How to Start Investing With Little Money: 6 Options You Can Consider
Brokerage firms also used to charge a fee for most trades you made.
Thankfully, that isn’t the case anymore.
Today more than any time in the past, you can start investing even if you only have a little bit of money.
Brokers and investing apps have started to open up investing to virtually anyone.
Minimum initial investments still exist for several investments and firms. Even so, many no longer have these requirements.
Apps have also started offering free trades on many types of investments. This has forced traditional brokerage firms to follow suit.
Here are some options you may want to consider depending on how much money you have available to invest and your goals.
1. Index Funds and Target Date Funds
Mutual funds offer several options to start investing.
Two of the easiest types of mutual funds to get started with are index funds and target-date funds.
Index funds aim to track the returns of an index, such as the S&P 500.
Most of these indexes are diversified, so the index fund is similarly diversified. This helps spread out the risk of investing over several companies.
Another option is a target-date fund.
Target date funds hold a mix of investment types based on your target retirement date. As the retirement date moves closer, the fund moves investments to more conservative options.
Low minimum initial investments
These funds often have low minimum initial investments. They’re usually well-diversified.
You don’t usually have as much upkeep with these as long as your investing goals, risk tolerance and other factors remain the same.
For example, Fidelity’s target-date funds and ZERO index funds have no minimum initial investment requirements. The ZERO funds even have 0% expense ratios.
Charles Schwab’s target funds don’t have minimum initial investment requirements, either.
Other firms, such as Vanguard, may require a minimum initial investment. Their target date funds normally have a $1,000 minimum to start investing in these funds.
No index fund and target-date fund is the same as its competitors.
You must still research these funds to make sure they invest in a way that helps you meet your goals.
You should also check the expense ratios of funds. Finding ways to lower your investing costs helps you keep more of your returns.
2. Exchange-Traded Funds (ETFs)
Mutual funds aren’t for everyone. ETFs are like mutual funds because they often hold a group of investments within them.
They’re usually diversified. That isn’t always the case, though.
Another significant difference is ETFs trade in real-time throughout the day. Mutual funds only trade once per day.
When it comes to investing small amounts of money, ETFs can be easier to access than mutual funds that have minimum initial investments.
Traditionally, you only needed enough money to buy a whole share of an ETF to start investing in them.
Today, many apps now offer fractional share trading. This allows you to buy small parts of a share of an ETF.
That means platforms that offer fractional share investing could let you invest in an ETF with almost any amount of money you have.
As with mutual funds, ETFs have expenses to invest in them.
Many brokerages offer commission-free trades today. Unfortunately, not all do.
Additionally, ETFs usually have an expense ratio that eats up part of your returns.
Most brokerages that allow you to buy mutual funds or individual stocks offer ETF options, too.
Check with the brokerage you’re considering. Make sure they offer commission-free trading on the ETFs you’re interested in before you open an account.
3. Individual Stocks
Investing in individual stocks is much different than investing in mutual funds or ETFs.
When you invest in a single stock, you take on much more risk. In particular, a single stock can go bankrupt. This can result in you losing your entire investment.
Thankfully, you can own stock in several companies to diversify that risk.
In the past, investing in several companies with little money was difficult. You had to save enough money to buy whole shares of each company you wanted to invest in.
If you wanted to invest in a stock with a $1,000 plus price tag, you had to save $1,000 to start investing in it.
4. Fractional Shares
Fractional share investing now lets you buy partial shares of companies. This makes diversifying your portfolio of individual stocks more accessible than ever.
You could spend $5 and buy a fraction of a share in the company with the $1,000 share price.
The fact that trade commissions have also disappeared at many brokerages also makes trading individual stocks more affordable.
Robinhood combines both of these features by offering fractional share investing and no commissions on trades.
Schwab allows fractional share investing with as little as $5 and offers $0 online equity commissions.
SoFi invest offers fractional shares of select stocks starting at $1 with no fees, as well.
As you can see, technology has made investing more affordable than it has been.
If you need help figuring out how to start investing, a robo-advisor may be a good option.
Robo-advisors often help investors pick a portfolio and start investing. They do this by having you answer a series of questions about your situation and risk tolerance.
Then, they set up investments into a suitable portfolio for you.
The robo-advisor usually offers value-added services. These can include tax-loss harvesting and portfolio rebalancing.
These services are usually offered by a traditional financial advisor.
The key difference is robo-advisors use technology to do the work. You don’t actually work with a human advisor in most cases.
Robo-advisors usually charge a management fee for their services on an annual basis. It is calculated as a percentage of the assets they manage for you.
The portfolios are typically made up of ETFs or mutual funds that you could invest in on your own. The fee you pay is for the value-added services.
Different robo-advisors exist based on the needs of various types of clients. Their value-added services and fees vary, too.
6. Investing Apps
In addition to robo-advisors, several investing apps have gained popularity over the last decade.
These apps don’t always provide financial advice like robo-advisors. Instead, they offer unique ways to invest.
One company that could be great for those without a lot of money to invest is Acorns.
This company offers the option to link your checking account or payment cards to the app. Then, they round up your purchases to the nearest dollar.
When the rounded up change adds up to $5, Acorns will invest the money set aside into a portfolio of ETFs you choose.
Even if you don’t think you can find any money to invest, Acorns can probably prove you wrong. Spare change really can add up.
They do charge a monthly fee for this service, though.
It can really eat into your investments in the beginning. As your balance grows, the monthly fee takes up a smaller part of your portfolio.
Other investing apps have unique features that could make investing easier for beginners without a lot of money to invest.
Check to see what apps may fit your needs before deciding where to open your investing account.
Opening a Brokerage Account
Once you know what type of investment you want to invest in, you have to have an account that will let you do so.
Brokerages will let you open different types of brokerage accounts you can use to buy and sell investments.
A common type is a taxable brokerage account. These don’t come with any tax benefits. They require you to pay taxes on your investment income, too.
Other brokerage account options can include tax-advantaged accounts. These often include individual retirement accounts (IRAs).
Depending on the type of IRA you open and your circumstances, these accounts may give you a tax break today or in the future.
When looking at brokerage firms to open an account at, you’ll want to look at a few key things.
First, make sure the investment you want to invest in is offered. Not all firms offer the same investment options.
Next, understand any fees you’d have to pay to invest in that investment. Most investments have expense ratios. However, some firms may charge fees to invest in specific assets, too.
For instance, Brokerage A may charge an extra fee to invest in mutual funds offered by Brokerage B. That said, Brokerage A doesn’t typically charge a fee to invest in their own mutual funds.
Some companies still charge transaction fees or commissions on ETF and individual stock trades. Watch out for these, too.
If you don’t have a lot of money to start investing, you aren’t alone.
Fortunately, investing isn’t only for the wealthy. Technology has made investing more accessible today than it ever has been in the past.
Just because investing is accessible doesn’t mean you should invest blindly.
Understand the risks investing poses. It’s possible you could lose your entire investment depending on what you invest in.
You should put your financial house in order before you start investing. Paying off high interest rate debt and building at least a small emergency fund should usually be taken care of before you begin to invest.
If you need help understanding your investment options, you may want to consider consulting a fiduciary fee-only financial advisor.
These advisors charge you for their time. They can help explain concepts you might have a hard time grasping.
They can also develop a plan to help you start investing in a way that’s in your best interests, not a commissioned salesperson’s best interests.