A myth about investing is that one has to have a large amount of money, at least thousands of dollars, to start investing. In fact, you can start to invest with very limited amount of money, even as little as a few dollars. The key is to develop a good habit to save and invest. Small money can still yield good returns down the road.
Here are five ways to invest with small money:
1. Invest in stock market using Robinhood app
If you are interested in buying few your favorite stocks, Robinhood is a great app that allows you to buy and sell stocks without paying a brokerage fee. Most discount brokerages (Ameritrade, Etrade, Schwab, etc) charge $5-$10 each time for individual stock trades.
That means as you are buying and selling stock shares, you lose a significant part of our returns because of the commission. Robinhood does NOT charge a single penny for brokerage fee.
Unlike many online brokers that require $1,000 or more for opening an account, Robinhood has no minimum deposit requirement. Therefore, you don’t have to accumulate a fortune to make an investment. It is totally fine to start small, with a few hundred dollars, even just a few bucks.
2. Invest your spare change with Acorns
What do you do with your spare change? Small money can add up. Acorns is an app that allows you round up your purchase to the nearest dollar and invest your spare change in the low-cost exchange-traded funds, or ETFs.
For example, if you spend a $4.50 on a sandwich shop, Acorns will automatically round up to $5 on your credit card and invest the extra fifty cents in your account. It’s a great way to grow your wealth with very little money to get started.
There is no minimum balance requirement. The monthly fee is only $1 for accounts with a balance under $5,000 and a 0.25% management fee for accounts with a $5,000 + balance.
3. Use Robo-advisor investing
Choose a right stock for your investment is not an easy job and hiring a financial advisor is not worth your small money. That is why robo-advisors are created to use algorithm to make investing easy and accessible to people without prior investing experience.
Betterment is a fantastic robo-advisor investment platform that creates a low-cost, diversified plan for you, and then constantly manages your account through. The management fee is 0.25% of your total investment, no minimum balance required.
Wealthsimple is another awesome robo-advisor, which has no minimum amount requirement. It’s a good way to optimize your portfolio even when you only have limited fund for investment.
4. Lend money to others through a peer-to-peer lending company
If you don’t like the ups and downs associated with the stock market, you can try another option to invest your money in peer-to-peer lending. Peer to peer lending companies, such as LendingClub, offer investors access to the consumer credit asset class which is usually only available to banks and large institutions.
The minimum deposit required to open an account with LendingClub is $1,000 and you can lend your $1,000 to four different people in order to diversify your risk and maximize the return. The historical data shows a 3-8% annual return on your investment.
Personal lending could be a good choice to diversify your portfolio beyond the stocks and bonds.
5. Save up cash to invest in index mutual fund
The index mutual funds such as Vanguard 500 Index fund are great long-term investment options with extremely inexpensive expense ratio but impressive return. However, most mutual funds require a minimum of $2,500 to invest. When you have small amount of cash, save them until you reach $2,500 and then you can buy those index mutual funds. It offers excellent return with low cost.
Before you start investing, you should make sure you have enough money in your emergency fund and have paid off your high-interest debt. There are many ways to make and save up money by doing side hustles, earning cashback from shopping, and making referrals to your favorite programs and services.
Start to invest with little money. You will see a reward in the long run. Learn more about money making tips.