You’ve probably heard the term investing, though you may think it’s something that’s reserved for those with loads of extra money laying around. But we’re here to let you know that’s a total myth! The truth is you can start investing with as little as a few dollars.
Sound interesting? Read on to see how to start investing, and why the decision to do so can be one the smartest money move in the world!
- Why invest?
- What are investments?
- Pros and cons of investing small amounts
- Ideal investments for beginners
- How to start investing with $100
- Bottom line
If you want to grow your wealth (aka, have more money), investing can be a smart way to do it. Plus, it can be extra powerful in the long-term.
Example: Let’s say you have $100 to put in, and the investment you choose grows an average of 6% per year. At the end of the first year, you will have $106. But keep it in even longer and at the end of 20 years, that $100 investment will triple and it would be worth $318. And if you added $100 to your investment each year for 20 years? Your investment will grow to $2,318.
Of course investments aren’t guaranteed to grow in value — sometimes they do the opposite. But the goal is to pick investments that will average solid growth over the years, even if there are little bumps along the way.
What are investments?
When you invest, you buy something (an asset) in the hopes that it will generate more money. Here are some examples of common investments:
- Stocks: When you buy a stock, you are buying a small piece of a company. If the company performs well and more people want to invest in them, your stock price increases. The opposite can also happen.
- Bonds: A bond is when an investor lends money to a business or a government. The borrower promises to pay back the loan, with interest.
- Mutual funds/ETFs: If you don’t want to invest in just one stock or bond, you can invest in a mutual fund or an exchange-traded fund (ETF). When you invest in one of these, you buy a basket of stocks and bonds. These are usually considered less risky than when you buy individual stocks — even if one stock decreases, your entire investment won’t decrease.
Pros and cons of investing small amounts
Starting with small investments and working your way up to larger investments is a solid strategy when you begin. But like with anything, there are pros and cons to this approach.
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Ideal investments for beginners
Here are 3 places where first-time investors can start, without being a whiz at picking stocks and bonds.
1. 401(k), IRA, or other retirement accounts
If your employer offers a retirement plan like a 401(k), this is a great place to start investing. Many employers will offer a company match, meaning that they’ll partially or fully match your contribution, up to a certain amount. (Yep, they’ll give you free money just for investing in your retirement!)
Another great benefit of investing in an employer-sponsored retirement account is that your contribution will be automatically deducted from your paycheck. You don’t even have to think about it and money will head straight to your retirement account.
If you don’t have an employer retirement plan, you can still put money away into your own retirement account, called an Individual Retirement Account (IRA). Though there’s no employer contribution, these accounts do give you some tax breaks for putting money away for the long-term.
Retirement accounts also make it easy to pick your investments with something called a target-date mutual fund. With this type of investment, you simply enter the date you want to retire. These funds then pick a mix of stocks and bonds to put your money into, based on your goal.
Robo-advisors are another easy entry into investing. Rather than having a human manage the money that you invest — which can be expensive and require you to invest a large amount of money — a computer does the work for a fraction of the price. And as a result, the amount of money you need to start with is lower.
For example, Betterment requires no minimum investment amount, and Wealthfront requires a minimum of $500.
Robo-advisors will give you a simple questionnaire when you sign up to understand your goals to help the computer decide where and how to invest your money. This approach is meant to be very hands-off, but still check in on your investments. If there’s something you don’t understand, speak to a person working at the Robo-advisor for details.
3. Investing apps
Investment apps make it easy to get started, right from your phone. You can start with a small amount of money and invest in stocks, bonds, and ETFs. For example, Public lets you get going with as little as $5, and Robinhood doesn’t have a minimum investment amount.
How to start investing with $100
Think you need thousands of dollars to start investing? Think again. We have three solid options to get you started.
- Robo-advisor: Sign up with a robo-advisor with low or no minimum requirements.
- Open an IRA: A You can either open with a brokerage like Fidelity, or with the help of a robo-advisor.
- Investing apps: Retirement accounts are the best place to start investing, but if you’re not ready for that, you can use $100 to get started investing with an app like Acorns or Robinhood.
There are plenty of options available for beginning investors, and starting small can help build up your confidence over the long run.
Remember though, investing isn’t a short-term get rich quick strategy. When you jump in, make sure you do so for the long-haul. Your future self will thank you!