There is a myth that it takes tens of thousands of dollars to start investing. But what if you could learn how to invest with little money? Yes, you can start investing and building a nest egg with just a little money. Investing over time becomes habit-forming and exciting especially when you reach your financial goals.
The key is to start somewhere, even if it means investing your spare change and there are several investment vehicles that you can consider for letting your money grow.
Consider these options if you want to get started building a healthy investing habit
401 (K) Retirement Account
If your investing goal is retirement, you can take part in an employer-sponsored 401(k) plan. Most companies provide their employees with a retirement saving account. An automatic deduction is taken out from your payroll each month. You can simply choose a percentage from your gross income that you want to allocate to this account.
Many employers will even match either dollar-for-dollar or 50% of what you contribute up to a certain point. Retirement accounts typically offer some form of tax advantage to incentivize you to invest for your future today.
IRA Retirement Account
If your employer does not provide a 401 (k) account, you can open an individual retirement account (IRA). You can choose between a traditional IRA and a Roth IRA. An IRA account is a tax-deferred account. In fact, withdrawals from Roth IRA are tax-free after the age of 59 ½. An IRA allows you to save up to $5,500 per year before the age of 50 and $6,500 per year if you are 50 or older. This is an easy way to build up a sizeable amount in just a few years.
Purchase Fractional Shares of Stock
Anyone can invest in the stock market. If you prefer to pick the individual companies you want to invest in, you can still invest in stocks without a lot of money. Several new investing apps, including Robinhood and Stash, allow you to buy fractional shares of stock and ETFs.
Rather than having to save up $1,000 to buy a single share of a popular technology company, you can buy .001 shares of the company for $1. This makes it easy to diversify your portfolio of individual stocks.
Index Funds and ETFs
Index funds and ETFs can be a great way to diversify your investment. Index funds and ETFs track certain indexes, such as the S&P 500 (Made up of the 500 largest publicly-traded companies in the U.S). When you invest in one of these vehicles, it’s like investing in the entire index without buying individual securities for each company in the index.
These products can track various assets, like stocks, bonds, currencies, commodities, or even an entire market.
If you are risk-averse, consider savings bonds or Treasury securities. You can buy savings bonds with maturities as short as 30 days (minimal earnings) or as long as 30 years.
Only buy bonds you can afford to leave until maturity, or you won’t get the total return you’d hoped. Savings bonds are a great way how to invest with little money. Plus you’ll diversify your portfolio and keep at least a portion of your funds risk-free.
Real Estate Via Crowdfunding
Traditional real estate is definitely an expensive investment and can take years to accomplish. However, people, these days have turned to real estate crowdfunding. You along with a bunch of other real estate investors can pool in together to buy a property as partial owners. When the property is later sold, the profit is distributed among all the investors as per their agreement. It is advisable to include like-minded people or family in crowdfunding to avoid disagreements later.
Certificate of Deposit (CD)
CDs are one of the oldest forms of investment. You can buy a CD at a fixed rate from your bank. Your bank further lends this money to the market. CDs offer little to no risk, but they also come with low rates of return. The upside is that you know precisely how much money you will have when the CD matures.
You don’t need a lot of money to begin investing. All you need is consistency and commitment and while it may seem intimidating to start investing with a small amount of money, the most important thing is to start as soon as you can. By investing even a small amount consistently over time, you can potentially see your investments grow through the power of compound interest.
Remember to do your research and seek the advice of a financial professional before making any investment decisions. And before you begin investing, be sure you’ve taken care of more immediate financial needs like paying off high-interest debt and building up an emergency or rainy day fund.
Without covering the basics it can feel nerve-wracking to put cash in an investment account instead of your savings account or paying of debt.