I enjoy writing articles about sports -- namely baseball -- and the stock market.
How to Invest With Little Money: 6 Simple Steps
It's well advertised and understood that it takes money to make money; Investing often and early is one of the smartest financial decisions that you can make.
Unfortunately, a lack of funds often discourages individuals from starting an investment portfolio. Luckily, with the help of online tools, you can start with very little money and limited research or experience.
Before we begin, let's address most people's biggest fear: losing massive amounts of money—or even losing a little bit.
We've all heard those horror stories and in reality, investing in the stock market comes with risk. But if you take a disciplined approach and don't invest everything in high-risk stocks, you have a chance to build up your net worth over the years.
This Article Will Cover:
- How to set up an online profile
- How to select a no-fee mutual fund
- Why you should set up regular transfers to your account
- The importance of being patient and consistent
- How to invest with Acorns or another robo-advisor
- The benefits of using a commission-free platform like Robinhood or Public
- An overview of investing in retirement savings
- Things to consider before investing
Let's take a closer look.
1. Set Up an Online Profile
Shop around a bit to find the online investment company that you like the most. There are many to choose from (E-trade, Vanguard, Schwab, TD Ameritrade, etc.). They are all professional and offer basically the same service. You can't go wrong with any of the big names.
It's quick and easy to create online brokerage accounts. To set up most accounts, you need the following info:
- U.S. permanent residential address
- Date of birth
- Social security number or tax ID number
- Employer name and address
Sometimes it takes a few days to process, but it's pretty pain-free.
2. Select a No-Fee Mutual Fund
Most investment companies will charge you around $7.99 to buy stock and then another $7.99 to sell it. When you're only dealing with pocket change, this eats up all of your profit margins.
Luckily, many mutual funds can be bought and sold without any fee. The only catch is that you must hold those investments for at least 90 days.
There is also an option to select funds that have a $0 initial and $0 subsequent investment requirement. This means that you can start investing in the fund with as little as $.01, and every additional purchase of the fund can be whatever value you like. It's important to screen for these funds because you don't want to be looking at funds that require $2,500 to sign up and $1,000 for every purchase afterward.
- Lean towards funds that have four or five-star ratings or an all-star fund category.
- Look for strong past performance or frequent dividends.
- Look at the holdings of the fund and find one that you feel comfortable with.
- Remember, there is a small amount of risk inherent with any investment, but well-balanced mutual funds can help to mitigate that risk.
3. Set Up Regular Transfers to Your Account
Every online investment company allows you to schedule repeating transfers to your account. This is a crucial piece of your investment strategy.
For instance, if you transfer $3 a week to your portfolio, you can invest a few dollars every week. When the market is great, your $3 won't go as far. When the market is doing poorly, on the other hand, your $3 will buy more of that mutual fund. This keeps your investment consistent, constant, and smart.
Once you've set up the automatic withdrawal from your bank account, you'll never miss the money. You can even begin putting a dollar or two into a different no-transaction fund. This gives you options every week on how to invest your additional $3.
This step is really crucial. Unless there is an automated system that pulls your money out for you, it's doubtful that you'll do it on your own.
4. Be Patient and Consistent
Continue to put money into your account on a regular basis, and be sure to actually invest it once it's in there. It's also important to be patient. Putting money into the stock market is a long-term investment. Don't get trigger-happy and pull your investments out before the 90-day limit, and don't sell them if they happen to slump a little bit.
Continue to put money in. In fact, consider increasing your weekly amount if the market is slumping. You can get funds and stocks for cheap. Hold on to them and watch their value rise again.
5. Invest With Acorns or Another Robo-Advisor
First off, what is a robo-advisor? Generally speaking, it's a digital platform that provides automated financial planning services with little to no human supervision. Many of the recommendations are driven by algorithms.
The Passive Investing Model
Some apps, such as Acorns and Betterment, use a clever, passive investing model. Every time you make a purchase from a linked money source, Acorns will deposit a small amount into your investing account. For instance, if you buy lunch for $8.65, Acorns will automatically take an additional $0.35 (to "round up") and invest that change in your account. You can choose to double or triple these round-ups and add an additional, recurring investment.
The Five Investment Portfolios
There are five different investment portfolios ranging from conservative to aggressive. These portfolios are made up of elite funds that are actively managed. Every deposit into Acorns will be allocated to meet your portfolio settings.
Be Aware of Fees
For their services, Acorns charges a small monthly fee (but waives that fee for students). It's important to check out the fees for the robo-advisor you're most interested in. You don't want to be surprised by a big fee!
Acorns and Long-Term Investment
Acorns is a great way to deposit a little bit at a time and start to build a portfolio. Those funds can be withdrawn at any time, but it takes a few days to process the transaction. This is an easy way to get a balanced, diversified portfolio and buy a little bit at a time. If you're looking to invest in the long-term, this is probably the best option for you.
Alternative Robo-Advisor Options
|Investment Firm||Fees||Minimum Needed to Start an Account||Notes|
0.25% (first $5,000 is managed for free)
Good for first-time investors
Can choose pre-made portfolios or create your own; user-interface is easy-to-use
Can invest with very little money; multiple investment options
Markets itself to women but open to all genders; Goal-focused investing approach
6. Use a Commission-Free Trading Platform Like Robinhood
Robinhood is a revolutionary mobile app trading platform that allows you to buy shares of stocks and ETFs without a commission. While many brokerages charge between $6.99 and $9.99 per trade, those trades are completely free with Robinhood. They are able to eliminate the commission fee by not having expensive brick-and-mortar stores and by having a slightly delayed order execution.
To buy a share of stock, you need to have the entire amount all at once. For instance, if you want to buy a share of Amazon, the stock symbol is AMZN. If the stock is selling for $1,000 (for convenience. . .it's currently much higher than that), then you would need the entire $1,000 all at once. However, there are many stocks and ETFs that trade under $20 a share, and you can buy them commission-free through Robinhood.
Robinhood also allows you to choose from a great selection of ETFs without paying a commission. These allow you to get index funds that match the market for only a fraction of the price. This is a great option for beginners who don't want to take any big risks.
If you are interested in investing through Robinhood, here is a referral link. Robinhood generously provides both parties a free share of a stock if you sign up using that link.
Public is another investing app that is similar to Robinhood. One neat feature about Public, though, is that it offers a social aspect to investing by allowing you to watch what other people are doing with their investments. It's a great way to learn and get new ideas on where to invest your money.
This app is also great if you want to invest in companies you believe in. You have the option of browsing by industry, female-led companies, environmentally friendly businesses, etc.
Invest in Retirement Savings
If you're not yet ready to invest in the stock market, setting up a retirement account can be an excellent starting point for new investors. The great thing about retirement savings is that they are tax-sheltered, and you can see the results almost immediately. It's also a great long-term investment. Your future self will thank you.
Another great aspect of a retirement account is that you can continue to build up money without actually investing until you're ready to do so since it can usually be done via payroll deductions.
There are a lot of retirement investment accounts, but you may not have access to all of them. Here are a few of the most common retirement accounts you might come across:
- Roth IRA
- Traditional IRA
- SEP IRA
Things to Consider Before Investing
- Employment: Do you have a secure job, or are you a freelancer with variable income? How will this affect your investment opportunities?
- Debt: Do you have outstanding debt? It's probably not wise to invest money you can't afford to lose.
- Family situation: Are you looking to start a family, move, or make any large purchases? Your family situation should be stable before you begin investing.
- Your household budget: Take a look at your cash flow to see if you have a bit of money to spare. Are you living paycheck to paycheck?
- Future plans: How close are you to retirement? Do you plan to need some additional money in the near future?
These are all good questions to ask yourself before investing, even if it is a very small amount.
Consistency Is Key
Investing only $20 won't make you rich, but it can help you get your foot in the door and make you feel comfortable. As your circumstances change, increase the amount of your regular transfers. Diversify your portfolio and continue to be patient and consistent. Eventually, you'll see your holdings slowly rise. They'll pay dividends that will allow you to invest more and more.
Eventually, you'll likely have enough money to buy into some of the funds that require higher initial investments ($100, $250, etc.). More than anything, if you have money in the market that is earning you more than the measly .01% APY, it would get in your savings account. You are setting consistent patterns of wealth.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Fred Wolfgang on June 27, 2020:
xThe cryptocurrency market has made a lot of people very wealthy over the past decade. However, due to the volatile nature of the prices of digital currencies, it is understandable that many people, especially new traders, are hesitant to trade cryptocurrencies. The good news is that now, there are many trading tools, such as trading signals, automated trading software and more, that enable traders to trade Bitcoin and other cryptos profitably. i have been trading with JUBILEE INVESTOR, a pro trader who has helped me accumulate over 4.5 BTC for the past 3 weeks with just my starting 0.7BTC can equally help you achieve that. If you are a trader or a beginner to the cryptocurrency space, this is the right time for you to find their website with (jubileeinvestor. com) for assistance and guidance on how best to navigate the crypto sphere.
Javier Lopez on April 15, 2020:
Want to start with small investment of 100.00 dollars. Where do i go to get started with ETRADE.
I need help with starting with just a little on March 21, 2020:
Would someone please guide me in the right direction to start investing small.
Mohan Babu from Chennai, India on March 15, 2019:
Very useful tips for beginners to understand the world of stock market investments. Great work William.
Tall Can on February 07, 2019:
Im really interested in flipping my money wisely and in smart ways .....
Can someone explain?
Zack on December 27, 2018:
This site explain investment much better thanks
ken monahan on December 10, 2018:
Robert D Suah on September 07, 2018:
I want to invest but i dont have enough money to invest
thabiso on June 17, 2018:
I want to invest money but I don't have idea anyone who can help me to start investing small amound ($7to$10)
Romel Ambuan on November 23, 2017:
How to invest 3, 000 pesos?
Connie. Moore on October 12, 2017:
Wou,ls like to start small
sanjib on January 17, 2017:
I want to invest my money but I have no idea. ..so , any body give me some idea???