, or you are not working, the next best thing is an Individual Retirement Account, or IRA. More specifically a Roth. With a Roth IRA you can invest small amounts up to a maximum of either $5,500 a year if under 50 years old, or $6,500 if over.
Did I mention it is tax free when you are over 59 and 6 months or older when you withdraw. (As long as you have been putting in money for 5 years or more.)
That is right, when it is time withdraw the money at retirement age, there will be no taxes to pay. You can open one straight out of college even, investment does not have to be for those wiser with years.
Start making smart choices earlier and you can reap the benefits from them. Big benefits.
I truly wish I had someone tell me these gems when I was younger. Even just $25 a month can get it all started. At some point, things will get better and you can increase your savings and your investments.
Not even a dollar a day – you can manage that. Most people can.
4. Look for Low Investment Mutual Funds
Really if you are new to investing, other than the 401k or IRA, the best and easiest option is to put that saved money into mutual funds. In one move you can invest in different bonds and stocks. Most companies have a minimum monthly investment though that may be too high for some, starting at $500.
However if you do some research there are some that will not worry about that minimum investment, if you agree to something called an automatic investment arrangement. This means you,
- Agree to a monthly automatic investment
- The amount can be anywhere between $50 to $100
- Investments are kept together and do not trade like stocks
Some low investment mutual funds brokerages to look out for include;
- E*Trade – over 8000 funds to look at a lot of which take low initial investments. It does demand investors have $500 to have an account but not for a retirement account. Charges per trade are low.
- Ally Invest – once called TradeKing it also has over 8000 mutual funds a lot of which take low initial investments. There is no requirement for a minimum balance and charges per trade are low.
- M1 Finance – worth mentioning though it does not actually offer mutual funds. In fact it is a mix between an online broker and advisor. You need $100 in your account to invest though.
5. Get started with Saving Bonds
It is not common when investing small amounts to use saving bonds or Treasury securities but you can if you want to. While this is not something that earns you a great return, it is a way to earn a bit of interest before you are ready for higher amounts of investment, or more risky ones.
You can get bonds that mature within just 30 days and for as long as 30 years, or anywhere in between. The lowest amount is $100. A good place I recommend to get them online is Treasury Direct. There you can also get TIPS. This is another place you can have payroll send an amount direct from so you do not have to think about it.
Again not a get rich quick way to invest your money, but that is for the best.
6. Use an Automated Investment Platform
An automated investment platform or robo-advisor is another resource that makes it easy to invest even when investing with little money. It will create a portfolio for you, set up the ETFs (Exchange Traded Funds) and after a small questionnaire will do the investing for you based on what it learns about you. This is not a DIY system, it is a DIFY one – Do It For You!
Too often people talking to me about investing just feel over whelmed by it and do not know where to start. Or they assume they cannot afford any resources.
With an automated investment platform like for example, Betterment, everyone can invest. Other advantages include;
- No minimum magic number to use it.
- You can put in small amounts at a time too, as low as $10.
- Fees are not excessive, accounts under 2 million dollars are charged 0.25 per cent.
- It acts like a financial advisor, helping to grow your wealth but is a lot cheaper.
- Vanguard funds are the only ones it invest in.
- No deposit required to create an account.
- Very easy to use.
7. Apps can absolutely aid investment!
Using apps today you could get started investing just by going to the store and spending on your credit or debit card. Called micro-investing, one type has already been mentioned in the form of Acorns. While you are not going to build mass wealth using this option, you really can add to existing investment options like a 401k or Roth. A buck a day can turn into $240 a year and over 4 times that in 3 years.
Investment is not all flashy stock sales and huge profits, or losses. Sometimes it can be a gradual thing, manageable and easy. This tech makes it easy and effective to invest small amounts. Unlike other more traditional accounts there is no large minimum requirement. Here is a look at 4 micro-investing apps,
- Acorns (a closer look)
- Stash Invest
- No minimum balance required
- Invest with just your spare change
- The app does it all for you when you make a purchase with a debit or credit card
- It rounds up purchases and uses those cents – if you buy a coffee for $3.75 it will charge $4 and take that 25 cents to your Acorn investing account
- Can set up regular investments, monthly, weekly or even daily and you can also make 1 time payments
- Low monthly fee for a balance under $5,000
- Deals with ETFs (exchange traded funds)
- Free to use
- Can invest in partial shares of funds and stocks
- Does have retirement accounts
- There is a small signing up fee of $5, but they give you $5 for signing up too
- Free to use
- No retirement account
- No minimum balance
- Can invest any amount, no minimum requirement
- More like traditional stock investing but using smaller amounts so good for investors starting small and slow
- No charge per trade, important as these can quickly add up
- Has paid gold option where you get more trading and features for $10 a month
- Less options in terms of stocks available to invest in, just 1000 but they are blue chip ones
- Can invest in partials
- No minimum balance requirement
- Give you $5 to start out with
8. Diversify your investments as soon as you can
A key piece of advice I would give to all investors whether you are working with larger sums, or smaller ones, is to diversify. This means you invest in a variety of different assets, so that you minimize your risks. If one investment is not performing well it will not damage your overall returns as much.
Diversification is the financial equivalent to the adage don’t put your eggs all in one basket.
The difficulty with diversification is making sure you do not run into a lot of fees and costs with each different investment. For this reason when I was at this stage I stayed with one or two investments at first. Then when I had more to invest and could meet the fees I was able to diversify better.
This is also why ETFs or mutual funds are a good option for people investing with low amounts of money. Both already diversify in a number of investments and stock options.
9. Check for fees and costs
I tell all investors to be sure they understand the costs and fees that come with investing. This is especially with people for whom every penny counts, literally. Even just opening an account comes with a fee at many brokerage firms, and there is also a minimum deposit required to do so. In some cases even $1000 is not enough.
There are two types of stockbrokers, full service and discount, and we should focus on the discount ones in this topic of low figured investment. Full service offers a lot more to clients but only take clients with high net worth. A minimum account of $25,000 is common.
So what will a discount broker offer you?
- Low fees
- Less advice and services
- A lower minimum account number – but you will still have to check out several options
- Online options tend to offer lower minimum deposit requirements
- Some trades may have restrictions or higher fees
You also need to think about transaction fees and commissions. Often each time you invest there is a small cost and those fees can quickly add up. Even at the low end of $5 per trade, if you want to order shares from five different places, that is a cost of at least $25 already. Then if you sell them that is another cost of $25.
10. Be an intelligent investor
Whether you are investing large sums or small ones, you need to be a savvy intelligent investor. Just because the amount you are investing is small, does not mean you do not need to educate yourself. Do not invest because a friend says it’s a good one. Collect the data, give yourself at least some basic information.
Reading my article is a good step, but there is more to learn, there often always is!
If something is not clear to you, have it re-explained, or look it up. Do not get sucked down by the abbreviations and jargon. Admit if you do not know something. Sometimes advisors can assume clients have a basic knowledge and in fact you do not but never tell us!
Successful investors have done some homework.
Often new investors or those investing with less money are nervous about stock market investments. Usually this is for good reason. The amounts they may be ready to invest with may be small, but for them it may have taken a lot of effort to save some to start out with.
Do not let fear or inexperience hold you back. Often people will express their fear of investing because of crashes and financial crisis they have seen happen. But the fact is if you do not invest you cannot hope to get free financially. Not investing could cost you long term more than the short term cut backs it will cost you.
Get some good advice and find experts who can talk to you about investing lower sums. Likely the hardest thing is getting it all started! Things may be confusing at first but you do not need to be rich to invest and you do not need to be an expert.
A summary of the above advice is;
- Save even in small amounts so you can build up a little to invest. Develop better habits. You will never have the money to invest, or any savings if you don’t start and any start is good.
- If you have not already, take part in the 401k or workplace retirement plan.
- Invest in a Roth IRA.
- Invest in low investment mutual funds.
- Invest in saving bonds.
- Use online tools and apps to make small amount investments automatically done for you.
- Diversify when you can.
- Don’t get caught out by fees and charges.
- Get yourself educated.
- Get started today. It is easy to put things off and say you will get to it tomorrow. But it is time to stop procrastinating. The excuse of not having enough money is just that.
Number 10 is of particular importance. If you start investing, even small figures, in your 20s, you can build an amazing opportunity in your retirement. Start in your 30s and that figure will drop to less than half. In fact it is about a 64% loss of your nest egg.
That does not mean there is no point in starting if you are older. Even if you are in your 40s or 50s you can do something to make life easier in your 60s and later. It is just that your expectations of your nest egg should be lower. Investing gets easier and there are so many platforms and advisors you can look to. Low funds and a lack of knowledge does not have to stop you. Investing is not just for the ‘elites’.Updated on: November 23, 2018