Getting started with investing can seem out of reach to many. With some ETFs requiring a $3,000 balance to open an account, you can save for months and still not have enough to invest. But what if you want to invest a smaller sum, from $1 to $1,000, today. What options are out there for young investors looking to make an impact with little capital?
Before you jump into a new venture with your money, there are a few essential questions you’ll want to ask to drive your investing decision:
- Do I already have emergency savings set aside? – One of the first things you need for a well-rounded financial portfolio is an emergency fund. If you don’t already have one, use your small sum to start a savings account specifically to be used for emergencies. Any amount is sufficient to get started, but you’ll eventually want to build to 3-6 months of living expenses. It will act as protection for you in the future when you have discretionary money to invest.
- How long until I need this money? – If the answer is in the next few months, you’ll want to put the money aside in a high-yield savings account. You’ll only get about 1% interest right now if you’re lucky. But the money will be readily available when you need it, and you don’t run the risk of it decreasing in value in the short-term. If the answer is in the next few years or longer, you’re safe to move forward with a longer-term investment.
- Would I be better served by putting this into a retirement account? – If you have a well-thought-out financial plan and each of your retirement buckets are full, great! But if you’ve not yet maxed out your Roth IRA or similar and that’s a financial goal for the year, consider taking your small sum and putting it there instead.
If you’ve answered the above questions and determined that your small sum is discretionary and best suited for a long-term non-retirement investment, consider the below options.
Companies are creeping up in every industry to break down barriers to investing. And it’s now easier than ever to make small investments that can return big benefits over the long run. The following ideas are my favorites, and the first ones I consider when an extra $50 turns up.
Use an app like Acorns
I am a big fan of Acorns and use it myself to make weekly investments. They’ve broken down the barriers to investing and make it extremely simple to start your account with only $5. Better yet, they only charge $1 a month for the lowest tier of the service.
Acorns allows users to select a portfolio ranging from conservative to aggressive, which means you don’t need to be knowledgable about individual stocks or ETFs. With round-ups and add-ons that enable you to save more and plan for the future, Acorns is a good look for someone who is new to investing and wants to get started fast.
Invest with Robinhood
Robinhood is a young company with a slick app that lets you invest in stocks without breaking the bank. Since you’re purchasing individual stocks and ETFs, this option does require you to do some research.
My favorite part of Robinhood is that you can buy partial shares of big-name stocks if you don’t have enough funds to cover a whole share. This enables investors with small sums to get a piece of the action on Tesla, Apple, Google, or similar giants, which are often way out of a reasonable price range (at least for me they are!).
Use your funds to invest in someone else
A few months ago, I was leaving the gym when I saw a woman handing out smoothie samples. Not only was the smoothie delicious, but she was an amazing, driven, strong woman, and I knew I wanted to support her business. I put $50 towards her Kickstarter campaign, and even though it didn’t get funded, I still felt good by trying to back this local entrepreneur.
Companies like Kickstarter are making a massive difference in the way people start small businesses. You can pledge anywhere from $1 and up to support someone else’s dream, and I truly believe that can pay dividends emotionally. (Plus, some of the campaigns offer cool swag as a thank you!)
Tips for investing a small amount
Now that you know which type of investments you might be able to consider with a small amount of money, I want to offer some of my top tips for making these investments work for you.
- Automate. See if you can commit to a specific dollar amount weekly and set up a recurring deposit with your favorite bank or app. It’s amazing how quickly small investments add up over time, and I love any solution that requires less work. Plus, if the sum is small enough ($10-20 a week), you probably won’t even recognize it’s gone.
- Consider round-ups. It seems that banks started the round-up trend several years ago, and now everyone is doing it. Companies like Acorns encourage you to link your account or use their debit card to automatically round-up your purchases to the nearest dollar and invest the difference. This is one of the best ways I’ve seen to save money without thinking about it. Plus, when it’s $.37, how much are you missing it anyway?
- Think about the long-term. When you have small amounts of discretionary money, it can be challenging to see the benefits of investing it. It could buy a nice meal today, and that’s as far as some people see. Let’s say you have a small amount, $100, and you invest it for ten years and commit to adding $50 a month. After ten years, assuming a 6% return, you would find yourself with $8,418, $2,318 of which is interest. There are plenty of great compound interest calculators online, like this one by NerdWallet, that can help you visualize yourself.
While a few dollars here and there might not seem like much, it can significantly impact your future, or someone else’s, if used properly. So branch out and check out your options the next time you find $20 in the street. You might be surprised at just how much you can do.
Contributor’s opinions are their own. Always do your own due diligence before investing.
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