How To Start Investing With Little Money
You can do a lot with a little — even as an investor. If you have $1,000, $100, or even just $25, you can start investing today — right now.
You’re never going to get rich if you don’t invest in some form. Technically, even lottery winners invest their money (by buying tickets) before becoming millionaires (by getting lucky).
I’m not at all suggesting you play the lottery. I’m suggesting you start building a real investment portfolio instead — right now, with whatever amount of money you can spare.
15 Ways to Start Investing with Little Money
Here are 15 simple ways to invest small amounts of money:
- Real Estate Crowdfunding
- Invest Money In Fractional Shares with Public
- High Yield Savings Accounts
- Invest Spare Change with Acorns
- Commission Free Investing with Robinhood
- Certificates of Deposit
- Stash App for New Investors
- Ally Invest: For Banking & Investing
- Peer to Peer Lending
- U.S. Treasury Securities
- Employer-Sponsored Retirement Plan
- Gold & Other Precious Metals
- Stock Options
- Mutual Funds with Target Dates
Real Estate Crowdfunding
This one might surprise you, but you can invest in real estate without much money. With crowdfunded real estate, you can invest as little as $500.
The way it works is that you team up with other real estate investors, pool your money, and buy some real estate. You become a partial owner of the property.
Any profit made from selling the real estate, or earning income from ongoing rents, would come back to you.
Invest Money in Fractional Shares with the Public.com App
You can find a lot of solid investing apps that charge no commissions or fees. So why do I recommend the Public app for iOS or Android?
Because you can open an account and start investing in the stock market right away — even if you have only $1 to spare.
Public.com requires no minimum investment either to open an account or to invest in fractional shares of stocks, called slices.
You can also invest specifically in the kinds of companies you believe in through Public’s themes.
Whether it’s environmentally friendly companies or tech-driven firms, Public’s themes can help keep your investments aligned with your beliefs.
If you’re cash-poor or just not familiar with the basics of investing, Public can unlock the doors to the investing world.
Public.com no longer pays interest on uninvested cash.
High Yield Savings Accounts
Words like “investing,” “stock markets,” and “index funds” scare off a lot of would-be investors who think they’d need a finance degree to make good investments.
In reality, saving money in a high yield savings account is a form of investing, and you’ll have a hard time finding an easier way to invest.
Saving and investing are like siblings. You can’t really do one without the other. You can start slow — just save any loose change left over from the coffee you buy or the cost of parking. If you can put in, say, $5 a week, that can turn into $260 a year.
After 10 years — at 1% interest — you’d have $2,747. About $147 of that would be from compound interest. It’s not a lot of money, but you get the idea: Letting money grow slowly and steadily is a form of investing.
Today’s best online high yield savings accounts earn 0.8% to 1.4% interest which is a lot higher than the rate you’d get in a neighborhood bank account. If you do nothing else on this list, open up a high yield savings account today.
FDIC insurance provides the closest thing to a risk-free investment you’ll ever find — if you have $250,000 or less in your bank account.
Investment managers and financial advisors cost money, even if you open a brokerage account with a discount broker.
Coming up with enough money to invest and to pay fees and commissions on investments has rattled many would-be investors.
But cost is no longer a big issue. Now, a robo-advisor like Betterment can manage your portfolio for a small annual fee — 0.25% of your account balance, to be exact.
On a $1,000 account, you’d pay $2.50 a year in management fees.
Or, if that’s too steep, you could use M1 Finance which charges no annual fee to automatically spread your investments among different index funds and bonds. Computer software does the whole thing.
You can start with investments as small as $100, so it’s a great option if you want to avoid large fees and easier access to your money.
Invest Your Spare Change with Acorns
Acorns lets you invest your spare change — literally — by rounding up your debit or credit card purchases to the nearest dollar. This means you can start an investment account with no money!
Just link your credit or debit card to the app, and once your spare change balance has reached $5, you can start investing with Acorns’ algorithm which buys into exchange-traded funds or ETFs.
Unlike individual stocks, ETFs diversify your investment instantly. Your portfolio’s performance will normally track the broader stock market’s performance.
With Acorns, you can choose your own risk tolerance. The app will invest your money conservatively or aggressively based on your preferences.
It will even round up to the nearest $10 instead of the nearest $1 to increase your investment funds more rapidly.
Get Free Stock Market Trading with Robinhood
Robinhood pioneered commission-free investing through its app. You can trade individual stocks, options, ETF shares, and even cryptocurrency with this app.
Robinhood’s model was so successful almost every other broker has started commission-free trading in response.
But Robinhood still shines because you can open an account with no money, and you can buy fractional shares.
This means you can buy a piece of an individual stock even if you can’t afford a full share.
Since Robinhood was born in the smartphone age, the app works seamlessly on both iOS and Android phones.
You can’t trade mutual funds or open an IRA, but Robinhood is still a best investment option for new investors.
Certificates Of Deposit (CDs)
Certificates of deposit (CDs) work like savings accounts but you can earn higher interest rates by agreeing to leave the money alone for a set period of time known as a “term.”
Your CD’s term could be three months or five years. Normally, a longer term means you’ll earn higher interest rates. If you need the money before the CD’s term matures, you’d have to pay a fee and lose your earnings from interest.
The downside is that CDs offer much lower returns than other types of investments, but the risk is much lower. In fact, assuming you have an FDIC-insured bank, your risk is virtually non-existent.
Check today’s best cd rates.
Invest With the Stash App
The $1-a-month plan includes a checking account and a savings account, too.
You could easily transfer money into the stock market through exchange-traded funds or individual stocks.
And you could buy fractional shares to put smaller amounts of money in the stock market.
Stash also has automatic dividend reinvestment plans (DRIP) to keep even more of your money in play.
The whole point of Stash is to help new investors learn the ropes. If you already have investing experience but still want low fees and low minimum investments, see the Robinhood app above.
Ally Invest: For Banking & Investing
Ally Bank is one of my favorite online banks for high yield savings accounts. Now Ally has its own investment app, Ally Invest, and it’s a great fit for new investors with small amounts of money.
You can get commission-free trades on individual stocks, bonds, options, and exchange-traded funds.
There are no account minimums to meet before investing. (Ally does have high fees for mutual funds.)
All this sounds ideal, but I recommend Ally for new investors because of its research. For example, you can learn a lot about options and even run hypothetical scenarios before putting up actual money.
Since Ally has a quality high yield savings account, you can move money into Ally Invest seamlessly.
Peer to Peer Lending
If you have $1,000, you could lend the cash to someone else as a form of investing. This kind of investment can be risky because you don’t know if the borrower will honor his or her promise to repay the loan with interest.
So to lower this risk you could lend out your $1,000, in small installments of $25 or $50, to a lot of different people. This is how peer-to-peer (P2P) lending works.
Platforms like Prosper and Lending Club can help you get started with just a little bit of money. You choose which borrowers to finance.
You may want to try just a few smaller loans to see what the experience is like, then increase the amounts if you feel it’s worthwhile.
U.S. Treasury Securities
Although a Treasury security (aka a savings bond) isn’t a huge money-making investment option, it can be a stable place to put your money and earn some interest.
You can buy these through the U.S. Treasury’s online savings bond portal called Treasury Direct. You can buy fixed-rate bonds that have maturity periods from 30 days to 30 years. And the great news is that bonds can cost as little as $100.
These, too, can pull money right from your payroll if you’d like. If you’re interested in bonds but don’t want to buy them directly, robo-advisors like Betterment often mix in bond investments depending on your risk tolerance.
Employer-Sponsored Retirement Plan
Even if money is tight, you should contribute to the 401(k) your employer offers. You can choose the amount, so if you can only do $5 per paycheck, that’s at least a start.
This is so important because many employers match your contributions into your 401(k), up to a certain percentage. This means they’re giving you free money.
Many 401(k)s invest money in mutual funds for you so the money can grow with the market as you earn. Contributing to your 401(k) is one of the best personal finance choices you can make.
If your employer doesn’t have a 401(k) or equivalent, you can open an Individual Retirement Account (IRA) at a bank or through a stock broker.
With an IRA you can deposit money tax-free each year. (The tax-free max for 2020 is $6,000.) With a Roth IRA you don’t get the tax break now, but you can claim it after you retire when you withdraw the money.
Gold And Other Precious Metals
Investing in precious metals like gold or other metals can actually have a good payoff. There are doubters and critics, but the idea is that metals hold their value because they’re physical, tangible products.
The downside is that you won’t see dividends — it’s literally a piece of metal or rock that you’d lock away and hope to someday sell it for more than you bought it. However, the price of gold has gone up by over 300% in the bast three decades.
It’s a risk, and you’re basically hoping that the demand for gold and other precious metals will skyrocket and people will be desperate for it. Demand tends to increase when there’s market instability like there was when the Covid-19 pandemic started.
If you think it’s a viable investment, you can buy gold or precious metals through your brokerage or from the U.S. Mint.
You can buy “calls” or “puts.” Calls are options that are projected to go up in price. Puts are projected to fall.
Options let you lock in a price well in advance, insulating you against later market instability. In times of market turmoil, options can become exceedingly valuable.
As you can already tell, dealing with stock options can get very complicated — and they’re also pretty risky.
But small investors could earn big rewards so I’m including options on this list. I’d suggest doing a little more research and getting some solid financial advice before buying in.
When you’re ready, Robinhood, the app I mentioned above, lets you trade options without paying a commission.
Target-Date Mutual Funds
In the age of robo-advisors and self-directed investment apps that depend on exchange-traded funds, mutual funds can fall through the cracks.
But these professionally managed funds — which resemble ETFs that require more effort to trade — still have value, especially in the long run.
A target-date mutual fund, for example, can mix up your asset allocation as time passes and the target date approaches.
Early on, the mix will hold more individual stocks. Then, as your target-date approaches, the allocation will become more bond-heavy to lower the risk. This is an ideal option for passive investing.
I recommend looking into Vanguard’s target-date mutual funds.
Why Should You Invest Anyway?
Investing adds a third dimension to your personal finance life. Instead of depending solely on trading your time for money — by earning a wage or a salary from your job — you can start building another income stream through your investment portfolio.
At first, you won’t earn much. But that’s OK. Just get into the habit of diverting part of your monthly income into investments month after month and year after year.
Over time you can slowly decrease your dependence on working for income. For example, I made $45 an hour on my investments last year. (Warren Buffett made $1 million an hour from his!)
You’ll need time and patience to build this kind of investment portfolio. But you don’t need a huge amount of money to get started.
Start By Making Small Investments
There are several ways to start investing, even if you don’t have a ton of money in the bank — even if you have only $5 or so for your initial investment!
Yes, investing can be risky, especially when you’re buying securities and not CDs. We all fear the risk, but isn’t it a risk to not invest?
What happens if an emergency hits? What if you’re never financially free and can never afford to stop working all the time?
With these simple investment strategies, there is no excuse to wait until you have saved thousands. That’s the bottom line. You can start today!