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Key takeaways
- You can start investing with as little as $100 through retirement accounts, robo-advisors, and investing apps.
- Investing helps your money grow faster than inflation through compound returns over time.
- By diversifying your investments across stocks, bonds, and funds, you can reduce risk and build long-term wealth.
- Options like 401(k)s with employer matching and robo-advisors are beginner-friendly since they don’t require much investment knowledge.
Learning how to start investing doesn’t require thousands of dollars or a finance degree. In fact, there are several beginner-friendly options you can explore with $100 or less. This guide walks you through the step-by-step process of starting your investment journey, from choosing the right account type to picking your first investments to avoiding common mistakes.
Why you should start investing
Starting to invest is one of the most effective ways to build wealth that outpaces rising costs. While saving money in a bank account keeps your cash safe, inflation gradually lowers its purchasing power. Putting your money to work in the market gives it the chance to grow faster than the rate of inflation.
Here’s the exciting part: thanks to compound growth, your earnings can generate their own earnings. The earlier you start, the more time your money has to grow.
Investing helps you work toward big financial goals like:
- Buying a home
- Funding education expenses
- Building a comfortable retirement
A regular savings account often can’t keep up with those kinds of ambitions.
A step-by-step strategy to start investing
From setting goals to monitoring your portfolio, these five steps can help you start investing with confidence.
1. Define your investment objectives
First, set your financial goals for investing, such as a long-term savings plan, capital growth, or generating income. You may even want to talk to a financial advisor to get personalized direction based on your situation.
Once you have a clear objective, you can start sorting out which strategies will suit you best.
2. Determine your ideal investment amount
Determine the amount you can comfortably invest. You should only invest the funds you can afford to lose, so don’t invest your entire savings account balance or borrow money to put it in the stock market.
Example: Even $100 can grow significantly over time. An initial investment of $100 could become $321 after 20 years, assuming an average 6% annual return. If you added $100 each year for 20 years, you’d have $3,999.
Consider creating a budget to identify how much money you can allot for investing each month. If you’re investing in an individual retirement account like a traditional IRA, the IRS sets annual IRA contribution limits each year.
3. Figure out your comfort with risk
Risk and reward are inseparable in investing. This doesn’t mean you should take risks you’re uncomfortable with, though.
If you’re a conservative investor, you might want to avoid high-risk investments that can lead to significant losses. If you’re willing to take on more risk, you may be comfortable with high-volatility investments like company stocks.
Consider taking a risk tolerance assessment to figure out your preferences. This can help you build wealth at your own comfort level and on your own timeline.
4. Choose your investment account type
Once you know your objectives, it’s time to choose the type of account you want to open. The main account types for beginners are brokerage accounts, retirement accounts like 401(k)s and IRAs, and robo-advisor accounts.
A brokerage account is similar to a bank account, but you use it specifically to invest in securities like stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Various online brokerages offer low fees and easy access to investments.
5. Pick your investments
For beginners, experts recommend starting with index funds or ETFs. These investment types give you exposure to many companies at once, reducing your risk compared to picking individual stocks.
Understanding different types of investments
Before you start investing, it helps to understand what you’re actually putting your money into. Here are the most common investment types you’ll encounter as a beginner.
| Investment Type | Risk Level | Best For |
|---|---|---|
| Stocks | High | Long-term growth potential |
| Bonds | Low to Medium | Stable returns and portfolio balance |
| Mutual Funds/ETFs | Low to Medium | Instant diversification for beginners |
Stocks
When you buy a stock, you purchase 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.
One of the main advantages of investing in stocks is the potential for compounding returns. This means that as you earn dividends on your stocks, you can reinvest them back into buying more shares.
However, stocks also come with a high level of risk. Carefully research and select stocks that fit your risk tolerance and investment goals.
Bonds
A bond is when an investor lends money to a corporation or a government. The borrower promises to pay back the loan with interest. Bonds typically offer lower returns than stocks but also have less risk.
There are different types of bonds, such as government bonds, floating rate bonds, corporate bonds, and municipal bonds. Each type has its own risk level and return potential.
Mutual funds and ETFs
If you don’t want to invest in just one stock or bond, you can choose a mutual fund or an exchange-traded fund, also known as an ETF. With these, you buy a basket of stocks and bonds. Mutual funds tend to be less risky than buying individual stocks because they are more diversified.
Best investment options for beginners
Here are three places to start without being a whiz at picking stocks and bonds.
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 offer a company match, meaning they match employee contributions up to a specific limit.
Another great benefit of investing in an employer-sponsored retirement account is that your contributions are automatically deducted from your paycheck. You can set it and forget it while your money quietly grows over time.
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). With a traditional IRA, you contribute pre-taxed dollars and pay taxes when you withdraw the funds during retirement. A Roth IRA uses after-tax dollars and offers tax-free withdrawals during retirement.
Retirement accounts also make it easy to pick your investments with a target-date mutual fund. This type of fund automatically manages a mix of stocks and bonds for you, gradually becoming more conservative as you get closer to your target retirement date.
Robo-advisors
Robo-advisors are another relatively simple way to get into investing in the stock market. Rather than having a human manage the money that you invest, a computer does the work for a fraction of the price.
Robo-advisors will give you a simple questionnaire when you sign up to understand your goals. This approach is meant to be hands-off but still check in on your investments.
Investing apps
Investment apps like Acorns and Robinhood make it easy to get started regardless of your personal finance situation. You can start with a small amount of money and invest in stocks, bonds, and ETFs.
Pros and cons of investing small amounts
Starting with small investments and working your way up to larger ones is a solid strategy. But, like anything, this approach has pros and cons.
The pros of investing small amounts of money
- It’s an easy introduction to investing.
- Seeing your money grow can encourage you to invest consistently each month.
The cons of investing small amounts of money
- It may be tough to meet any minimum investment requirements.
- It won’t be enough for retirement.
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: You can either open with a brokerage company 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.
Common mistakes beginner investors make
Avoid these common pitfalls that can cost you money and undermine your investment goals.
Trying to time the market
Trying to predict the perfect moment to buy or sell can be extremely difficult. Even professional investors get it wrong.
Investing money you need soon
The stock market fluctuates. If you invest money you’ll need in the next year or two, you might be forced to sell at a loss. Only invest money you won’t need for at least a few years.
Not diversifying
Putting all your money in one stock is risky. Instead, spread your investments across mutual funds or ETFs that hold hundreds of companies, which protects your portfolio from individual stock failures.
Reacting to short-term changes
It’s normal for markets to go up and down. Panic selling during a dip can lock in losses that would have recovered if you’d stayed patient. Keep your long-term goals in mind.
Start your investing journey today
Starting small helps build your confidence, and knowing which steps to take puts you in control of your financial path. Investing isn’t a get-rich-quick strategy, but it’s a smart way to combat inflation and build long-term wealth.
If you’re interested in aligning your portfolio with your values, check out our guide on ethical investing.
Frequently asked questions about starting to invest
Should I invest or pay off debt first?
It’s usually best to pay off high-interest debt like credit cards before investing, since the interest you’re paying likely exceeds what you’d earn from investments.
How long does it take to see returns from investing?
While markets fluctuate daily, significant growth typically happens over years or decades. Plan to keep your money invested for at least five years.
How much will $100 a month be worth in 30 years?
If you invest $100 a month for 30 years with an average annual return of 7%, you could have over $116,000, though returns vary and aren’t guaranteed.
Do I need an emergency fund before I start investing?
Yes, building an emergency fund with three to six months of living expenses can help ensure unexpected costs won’t force you to sell investments at a loss.
How much do I need to invest to make $1,000 a month?
With a 5% annual return, you’d need about $240,000 invested to generate $1,000 a month in passive income.