Last Updated on March 2, 2023
When it comes to investing, many assume that it’s only for wealthy people with millions to spare. The truth is that you can start investing with just a little bit of money. Even if you’re only able to invest a small amount each month, those investments can add up over time and help you build wealth.
In this article, you’ll learn the best ways how to invest with little money along with tips for getting started. It doesn’t matter whether you’re a student, a stay-at-home parent, or an employed person that needs to secure themselves financially.
How to Invest with Little Money
Below are the ideas for investing if you only have a little cash.
One popular way to begin investing with little money is micro-investing. This involves investing small amounts of money, often just a few dollars at a time, into a diversified portfolio of stocks, bonds, and other assets. It’s a hands-off way to invest because you don’t need to spend a lot of time researching individual stocks or monitoring your portfolio.
Micro-investing platforms usually offer automated investment tools, making it easy for novice investors to get started. For instance, Acorns makes it easy to get started by automatically investing your spare change or small amounts of money from your checking account.
In micro-investing, the barrier to entry is low. You can start with as little as $5 and continue to add small amounts of money over time. In other words, your income or net worth doesn’t determine whether you’re eligible to use a micro-investment platform.
As much as micro-investing can be affordable, it’s important to keep in mind that the fees (although usually low) associated with it can add up over time. And so, be sure to read the fine print before getting started.
2. Dividend Reinvestment Plans (DRIPs)
If you need another method for investing with little money, dividend reinvestment plans (DRIPs) may interest you. With DRIPs, you invest in companies that pay dividends and then automatically reinvest those dividends back into the company to purchase more shares.
DRIPs are mostly offered by large and well-established companies that pay regular dividends. With a DRIP, an investor can accumulate more shares of the company over time and build wealth without having to pay commission fees to purchase additional shares. To participate in a DRIP, you must first purchase at least one share of the company’s stock.
The advantage of DRIPs is that they often come with low fees, making it an affordable way to invest. DRIPs also help to diversify your investment portfolio. Reinvesting dividends into additional shares of the same company allows your holdings to become more heavily weighted towards that company.
However, it’s important to keep in mind that DRIPs may not be the best option for you as an investor if you’re eyeing immediate returns. They’re best suited for long-term investors willing to reinvest their dividends and gain additional shares from companies.
3. Direct Stock Purchase Plans (DSPPs)
Direct stock purchase plans (DSPPs) allow you to purchase shares of a company’s stock directly from the company without going through a broker. It’s a good option if you’re interested in buying stock in a particular company but don’t have a lot of money to invest.
Companies that offer DSPPs typically offer a list of available stocks for investors to purchase. Investors can choose which stocks they want to purchase and how much money they want to invest. Some companies also offer automatic investment plans, where investors can set up regular purchases of stocks with a fixed amount of money.
DSPPs are particularly useful for people who want to invest in specific companies that they believe in and enjoy low fees. This means that you’re able to purchase shares of companies that you’re familiar with or have a personal interest in. Additionally, some companies offer discounts or bonuses to investors who purchase stocks through DSPPs.
Another benefit of DSPPs is the ability to reinvest dividends. When you purchase stocks through DSPPs, they are often eligible to receive dividends from the company. Rather than receiving the dividend as cash, you can choose to reinvest the dividend into more shares of the company. This can help to increase your holdings over time.
The drawback of DSPPs is that they are typically only offered by larger, well-established companies. Keep in mind that DSPPs may not be available for every company, and there may be minimum investment requirements. Smaller companies may not have the resources to offer DSPPs or may prefer to go through brokers.
4. Exchange-Traded Funds (ETFs)
Exchange-traded funds (ETFs) are a type of investment that allows you to invest in a diversified portfolio of stocks or bonds. ETFs are traded on stock exchanges, which means that they can be bought and sold throughout the day, just like individual stocks.
The benefit of ETFs is that they offer a simple and affordable way to invest in a diversified portfolio of assets. Instead of investing in a single stock, you can invest in an ETF that holds a basket of stocks and be exposed to a broad range of companies and industries. This can help reduce the risk of a single company or industry performing poorly and negatively impacting your investment portfolio.
Also, ETFs come with liquidity. They can be bought and sold on stock exchanges throughout the day, providing you with the ability to quickly and easily buy or sell shares at market prices.
What’s more, ETFs have low costs. Because ETFs are passively managed and designed to track an index, they typically have lower fees and expenses than actively managed mutual funds. This makes them an affordable option for someone with limited funds to invest.
There’s a potential downside of ETFs whereby you lack control over which assets are included in the ETF. Because ETFs are designed to track an index, investors have little control over which securities are included in the ETF. This can be a disadvantage if you’re one who wants to have more control over your investment decisions.
5. Fractional Shares
Fractional shares are a great way for investors to purchase stocks with little money. Rather than buying a whole share, fractional shares allow for the purchase of a portion of a share. Fractional shares work by dividing a whole share into smaller pieces.
For example, if a share of Amazon costs $3,000, an investor can purchase a fraction of a share for a lower price. The investor would still own a portion of the share, and any dividends or gains from the stock would be proportional to their investment.
Fractional shares are commonly available through brokerage platforms that offer commission-free trades. These platforms allow investors to purchase fractional shares of individual stocks or exchange-traded funds (ETFs). ETFs are particularly useful for investors who want to diversify their portfolio with multiple stocks or assets.
One of the main benefits of fractional shares is the ability to invest in companies that would otherwise be too expensive. Fractional shares also allow you to diversify your portfolio without needing a lot of money. Rather than investing in just one or two companies, fractional shares enable investors to own a portion of multiple companies, thereby spreading out their risk.
Another benefit of fractional shares is the ability to invest in high-growth companies, such as those in the technology sector. These companies may have high share prices, but fractional shares enable you to own a portion of the company’s growth potential.
Tips for Investing with Little Money
No matter which method you choose for investing with little money, there are a few tips that can help you make the most of your investments:
- Don’t be afraid to start small: Even if you can only invest a few dollars each month, it’s important to get started as early as possible. Over time, those small investments can add up and help you build wealth.
- Educate yourself: Understanding the basics of investing can help you make informed decisions about your investments. There are many resources available, including investing books, online courses, and podcasts, that can help you learn more about investing.
- Stick to a plan: Having a long-term plan for your investments can help you stay focused and avoid making impulsive decisions. Be sure to set realistic goals and review your progress regularly.
- Be patient: Investing is a long-term game, and it’s important to be patient and avoid making impulsive decisions based on short-term market fluctuations. Remember that your investments will likely experience ups and downs, but over time, they have the potential to grow and help you achieve your financial goals.
Wrapping It up
In conclusion, investing with little money is possible, and there are many ways to get started. Whether you choose to invest through micro-investing platforms, DRIPs, DSPPs, ETFs, or fractional shares, it’s important to start small, stick to a plan, educate yourself, and be patient. With time and dedication, your investments can grow and help you achieve financial success.