A common complaint I hear a lot of from would be investors is how to start investing with a small amount of money.
Most people don’t have a few grand laying around to put into the market and so they just sit on the sideline instead, thinking that $100 won’t matter in the long run.
If this describes your situation, I have great news for you. This post is going to show you just how easy it is to start investing with a small amount of money.
You don’t need thousands to get started down the path of financial freedom. In fact, in one case, you can start out with just $10!
And I will show you how started investing with very little money and grew my wealth to close to $1 million today.
How To Start Investing With A Small Amount of Money
Years ago, if you didn’t have a few grand laying around collecting dust, your investment options were slim to none. But thanks to technology and some government regulation, small investors can get started investing with a few dollars.
In fact, many of these options allow you to start investing $100 a month or less. Below are 4 of my favorite small investments that make money.
#1. Invest In Your 401k Plan
Many of us that work are covered by a 401k plan. This is the easiest way to get started investing in the stock market with a small amount of money. And for many reading this, it is the best way you can start doing so with less than $10.
How? You decide how much of a percentage of your salary you save in your 401k plan.
If you make $20,000 and save just 1%, then you are saving $3.85 per paycheck if you get paid weekly.
Now, don’t make the mistake of thinking that $3.85 won’t turn into anything big, because it will if you stick with it. Compound interest is truly your best friend when it comes to building your wealth.
Here is how I used my 401k plan to invest very little money and allowed compounding to work its magic.
When I started out working, I was making $25,000 a year. I was investing 5% each paycheck in my 401k plan. Since I was paid biweekly, I was investing about $48 per paycheck.
Nothing huge and at the time, I even questioned if it was even worth investing.
As time went on however, compounding started to work its magic and grow my account value.
After 1 year of contributing $1,250 to my account, it had grown to just over $1,500. The next year it grew to more than $3,500.
I quickly became a believer in investing small amounts of money.
As great as compound interest is, there was another factor at play too. I was getting raises on a regular basis.
Fast forward 5 years and I was making $40,000 a year. Still saving 5% of my paycheck, I was now investing over $75 biweekly. This along with compound interest kept my account balance growing.
At this point I began to increase the amount I was saving as I was excited to watch my account balance grow.
If you want to get started investing, your 401k plan is the easiest way to make smaller investments and watch it grow.
Just start by contributing 3-5% and then make sure you increase the amount you save each year, not just through raise but through increasing your contribution amount too.
#2. Look Into Mutual Funds
If you aren’t covered by a 401k plan at work, or you want to invest small amounts of money somewhere else in addition to your 401k plan, you can look into mutual funds.
While many mutual funds have large account minimums, there are many that have much lower minimums so that first time investors can invest with a small amount of money.
Case in point are Schwab Funds. You can start investing $100 in these funds. Even better, you can make additional purchases with as little as $1. That isn’t a typo.
Schwab has a large variety of funds, and many of their index based funds have good returns and low expense ratios.
When I started to invest outside of my 401k plan, this is where I went since it allowed me to invest with a small amount of money.
In addition to their mutual funds, you can choose to invest in Schwab ETFs. There is no commission and you can buy just 1 share at a time. They even have a large collection of other no fee ETFs you can trade for free.
One other thing to look at with mutual funds is automatic investment plans. Many fund companies will waive the normal minimum initial investment if you sign up for a monthly investment each month.
In this case, the mutual fund will electronically transfer money from your linked checking account to the fund on the day of the month you chose. This can be done with as little as $50 and there is no charge.
Be sure to inquire with the mutual fund company to see if they will waive the minimum for you in exchange for a monthly automatic investment.
#3. Invest With Betterment
Your next option for investing with a small amount of money is going with a robo-advisor. In this class of investing firms, I like Betterment. To understand why they are called robo-advisors, you need to understand how they operate.
In basic terms, you open a free account and then choose a goal. This can be to buy a house, fund your retirement, save for your kid’s college or just plain investing.
Based on your goal and the time until you reach your goal, Betterment will assign a portfolio with an asset allocation for you.
Once you have everything picked out, you link your checking account and the amount you want to invest each month and you are done.
Betterment will invest the money each month, reinvest any dividends, rebalance your portfolio and perform any tax-loss harvesting for you.
This is why they are considered a robo-advisor. Everything is done for you, like a robot. They take out emotion from investing, which is the main reason most investors fail.
Click here to get started investing with Betterment.
Wealthsimple is another robo-advisor like Betterment. But they do things a little bit differently, which is a benefit to small investors and allows you to easily invest very little money.
Just how little am I talking about? How about investing your spare change?
With Wealthsimple, you can choose to have them round up your purchases to the next dollar and invest the difference.
For example, if you buy groceries for $48.25, Wealthsimple will round up this purchase to $49.00 and invest the $0.75 for you.
I know what you are thinking, investing your spare change isn’t worth it. But remember my 401k example earlier. This is the same idea and it works thanks to compounding.
I tested this out by asking some people to share their expenses with me for 1 year. I took the amounts and rounded them up. The average round up amount for 1 year worth of spending came to $750.
If we invest $750 a year for 15 years, you end up with close to $22,000!
As I said, compounding works magic for you.
Aside from the round up feature, Wealthsimple works like other robo-advisors by picking an asset allocation for you, reinvesting dividends, etc.
They are a great option to consider when you are looking for small investment that make money.
To get started with Wealthsimple, click here.
#4. Direct Stock Purchase Plans
The downside of investing in stocks is twofold.
First, you need enough money to buy a good number of shares and you can only buy whole shares. The second issue is commissions. In order to buy a stock, a broker has to place the order for you. They charge a fee for this.
Even if you chose a discount broker with a low trade fee, you are still paying a huge percentage of your money in fees.
For example, if you are charged $7 per trade, and you are buying a share of stock each month with $50, you are paying 14% commission! A better solution is to buy stock directly from the company themselves.
Doing this allows you to buy small shares of stocks without getting slammed with fees.
Many large companies like General Electric, Home Depot, and Kellogg have direct stock investment plans. The way they work is simple.
You open an account with the company’s transfer agent. The minimum initial investment varies from company to company, and could be $500. You will pay a “first-time” purchase fee, usually $5, then will pay roughly $2.50 for each purchase you make thereafter.
Most charge a fee of $10 when you want to sell as well.
There are many companies however who don’t charge a fee for additional purchases as long as you set up a recurring purchase. The great part is that you can buy fractional shares. So, if you have $50 to invest, you could buy 2.25 shares of a stock.
You can find a ton of companies by searching through a popular transfer agent, Computershare.
If you can’t find your favorite company there, you can go to the investor relations section on the website of the company you want to invest in and see if they have a plan and a link to join.
#5. M1 Finance
As great as direct stock purchase plans sound for buying small shares of stock, there is an even better option out there. It’s called M1 Finance.
They are a twist on the robo-advisor market by allowing you to invest in stocks without paying any fees. That is right, you can invest with M1 Finance for free!
You can choose from a custom built stock portfolio based on your goals or interests or you can build a completely customized stock portfolio yourself.
Once you have your portfolio, you set up a monthly transfer and then M1 will buy stocks for you. If your monthly investment isn’t enough to buy a whole share of stock, M1 will buy a fractional share for you.
To get started with M1 Finance, click here.
#6. Invest In Worthy Bonds
Up until now, the ideas I list all involve investing in the stock market. While the stock market is a great place to grow your wealth, you don’t need to invest 100% of your money into it.
The only problem with not investing in the stock market is finding a decent return on your money. This is where Worthy Bonds come into play.
Worthy Bonds invests in small businesses by funding their inventory needs. To do so, small investors like you invest in Worthy Bonds.
Here is how this works. You invest $100 and buy 10 bonds. Worthy turns around and gives the $100 to a small business to help fund their business. By loaning the $100 to the small business, Worthy has them pay interest.
Worthy then turns around and pays you a portion of this interest.
Right now, you earn 5% on your investment and you can start investing with as little as $100. They also allow you to round up your purchases to buy additional bonds using your spare change.
They are a great option for small investors to get a good interest rate and keep your money safe at the same time.
You can click here to get started with Worthy Bonds!
How I Built My Wealth By Investing Very Little Money
As I mentioned, I started off investing very little money in my 401k plan. At first, I didn’t invest additional money because I didn’t think it was worth investing small amounts of money.
But as I saw my 401k balance grow, and grow faster than I thought possible, I was interested in investing more money.
The only catch was I still didn’t have a lot of money to invest. In fact, I only had around $25 to spare.
I did my research and that is when I found Schwab mutual funds. I saved up $300 and bought 3 mutual funds. Then each month I invested $25. The first month the $25 went into one mutual fund,. The next month it was invested in another one. Then the next.
After the third month, I started back with the first mutual fund. I kept doing this until I had more money to invest. Eventually, I was investing $100 a month in each fund.
The path to $1 million wasn’t a straight line, but I made it in less than 20 years.
The most important factors that helped me were:
- I believed in compound interest and knew investing small amounts of money would pay off
- I kept investing, regardless of what was happening in the stock market
- I increased my investment amount as often as I could
By doing all of these, I grew my wealth much faster than I ever thought possible. And it all started by investing very little money.
Your Best Option Investing Small Amounts Of Money
Now that you know your options for investing small amounts of money, which is the best one for you?
For most of you reading this, I think that using a combination of options like I did is your best option. Here are the best small investments for beginners that will grow your wealth.
#1. Invest in your 401k plan. Start by investing 3-5% if money is tight. If you can afford to invest more, then do so. Eventually, you want to get to 15%.
#1a. If you aren’t covered by a 401k plan, open a Roth IRA with Schwab. You can get started for $100 and then invest $20 a month from there.
#2. Invest with Betterment. Take advantage of the robo-advisor doing everything for you.
#4. Invest with Worthy. Opt to have them round up your spare change and effortless grow your wealth.
By following this plan, you will invest very little money and in time, will see it grow into larger sums. But as simple as it is, you have to keep a few things in mind to really make it work.
Key Points To Success
Here are 3 things to keep in mind to truly make investing small amounts of money work for you.
#1. Change your mindset. Don’t make the mistake of thinking investing very little money isn’t going to pay off. It will in time.
#2. Stick with it long term. You have to keep investing for the long term. This means when the market is rising and falling. This is made easy by setting up an automatic investment plan. This ensures you invest all the time. You can’t let fear overtake you and stop investing.
If you do let fear control you, you will never see the results of investing.
#3. Invest more money. As time goes on and you earn more money and keep your spending in check, you should have more money to invest. Make sure you actively increase the amount fo money you are investing.
Doing this puts compounding into overdrive and really offers results.
For example, let’s say you start off investing $100 and then invest $25 a month for 20 years. You end up with over $15,000.
But what if 10 years in, you were able to start investing $100 a month? At the end of the 20 years you end up with close to $30,000.
You nearly doubled your wealth by investing a little more money!
Investing more money allows compound interest to work even faster, which means you grow your wealth even faster.
At the end of the day, you have options when it comes to investing with a small amount of money. The easiest place to start is with your 401k plan at work and then do some research to see which of the other options will best meet your needs.
But whatever you do, don’t fall into the trap of thinking a few dollars here and there won’t matter. Thanks to the power of time, your money will grow.
But it will only grow if you actually take that first step and start investing. It won’t become a million dollars tomorrow, but in time, you will be amazed at how much your investments grow in value.