When many people become interested in investing, they often assume that you need a lot of money to start.
While it’s true that most financial advisors recommend investing substantial sums, you can still begin impacting your future financial health with relatively small amounts.
At the outset, your gains and progress might be slow when investing with little money. However, as you continue to invest over time, stay consistent, and let compound interest work its magic, you’ll be surprised at how much your funds can grow!
As you earn more and budget better, you should also ramp up your investments. But starting small and working your way up to more significant contributions is perfectly acceptable.
In this article, you’ll find tips for starting investing with little money and the best entry-level options.
How to Start Investing with Little Money?
So, you’re ready to start investing but want the best options with minimal investment amounts – what are your choices?
Fortunately, with financial regulations and new investment platforms, you have plenty of options to consider.
Depending on the amount you have to invest, your personal financial goals, and risk tolerance, certain platforms and apps may be more suitable for you than others. Take your time to explore these options and select the one that fits you best.
Through Online Banks
You might not initially think of online banking features when considering investing, but hear me out.
Technically, you can choose to park your funds where they earn interest, compounding much like traditional investments. Plus, the risk is relatively low.
Sure, lower risk often means lower returns. But that’s okay!
Your online bank could be an excellent place to start investing with minimal funds. Here are two types of investment accounts you might consider:
High-Yield Savings
According to Bankrate, the average interest rate on savings accounts is 0.1%. Ouch! And during the COVID-19 pandemic, you might have seen many banks slashing rates even further.
However, if you’re looking to build an emergency fund or save for a significant purchase while earning some interest, high-yield savings accounts are your best bet.
These are typically offered by online-only banks, which can offer much higher interest rates than traditional banks. Rates could range close to 1% or even near 3%.
Certificates of Deposit (CDs)
Another option in the banking realm is investing in certificates of deposit, or CDs.
Your money gets locked in for a period, but you earn a fixed rate of interest on the principal, giving you a clear picture of how much you can expect once your CD matures.
Essentially, you lend a certain amount to the bank for a specified time, and after that period, you get back your money plus interest.
Again, you won’t see the returns you might in the stock market, but the risks are much lower, and you can start with relatively little money. Typically, the minimum amount you can invest ranges from $500 to $1,000.
You can open CDs with banks like CIT Bank, which offers various options for you. Learn more and get started here.
Employer Retirement Plans
One of the best places to start investing, usually, is through your employer’s retirement plan, such as a 401k.
Many companies even match a portion of your contributions, boosting your retirement savings.
With most 401ks, you can invest in stocks, bonds, ETFs, and mutual funds. These might have different prices per share and additional fees depending on your retirement provider.
Index funds and mutual funds usually require a minimum investment, like $1,000. But you can also invest in ETFs with less money, offering similar diversification. Many investment costs are just a fraction of mutual funds.
Tip: Have a 401k or an IRA? Make sure you optimize your retirement and don’t pay any hidden fees. Bloom’s free retirement analyzer can help you monitor your portfolio and keep you on track.
Micro-Investment Apps
Over the past few years, the emergence of new financial firms has changed the game for everyday investors.
These platforms, often called micro-investing, allow investors to buy fractional shares of stocks or ETFs.
Now, even if you don’t have a lump sum to invest, you can still own shares of quality stocks or funds.
Robinhood is one of the leaders in this field, offering a brokerage account that paved the way for commission-free trading in this niche market. However, they’ve also faced their fair share of controversies.
Other reputable micro-investing platforms include:
Acorns – A micro-investment app that lets you invest spare change with no minimum investment. When you sign up and invest $10, you get an extra $10 for your first investment! Stash – Start investing in fractional stocks with just $1, rounding up spare change, and more. Get $5 as your first investment when you sign up! Public – A social investing app that lets you own fractional shares of companies you believe in. Like others, you’ll buy partial stocks or ETFs alongside others. You can invest based on themes like “Made in America,” “Green Energy,” “Gene Therapy,” and more. Learn more and sign up for Public. Robo-Advisors
Not everyone is interested in managing or learning everything about investments. This sentiment gave rise to robo-advisors, which automatically invest and rebalance your portfolio based on your specific goals.
Depending on the platform you choose, each will have different (or similar) investment requirements. But these typically allow you to start investing with little money. Here are some good options to consider:
Ally Invest – Their managed portfolios let you invest with just $100 and no advisory fees. You pick the portfolio that suits your needs, and Ally Invest takes care of the rest. Learn more and sign up here. M1 Finance – Allows you to invest in fractional shares of stocks or ETFs for as little as $100. It also offers fully automated investing with features like rebalancing. Learn more and sign up here. WealthSimple – An autopilot investment that lets you worry less about it. Auto-investing, rebalancing, and human experts to answer any questions. You can invest as little as $0 to open an account and invest however much you want. Learn more and sign up here. Real Estate
You might be a bit surprised to see real estate here initially. But yes, you can invest in real estate with little money.
While you might not directly buy properties, you can have a stake in one, enjoying higher returns without the hassle of maintenance or property management.
On some real estate crowdfunding platforms, your investment could start as low as $10, while on others, you might need at least $500, depending on the kind of real estate you’re interested in.
For example, through Groundfloor, you can invest as little as $10 in short-term loans for single-family homes. It’s a budget-friendly way to dip your toes into real estate without risking hefty sums.
Other options include investing in commercial buildings, apartment complexes, and more through popular websites like Fundrise and DiversyFund. Both have minimum thresholds of $500, which is still a sum but much lower than buying properties on your own.
Both platforms have their pros and cons but are good ways to invest with little money and diversify your assets since these platforms are often less correlated with stock market trends.
Alternative Investments
While investing in the stock market and real estate might be more popular choices, you can also put a bit of money into other options. These investments don’t follow traditional assets like stocks or bonds.
That said, it’s advisable to start with traditional channels first and then venture into alternative investments. But considering other investment options might be a good idea once you’re more comfortable and looking to diversify.
Crowdfunding, again, offers you ways to invest in other asset classes with little money.
For instance, with Masterworks, you can invest in renowned artworks for as little as $20 per share. Some artworks might have minimum investment amounts, but you can own a piece of history by artists like Andy Warhol, Vincent van Gogh, and others curated by their team of art experts.
Tips for Investing with Little Money
Everyone’s idea of “little money” varies based on their financial situation and income.
But most methods for investing with little money can start anywhere from $10 to around $1,000. While the latter might seem like a lot to you at the moment, don’t worry!
As you’ve seen above, you still have plenty of options, and you don’t need to fork out hefty upfront costs.
When investing with little money, you want to be smart about it. Here are some additional tips to consider as you begin:
Avoid unnecessary risks with individual stocks. Set a budget and strive to find extra funds to start investing. Stay consistent with your investment amounts and gradually increase over time. Keep your investment portfolio simple, without overcomplicating things.
While investing carries risks, not investing or delaying investing can pose even greater risks to your retirement future.
Don’t worry about having a lot of money to start; as you’ve seen above, developing good financial habits and starting with small amounts is possible.
