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6 Easy Ways To Start Investing With Little Money

Modified date: April 6, 2020

I’m here to tell you: You don’t need to be the Wolf of Wall Street to start investing. It’s okay if you’re more of a mouse of Main Street. Even if you only have a few dollars to spare, your money will grow with compound interest.

The key to building wealth is developing good habits—like regularly putting money away every month. Swap out the barista-made cappuccinos for coffee at home and you could already be saving more than $50 a month.

Once you have a little money to play with, you can start to invest.

In 2020, you can get a date, a ride or a pizza with the swipe of a smartphone screen. Investing is no different. If you can automate your bills, why not your investments? It’s just as easy.

With a robo-advisor, you can make your money work while you play. And just like Halloween costumes, investing comes in many different forms. It shouldn’t be a scary word.

Whether it’s opening a savings account, investing in your retirement or the real estate market, investing for beginners is simpler and more straightforward than ever before.

Soon you’ll see how addictive growing your money can be.

Here are six simple ways to get there:

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.

Discover Bank currently offers a strong 1.50% APY on their online savings account. There is no minimum deposit required and no monthly maintenance fees (or other fees) associated with a Discover Bank online savings account so the yield is earned on all balances.

The brand also offers high-yield CD’s, checking and money market accounts so if you want to diversify your deposits portfolio a little bit, Discover Bank has a lot of what you need.

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.

Prefer that money to be invested right away? Consider an online discount broker like You Invest by J.P. Morgan. You Invest offers fee-free stock trades, fee-free options trades and fee-free ETF trades. Plus, they’re also offering up to a $625 cash bonus for new accounts.

You can link your Chase You Invest account to the variety of other Chase products (deposits, mortgages, credit cards etc.) so that all of your important financial accounts are in the same place.

2. Let a robo-advisor invest your money for you

Robo-advisors were created to make investing as simple and accessible as possible. No prior investment experience is required and set-up is easy. Let their automated intelligence track your investments in the background, and pay lower fees in the process.

Wealthfront

A robo-advisor that I highly recommend to first-time investors is Wealthfront. Their fees are reasonable at 0.25%, but the kicker is that you can get your first $5,000 managed free (specific to MU30 readers).

So if you’re looking to start investing with little money, Wealthfront could be the way to go. You will need $500 to get started though with Wealthfront so keep that in mind.

M1 Finance

If you don’t have that $500 starting balance, there are still great options for you in the Robo-advising space. M1 Finance charges no commissions or management fees, and their minimum starting balance is just $100.

You can choose from one of their pre-made diversified portfolios or customize your own by purchasing stocks and ETFs through their platform. The user interface is super easy to use.

Betterment

If you’re starting out with less than $100, you may want to consider Betterment, which has no minimum starting balance whatsoever. Like M1, it’s also great for beginners as it provides a super simple platform and a hassle-free approach to investing.

3. Make your first steps in real estate market

Real estate investing does not have to be for the very rich. There are many options for real estate crowdfunding and though this may seem like something you’d be nervous about looking into – it actually can be an intriguing investment.

With Fundrise’s really easy-to-use online platform, you simply need a starting minimum investment of $500. So if you’re an unaccredited investor, you can buy properties without paying those very large fees that end up being a deal-breaker if you want to start dabbling in real estate. By managing your own portfolio, the fees come to just 1% and Fundrise always offers a 90 days satisfaction guarantee.

4. 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.

Blooom is a great tool for hands-off investment management of your 401(k). They’ll give you a free 401(k) analysis, telling you where and how they can optimize your investments. Check out our review of Blooom; if you decide to use their services, you’ll be charged a reasonable $10 per month.

And Blooom has got a special promotion right now: get $15 off your first year of Blooom with code BLMSMART

5. 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.

6. 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.

Bonus idea – Consider a 5% return with Worthy Bonds

For as little as $10, you can invest in Worthy Bonds. Worthy Bonds are fixed interest bonds that fund loans for creditworthy American businesses. The bonds have a term of 36-months, but interest is paid weekly and you can withdraw your money at ANY time, without penalty. Buy as many $10 bonds as you’d like.

The simple idea is that Worthy is going to take the money you use to buy bonds and invest it into companies with a greater return than 5%. They win, you win and it’s a fixed rate so you know the rate of return every day.

The platform is open to all U.S. investors and can be a great way to diversify your portfolio with a low-risk solution. Worthy only invests in fully secured loans (liquid assets having a value significantly greater than the loan amount), so the quality of loan and investment is always high caliber.

Summary

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.

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Start Investing with Little Money

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Article comments

We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30. Comments have not been reviewed or approved by any advertiser, nor are they reviewed, approved, or endorsed by our partners. It is not our partner’s responsibility to ensure all posts or questions are answered.

Good tips, thanks

Investment is a good thing especially when you invest in the stock market and know the history and the performance of the company, its annual turnover.

Not going to McDonald’s… Exactly what I was talking about previously. No, you have good advises here, people in disadvantaged positions may not have choices other than the ones you describe above or may have to consider the choices you describe above but no one dreams about “not going to McDonald’s” or whatever other fast food joint (I’m kidding here) people prefer. I immensely enjoy all your and many other finance-related articles. I want to educate myself. I am dreaming about investing, and I have no background in it, so I want to read as much about finance-related topics as I can. I have basic knowledge of a lot of things but I’ve never done investing. I recently started reading stuff on investing. You no doubt have great articles, obviously, great language, great page design, FANTASTIC. You know what? These would be fantastic articles for classes in shelters where people, of course, are trying to get on their feet. Homeless shelters already have a lot of classes probably including financial ones, you have language and design here that is understandable by everyone, and you talk here, you know, about things that maybe relevant to people in homeless shelters. You don’t talk here about ways to buy mansions, do you, and a lot of inhabitants of homeless shelters work, you talk about things here many homeless can relate to-saving money, even investing. It looks like modern investing requires very little money, and no doubt, many homeless people may have a little bit of money, right? Many of them work. You have wonderful topics here for those institutions, absolutely. Add to such lectures a few Oreo cookies and/or candies, and you are all set, right? Hey, I am trying to be modest here, if that was me, I had permission and a lot of money, I would give homeless more than Oreo cookies but a lot of people do not think that way. All right, guys, thank you very much for your wonderful articles, how are you doing? I am doing all right, is everyone getting prepared for the holiday season? At first Columbus Day, then-Veteran’s Day, then-Thanksgiving, holidays are coming up! Thank you very much for your wonderful articles.

This is a really silly question but i honestly do not know the answer. If you invest in stocks or bonds and they go south can you end up losing more than your originL investment? Can you end up paying more?

Elle,
No with Common Stock and basic bonds you can never lose more than you invest. Most ways to lose more than you invest is to have controlling active ownership of companies or partnerships or invest in riskier things like options trading.

5 Things Amateur Investors Say Too Often

Many seasoned investors can tell the difference between an amateur investor and a professional one just by talking to them. It’s the language that matters. The following are some common investing statements that you should try to avoid using, as well as some helpful alternatives that will not only make you sound more knowledgeable and wise when discussing the markets but should also help you think more like a professional investor.

Statement No. 1: My investment in Company X is a sure thing

Misconception: If a company is hot, you’ll definitely see great returns by investing in it.

Explanation: No investment is a sure thing. Any company can hide serious problems from its investors. Many big-name companies—like Enron in 2001 and WorldCom in 2002—experienced sudden falls. Even the most financially sound company with the best management can be struck by an uncontrollable disaster or a major change in the marketplace, such as a new competitor or a change in technology.

Key Takeaways

  • Seasoned investors can often distinguish between professional and amateur investors just by talking to them.
  • No investment is a sure thing and experienced investors understand this.
  • Sometimes the best bargains are made when stocks are tanking.
  • Costs like fees and commissions can add up and eat away at returns.
  • Sometimes passive investing, which minimizes fees, is the best approach.
  • Diversification is a wise strategy, as an individual’s investments are spread across different assets like stocks, bonds, metals, and energy.

Furthermore, if you buy a stock when it’s hot, it might already be overvalued, which makes it harder to get a good return. One strategy to protect yourself from the disaster of one or to companies is to diversify your investments. This is particularly important if you choose to invest in individual stocks instead of, or in addition to, already-diversified mutual funds. To further improve your returns and reduce your risk when investing in individual stocks, learn how to identify companies that may not be glamorous, but offer long-term value.

An experienced investor would say: “I’m willing to bet that my investment in Company X will do great, but to be on the safe side, I’ve only invested 5% of my savings into it.”

Statement No. 2: I would never buy stocks now because the market is doing terribly

Misconception: It’s not a good idea to invest in something that is currently declining in price.

Explanation: If the stocks you’re purchasing still have stable fundamentals, the lower prices might only reflect short-term investor fear. In this case, look at the stocks you’re interested in as if they’re on sale. Take advantage of their temporarily lower prices and buy up.

However, do your due diligence first to find out why a stock’s price is driven down. Make sure it is just market doldrums and not a serious problem. Remember that the stock market is cyclical and just because most people are panic selling doesn’t mean you should too.

An experienced investor would say: “I’m getting great deals on stocks right now since the market is tanking. I’m going to love myself for this in a few years when things have turned around and stock prices have rebounded.”

Statement No. 3: I just hired a great new broker, and I’m sure to beat the market

Misconception: Actively managed investments do better than passively managed investments.

Explanation: Actively managed portfolios tend to underperform the market for several reasons.

Here are three important ones:

1. Many online discount brokerage companies charge a fee of at least $5 per trade and that is with you doing the work yourself. If you hire a broker or advisor to do the work for you, your fees can be significantly higher and may also include advisory fees. These costs add up over time, eating into your returns.

2. There is a risk that your broker will mismanage your portfolio. Brokers can pad their own pockets by engaging in excessive trading to increase commissions or choosing investments that aren’t appropriate for your goals just to receive a company incentive or bonus.

Investors should pay attention to the fiduciary rule introduced by the Department of Labor, which requires advisors to disclose commissions and eliminate any possible conflicts of interest.

3. The odds are slim that you can find a broker who can actually beat the market consistently. In other words, you might want to keep track of the broker or advisor’s performance over time to determine if the added costs and fees are justified.

Or, instead of hiring a broker who, because of the way the business is structured, may make decisions that aren’t in your best interests, go ahead and hire a fee-only financial planner. These planners don’t make any money off of your investment decisions; they only receive an hourly fee for their expert advice.

An experienced investor would say: “Now that I’ve hired a fee-only financial planner, my net worth will increase since I’ll have an unbiased professional helping me make sound investment decisions.”

Statement No. 4: My investments are well-diversified because I own a mutual fund that tracks the S&P 500

Misconception: Investing in many stocks makes you well-diversified.

Explanation: This isn’t a bad start, as owning shares of 500 stocks is better than owning just a few. However, to have a truly diversified portfolio, you’ll want to branch out into other asset classes like bonds, metals, energy, money market funds, international stock mutual funds, or exchange traded funds (ETF). In addition, since large-cap stocks dominate the S&P 500, you can diversify even further and potentially boost your overall returns by investing in a small-cap index fund or ETF.

An experienced investor would say: “I’ve diversified the stock component of my portfolio by buying an index fund that tracks the S&P 500, but that’s just one component of my portfolio.”

Statement No. 5: I made $1,000 in the stock market today

Misconception: You make money when your investments go up in value and you lose money when they go down.

Explanation: If your profit is only on paper, you have not gained any money. Nothing is set in stone until you actually sell. That’s yet another reason why you don’t need to worry too much about cyclical declines in the stock market because, if you hang onto your investments, there’s a very good chance that they increase in value. If you are a long-term investor, you’ll have plenty of good opportunities over the years to sell at a profit.

An experienced investor would say: “The value of my portfolio went up $1,000 today. I guess it was a good day in the market, but it doesn’t really affect me, since I’m not selling anytime soon.”

The Bottom Line

Some misconceptions are so widespread that even your smartest friends and acquaintances are likely to reference at least one of them from time to time. These people may even tell you you’re wrong if you try to correct them. Of course, in the end, the most important thing when it comes to your investments isn’t looking or sounding smart, but actually being smart. Avoid making the mistakes described in these five verbal blunders and you’ll be on the right path to higher returns.

Iger: Disney might take park goers’ temperatures much as bags are checked today

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These investing tips can help you make smarter decisions with your money

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