5 best ways to start investing with little amount of money
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By Kevin Mercadante
Many people put off investing because they think you need a lot of money—thousands of dollars!— to start investing. This just isn’t true. You can start investing for as little as $50 per month.
The key to building wealth is developing good habits—like regularly putting money away every month. If you make investing a habit now, you’ll be in a much stronger financial position down the road.
Don’t believe me? Here are five ways you can start investing with very little money:
1. Try the cookie jar approach
Saving money and investing it are closely connected. In order to invest money, you first have to save some up. That will take a lot less time than you think, and you can do it in very small steps.
If you’ve never been a saver, you can start by putting away just $10 per week. That may not seem like a lot, but over the course of a year it comes to over $500.
Try putting $10 into an envelope, shoebox, a small safe, or even that legendary bank of first resort, the cookie jar. Though this may sound silly, it’s often a necessary first step. Get yourself into the habit of living on a little bit less than you earn, and stash the savings away in a safe place.
The electronic equivalent of the cookie jar is the online savings account; it’s separate from your checking account. The money can be withdrawn in two business days if you need it, but it’s not linked to your debit card. Then when the stash is large enough, you can take it out and move it into some actual investment vehicles.
Start with small amounts of money, and then increase as you get more comfortable with the process. It may be a matter of deciding not to go to McDonald’s or passing on the movies, and putting that money into the cookie jar instead.
If you have trouble setting that money aside, Digit.co is a free app that analyzes your checking account and makes small transfers to a savings account for you.
Prefer that money to be invested right away? Acorns is an app that rounds up your credit and debit card purchases and invests the difference.
It’s not fancy, but it’s a start. And for people who’ve never been savers, getting that start is all the more important.
2. Enroll in your employer’s retirement plan
If you’re on a tight budget, even the simple step of enrolling in your 401(k) or other employer retirement plan may seem beyond your reach. But there is a way that you can begin investing in an employer-sponsored retirement plan with amounts that are so small you won’t even notice them.
For example, plan to invest just 1 percent of your salary into the employer plan.
You probably won’t even miss a contribution that small, but what makes it even easier is that the tax deduction that you’ll get for doing so will make the contribution even smaller.
Once you commit to a 1 percent contribution, you can increase it gradually each year. For example, in year two, you can increase your contribution to 2 percent of your pay. In year three, you can increase your contribution to 3 percent of your pay, and so on.
If you time the increases with your annual pay raise, you’ll notice the increased contribution even less. So if you get a 2 percent increase in pay, it will effectively be splitting the increase between your retirement plan and your checking account. And if your employer provides a matching contribution, that will make the arrangement even better.
3. Let Betterment invest your money for you
Betterment is an automated investment platform that’s cheap and super easy to use.
When you invest your money with Betterment, the site sets you up with a portfolio that includes several exchange traded funds (ETFs).
Betterment figures out how to invest your money for you based on a short questionnaire. Investment management is actually performed by the platform, as this is not a do-it-yourself account where you buy and sell your own choice of securities.
Betterment is the perfect platform if you are new to investing and don’t have a large amount of money to open an account. Not only will Betterment handle the investing for you, but there is no minimum deposit amount to open an account and you can contribute as little as $10 at a time.
Fees are also very reasonable at .25 percent on all accounts up to $2 million (fees are capped at $2 million invested). They also offer access to Certified Financial Planners® on balances of at least $100,000 for additional fees.
4. Put your money in low-initial-investment mutual funds
Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds with a single transaction, making them perfect for new investors.
The trouble is many mutual fund companies require initial minimum investments of between $500 and $5,000. If you’re a first-time investor with little money to invest, those minimums can be out of reach. But some mutual fund companies will waive the account minimums if you agree to automatic monthly investments of between $50 and $100.
Automatic investing is a common feature with mutual fund and ETF IRA accounts. It’s less common with taxable accounts, though its always worth asking if it’s available. Mutual fund companies that have been known to do this include Dreyfus, Transamerica, and T. Rowe Price.
An automatic investing arrangement is particularly convenient if you can do it through payroll savings. You can typically set up an automatic deposit situation through your payroll, in much the same way that you do with an employer-sponsored retirement plan. Just ask your human resources department how to set it up.
5. Play it safe with Treasury securities
Not many small investors begin their investment journey with US Treasury securities, but you can. You’ll never get rich with these securities, but it is an excellent place to park your money—and earn some interest—until you are ready to go into higher risk/higher return investments.
Treasury securities, also known as savings bonds, are easy to buy through the US Treasury’s bond portal Treasury Direct. There you can buy fixed-income US government securities with maturities of anywhere from 30 days to 30 years in denominations as low as $100.
You can also use Treasury Direct to buy Treasury Inflation Protected Securities, or TIPS. These not only pay interest, but they also make periodic principal adjustments to account for inflation based on changes in the consumer price index.
And as is the case with mutual funds, you can also arrange to have your Treasury Direct account funded through payroll savings.
There are plenty of ways to start investing with little money, with many online and app based platforms making it easier than ever. All you have to do is start somewhere. Once you do, it will get easier as time goes on, and your future self will love you for it.