15 Best Ways To Invest Small Amounts Of Money

15 Best Ways To Invest Small Amounts Of Money

1. Try the cookie jar approach

Source: Tenor.com

Source: Tenor.com

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 The money can be withdrawn in two business days if you need it, but it’s not linked to your debit card.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.

Read more: Best High Yield Savings Accounts Compared

5. Focus on the basics

Successful investments require a deep understanding of the stock markets. Only after knowing the nature of the stock market and analysing individual stocks, can you invest successfully. Knowing the basics is the first step towards making informed investment decisions. Having relevant knowledge will also help you understand the actual risks associated with an investment and ensure your investments are protected.

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3. Dollar-Cost Average Into Low-Cost ETFs or Mutual Funds

The Dollar-Cost Average strategy is popular among all investors who’d rather not invest a large lump sum only to immediately lose money due to a downturn in their investment.

To dollar-cost average into assets, simply adapt the cookie jar savings approach to investing. That is, deposit a small amount of money at regular intervals to ensure that the cost of your purchase averages out over time. Some of your money will invest in peaks and some in dips, so your cost will end up being the average.

If you don’t have enough money to buy one share of pricey individual stocks at a time or other expensive funds, there are a lot of cheaper ETFs and low minimum mutual funds available. While there are great lists found on investment websites and plenty to browse on Vanguard, here are some diverse ones to look into that could get you started:

  • iShares S&P Mid-Cap 400 Growth ETF: IJK, $77
  • Schwab Small Cap Index: SWSSX, $40
  • Schwab US Dividend Equity: SCHD, $54
  • Vanguard Total International Stock: VXUS, $52
  • Vanguard Total Stock Market ETF: VTI, $205
  • Vanguard Total World Stock Index Fund ETF: VT, $97
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2. Make up for missed contributions

Investing small amounts regularly is equally efficient as investing a lump-sum amount at once. The key is to be consistent and keep on investing at regular intervals. If an urgent situation arises and you miss an investment, make up for the missed amount by doubling the contribution on the next interval. Making up for missed investments will keep your financial goal on track and allow investment discipline in the long run.

7. Put your money in low-initial-investmentmutual 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. 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.

Read more: How To Buy A Mutual Fund

What is the Difference Between a Full-Service and a Discount Broker?

Full-service brokers provide a broad array of financial services, including offering financial advice for retirement, healthcare, and a host of investment products. They have traditionally catered to high-net-worth individuals and often require significant investments. Discount brokers have much lower thresholds for access, but also tend to offer a more streamlined set of services. Discount brokers allow users to place individual trades and also increasingly offer educational tools and other resources.

How to Start Investing Money

Many options exist for starting to invest money—ev

Many options exist for starting to invest money—even with small amounts—thanks to many new brokerages on the market.

Several offer fractional shares to invest your money, meaning instead of forking over $3,000+ for a single share of Google (GOOG), you can purchase a smaller fraction in line with the amount of money you have to invest and your desired investment.

Additionally, the best brokers and robo-advisors also avoid charging trading commissions for your investments, meaning you can contribute in increments as small as you can afford.

This is of particular importance to Millennials and Gen-Zers who may not have significant sums of money to invest all at once, but rather have small amounts of cash which come available after accounting for all of the expenses in the monthly budget.

Read below for some of the most popular financial apps for young adults or anyone looking at starting to invest your money.

1. : Best Free Stock App for Beginners to Invest Money

  • Available via desktop, Apple iOS and Android App on Google Play
  • Best For: New investors with limited capital
  • Sign up here

Public.com is a commission-free investing app that targets Millennials and Gen-Zers who have attuned their senses to social media. These age groups want to align their investing with their social preferences as well as keep good company to socialize and learn from others.

The stock investing app boasts an increasingly-common feature geared toward younger investors who may not have enough money to buy some higher cost shares at one time: fractional investing.

This product feature plays on the company’s mission of making the stock market an inclusive, educational investment opportunity which can be fun. They accomplish the latter point by allowing people to invest alongside friends and other well-regarded investors.

Much like social media platforms who provide the standard blue check mark logo to verify public figures, Public.com provides visibility into trade activity and other insights these verified investors wish to provide to the Public.com community.

Invest $20

Alright, maybe your idea of a small investment is closer to the $20 range. That’s totally fine – baby steps are better than no progress at all. 

The fact that you’re even thinking about investing when you only have $20 means you’re in the right mindset. One of the best things that you can do to begin investing when you have very little money is to form good habits. Practice these good habits with $20 and you’ll have a rich future ahead of you.

Don’t Wait

You can start forming good habits by taking money out to invest as soon as you receive your paycheck.

Most often, people end up taking the exact opposite approach, waiting to see how much money they have leftover before they invest. However, if you wait to see how much money you have leftover before investing it, the number will almost always be a big ‘ol zero.

Instead, invest your $20 straight out of your paycheck and watch it work for you. Setting aside money to invest right away, even as little as $20, can become a natural, nearly subconscious act when you do it regularly. 

Don’t Save It

Saving isn’t inherently bad, but if you want to get a great return on your money and create generational wealth, it won’t happen by throwing it in a savings account. 

Most saving accounts provide less than 1% interest, which means you can’t even beat inflation, which means your money won’t really grow at all. 

Often, people will also look to a money market account, as it offers many of the same benefits, however, a money market account generally requires a higher minimum deposit than a savings account.

So, instead, think of your investment account as your savings account and you’ll be well on your way to “saving” $10,000 this year (if you’re lucky).

Avoid Money Traps 

It’s simply too easy to spend money rather than investing it if you make spending it an option.

Things like fancy cars, new tech, and weekend parties can mean you have less to invest. Avoid these money traps and focus on the promise you made to yourself.

Take your $20 and invest it in a great company rather than its fancy product.

Peer-to-Peer Lending

As a borrower, peer-to-peer lending (P2P) is an alternative to banks that allows you to borrow money directly from peer lenders. Yet, as an investor, P2P lending platforms give you an opportunity to fund a portion of these loans.

When investors open an account with a P2P platform, their deposits are dispersed into various loans. Essentially, you lend your money and get paid back in interest.

While every investor’s risk will vary depending on the borrower, P2P has the potential to earn a higher rate of a return. As an example, if your $100 investment is split between four loans — not only do you diversify your risk, but you’ll also earn a higher ROI through interest payments from four installment loans.

Pros and Cons

Potential for higher rate of return than a CD or savings accountPassive online platform

Risk of borrower defaulting on the loan

10. US Treasury Securities

If you are looking for a more conservative investment, one where your principal is protected from market swings, you can invest in US Treasury Securities.

These are debt obligations issued by the United States Treasury Department, to fund the national debt. Securities have maturities ranging from 30 days to 30 years (longer-term maturities do involve a risk of principal if you sell before maturity).

You can invest in these securities through the US Treasury Department’s portal Treasury Direct. By using the portal, you’ll be able to buy US government securities in denominations as low as $100.

You can sell your securities there as well, and there are no early withdrawal penalties for doing so.

You can also use Treasury Direct to buy Treasury Inflation-Protected Securities (TIPS) too. These not only pay interest, but also make periodic principal adjustments to account for inflation based on changes in the Consumer Price Index.

About the Author

Brenda Zhang is a technology, finance and game writer with over a decade of writing experience and too many blogs to count. She has worked in biology labs, psychology labs, tech startups and big corporations. A San Francisco-based software engineer by day and an interdisciplinary writer by night, she connects her seemingly unrelated experience in multiple fields to reveal new insights.

Invest in ETFs

Are you thinking of investing in something like a mutual fund so that you can achieve instant diversification? If you don’t have a high initial deposit to make it happen, you may want to consider buying shares of an exchange-traded fund. Unlike mutual funds, which may impose a minimum initial investment, ETFs trade like stocks. They have a specific share price and can be purchased through virtually any broker. With an ETF, you can buy just a couple of shares as long as you have enough money to buy them.

ETFs don’t come without drawbacks. For one thing, you have to purchase whole shares. Second, you’ll typically pay a trading commission each time you make a trade. Since commissions can generally run anywhere from $4.50 to $11, they can quickly eat into your investment. If you purchase ETFs less frequently and with slightly larger amounts of money, you can keep your transaction costs down.

What makes a good short-term investment?

Good short-term investments may have many things in common, but they are typically characterized by the following three traits:

  • Stability: Good short-term investments don’t fluctuate too much in value, as many stocks and bonds do. The money will be there when you need it, and is often protected by FDIC insurance or a government guarantee.
  • Liquidity: A good short-term investment usually offers high liquidity, meaning that you can access the cash invested in it quickly. In the case of certain CDs, you’ll know when the money becomes available, and you can always redeem the CD, though it will often come with a penalty, unless you opt for a no-penalty CD.
  • Low transaction costs: A good short-term investment doesn’t cost a lot of money to get into or out of, unlike a house, for example. That’s especially important when yields on short-term investments are at historical lows.

These features mean that your money will not be at risk and will be accessible when you need to use it, which is one of the major reasons to have a short-term investment. In contrast, you can earn a higher return on long-term investments but must endure more short-term volatility. If you need that money, though, you might have to sell at a loss to access it fully.

1. Start an emergency fund

It’s understandable if your first thought was to start by taking your $100 and buying stocks, cryptocurrencies, or some other investment that could double, triple, or even increase your money 10-fold. After all, the stock market has proven itself to be the simplest and most accessible way for people to build their wealth over time. Many cryptocurrencies have gained enormously in value over the past few years. 

But those assets are also volatile. They can fall in value very sharply with little or no warning and often without a clear reason why. That’s not a big deal if you’re able to buy and hold, and so long as you own a diversified mix of investments where your winners can make up for a few losers. Time in the market will help you create wealth.

But what if you can’t just hold those investments through a crash and have to sell because you need the money? A little bad luck and timing could mean your $100 investment is now worth $80, or $50, or even less. That’s why starting with money in savings is far more important than choosing investments that can be really volatile.

Imagine if you were to lose your job or suffer an unexpected illness or accident that affected your income for weeks or even months. Having several months’ worth of income available in cash can mean keeping life’s unexpected events from damaging your financial plans. Interest rates on savings accounts aren’t very high, but this is about protecting your downside — not capturing high returns.

Open a Robo-Advisor Account

If you’re new to investing, the idea of managing your own investment accounts can be daunting. Even if you have some experience, you may not have the time or desire to do the necessary research and work to maintain a well-balanced portfolio.

A robo-advisor can be a nice way to build an investment portfolio. Robo-advising provides an inexpensive option to traditional investment managers. In most cases, robo-advisors use algorithms and advanced software to manage your investments, trade and make stock purchases on your behalf. In some cases, however, they may combine algorithms and human insight to help you maximize your returns. Depending on the platform, most robo-advisors have no or low minimum investment requirements.

Robo-advisors like Betterment, Ellevest and Blooom require no minimum deposit to start. Thus, you can begin investing with these platforms for less than $100.

Using a micro-investing app

Micro-investing allows people to get started investing with lower initial investments. Even small amounts of money can build up over time. So, consider using a micro-investment app that offers educational tools that help you both understand your risk tolerance and help you make safe investments. As an example, low-priced stocks (like penny stocks) may seem like a deal — especially when you read online investing forums — but they can be volatile investments that may be better suited for more experienced day traders.

If you determine that you have a low risk tolerance, there’s nothing wrong with putting your savings to work with a high-yield savings account that offers compound interest.

Best Robo-Advisors Deals

Pros and Cons

Getting started is simplifiedGuided and automatic investingMay be good for new investorsLow cost options available

Stocks can be high riskMarket can be volatileLow returns and no guarantee of returns

6. Open an IRA

Have an extra $100 you want to invest for retirement above and beyond your company 401(k)? An individual retirement account (IRA) is a great way to go and can turn even small sums of money into a big nest egg over time.

Let’s say that you stash $100 a month in an IRA for 30 years. Based on the S&P 500’s historical performance, the $36,000 you invested would be worth nearly $180,000. That’s the power of compounding gains over time.

Why an IRA? In a word, taxes. With a traditional IRA, you gain similar benefits as with a 401(k), reducing income taxes by cutting your taxable income each year you contribute while also growing your nest egg tax-free until you start taking distributions in retirement.

With a Roth IRA, you get the same tax-free growth as with a traditional IRA. But instead of getting to lower your taxable income each year you make contributions, distributions in retirement are 100% tax-free.

Should I invest or pay off debt first?

Having debt while trying to build wealth is like running up an escalator that is moving downwards. It’s not impossible to climb your way up, but with each step forward you are still moving backwards a little.

New investments may make you money, but if you carry consumer debt, the interest payment may wipe away all your gains. Typically, it’s smarter to abolish all high interest debt instead of investing. Pay off your high interest credit cards, car loans, and personal loans as soon as possible.

Paying off debt is a form of investing. It’s risk free, provides an instant return, and can improve your credit score in many ways.

Read more: Ways to get out of debt fast.

How to Start Investing Your Money: Develop Your Investing Approach

As I explained this to my brother-in-law, I could

As I explained this to my brother-in-law, I could see his disappointment in my not knowing any shortcuts to overnight investing success.

However, we launched into a discussion around how he could develop his own disciplined investing approach by first becoming a student of markets.

Knowing that this discussion could become overly cumbersome in just one conversation, I decided to share only introductory steps, which I outline below.

Investing isn’t easy but, at the same time, it shouldn’t be seen as a frightening endeavor. If done wisely and consistently, investing can separate you from retiring comfortably at a reasonable age and working into your golden years out of necessity.

We all want a comfortable retirement, so why shouldn’t we make smart decisions to get there?

With that thinking, I will do the same here. Short of a formal education in finance, my five high-level steps for gaining familiarity with investing in the stock market are as follows:

Short-term investments: Safe but lower yield

The safety of short-term investments comes at a cost. You likely won’t be able to earn as much in a short-term investment as you would in a long-term investment. If you invest for the short term, you’ll be limited to certain types of investments and shouldn’t buy riskier assets such as stocks and stock funds. (But if you can invest for the long term, here’s how to buy stocks.)

Short-term investments do have a couple of advantages, however. They’re often highly liquid, so you can get your money whenever you need it. Also, they tend to be lower risk than long-term investments, so you may have limited downside or even none at all.

How Do Commissions and Fees Work?

Most brokers charge customers a commission for every trade. These tend to range anywhere up to about $10 per trade. Because of the cost of commissions, investors generally find it prudent to limit the total number of trades that they make to avoid spending extra money on fees. Certain other types of investments, such as exchange-traded funds, carry fees in order to cover the costs of fund management.

What’s the best way to invest money for the short term?

If you are likely to need your money in less than five years, it’s best to leave the money in cash rather than invest.

The stock market could fall in the short term, meaning you would lose money on your investments if you tried to take it out when the market was down.

But be warned, interest rates are historically low at the moment so you won’t get a great return.

Tie up your money in a fixed-term cash ISA of between one and five years, or put it into a high-interest account like a regular savings account, for a chance of a slightly better return.

Automate Your Savings

As I mentioned earlier, the more you can save now, the more it will pay off in the future. If you don’t have a lot of money to invest in 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.

I would also recommend finding ways to save a little extra money to put aside for these investments. This could be going out to eat one less time per week or skipping Starbucks once a week and making your own coffee at home. If you’re really serious, get a part-time job and invest all of those wages. Or start a side hustle or a DoorDash delivery gig and invest your earnings.

The amount you save now can passively grow exponentially with the right investments. Let us show you how to get started investing and how to use small investments to make money.

15. Your Own Business

I’ve discussed investing in other businesses so far, but if you’re looking to invest small amounts of money, investing in your own business could prove to be the best choice of all. After all, who better to invest in than yourself?

For example, for a few hundred dollars you can buy a decent lawnmower, and start cutting lawns to generate income.

With that few hundred dollar investments, you could have more than five thousand dollars to invest in no time.

You could also start a website, dedicated to selling a certain product line. Or you can start a blog and use it to create affiliate sales arrangements.

If it’s something you might enjoy doing, you could go to garage sales, estate sales, flea markets, and thrift stores, or buy unusual goods and sell them at a profit on eBay or Craigslist.

With advances in technology and the growth of the Internet, it’s easier than ever to start your own home-based business on a shoestring.

If you only have a few hundred dollars to invest, investing in starting your own business could be the most profitable venture of all. Many business owners start out by picking up a part-time job or side hustling to make extra cash to get their business up and going.

A great side hustle is to become an Uber driver, you can create your own schedule and just sit back and drive and earn extra cash to throw at that dream of yours!

So here you have 15 ways to invest small amounts of money, so there’s nothing stopping you from investing in something. Investing is one of those activities where the most important step is getting started, and here are the ways you can do it.

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