If there’s one foundational money habit that helps you become wealthy, it’s investing. After all, if you never put your money to work, your path towards financial independence is going to take longer than it needs to.
According to a 2020 Gallup Poll, approximately 55% of Americans own stock. This is in line with findings from Pew Research Center that reports that more than half of Americans invest in the stock market.
However, for the other approximate half of Americans, abstaining from investing foreshadows a lack of financial security. Additionally, if you want to invest but think you need tens of thousands of dollars to make a difference, you’re likely waiting too long.
The reality is, you don’t need to be rich to benefit from investing. In fact, you can start investing with little money and begin building a nest egg that your future self will thank you for.
How to Invest a Small Amount of Money
When it comes to investing with a small amount of money, your main barrier is usually minimum funding requirements.
Often, mutual funds or investing platforms require a minimum investment amount to start. Similarly, certain stocks like Amazon cost several thousand dollars per share.
Thankfully, there’s a variety of ways you can invest with little money to start making your money work for you.
1. Invest in Real Estate
Although it might surprise you, it’s possible to invest in real estate properties without being a wealthy tycoon. Thanks to the rise of real estate crowdfunding platforms, you can start benefiting from income-generating properties with just $500.
In the past, investors typically used real estate investment trusts, or REITs, to earn from real estate. A REIT is a company that invests in income-generating real estate and pays at least 90% of profits back to shareholders as dividends.
REITs typically have high expenses because the company you’re investing in owns and manages properties, which require maintenance.
By contrast, real estate crowdfunding lets you become a shareholder in real estate projects by pooling your money together with other investors. Crowdfunding typically has lower fees and also lets you invest with a small amount of money.
A downside of some crowdfunding platforms is that you often have to be an accredited investor to participate. This means having a net worth of at least $1 million or having an annual income of at least $200,000 as an individual or $300,000 for joint income filing for the last two years.
However, if you want to invest with a small sum, you still have options thanks to companies like Fundrise. With over 130,000 investors and nearly $5 billion in total asset transaction value, Fundrise is one of the most popular choices for non-accredited investors to start with real estate investing.
Fundrise has a $500 minimum requirement for its starter plan. This plan invests in real estate equity and loans to create a diversified portfolio. As an investor, you earn from quarterly dividends and the appreciation of your shares.
Fundrise charges a 1% fee for asset management and for investment advisor services, which includes ongoing reporting and asset rebalancing.
You can also invest $1,000 to upgrade to Fundrise’s Core plan. This plan gives you more flexibility in your investment balance and lets you choose between three different portfolio compositions:
- Supplemental Income: Predominantly dividend payments; 88% debt and 12% equity
- Balanced Investing: A mix of appreciation and dividend payments; 73% debt and 27% equity
- Long-Term Growth: Focus on assets that can appreciate in value; 34% debt and 66% equity
Having more control over your investment goals is a nice feature of the Core plan. If you only have $500, Fundrise is still an effective way to benefit from real estate investing without drowning in management fees.
2. Use a Robo-Advisors
If you enjoy hands-off wealth management, another option for starting to invest with little money is to use a robo-advisor. Robo-advisors use algorithms to find the right investments for you based on your long-term financial goals and risk tolerance.
In many ways, robo-advisors are similar to speaking to a financial advisor. However, where robo-advisors beat financial advisors is in their fees and minimum investment requirements.
Typically, financial advisors charge between 1% to 2% of assets under management. Plus, if you only have a few hundred dollars to start investing, it’s unlikely a financial advisor would take you on as a client because you’re not worth their time.
In contrast, robo-advisors generally charge lower fees because they use technology to determine your ideal investments, not a human advisor. Additionally, many leading robo-advisors don’t have an investment minimum or only require $500 to start.
Some leading robo-advisors you can consider include:
- Betterment: No minimum investment requirement; 0.25% annual fee for investors under $100,000; option to upgrade your plan to get financial advice for 0.40% in annual fees; tax-loss harvesting
- SoFi Invest: $1 minimum investment requirement; no annual fees
- Wealthfront: $500 minimum investment requirement; 0.25% annual fee; no other account fees; tax loss-harvesting
Betterment and Wealthfront have a healthy range of investment account options, including 401(k), traditional and Roth IRAs, and individual and joint accounts.
Wealthfront also lets you invest with a 529 College Savings Plan, unlike Betterment. SoFi Invest only offers brokerage accounts and IRA accounts and lacks tax-loss harvesting.
SoFi Invest is ideal if you’re taxed at a lower income bracket and don’t benefit as much from tax-loss harvesting as high-net-worth individuals. If you want to invest with a 401(k) or want tax-loss harvesting, Wealthfront or Betterment are superior.
3. Buy Fractional Shares
Another option for investing when you don’t have much money is to use a stock broker that lets you buy fractional shares.
If you don’t have much money to invest, getting started might seem difficult because many popular stocks cost hundreds or thousands of dollars per share. However, with fractional shares, this problem disappears.
Fractional shares are a partial share of a stock. So, while buying Amazon stock for a few thousand dollars apiece might be out of the question, you can buy fractions of an Amazon share with whatever money you have to add the e-commerce giant to your portfolio.
Several online brokers let you invest in fractional shares at no cost or for a reasonable monthly price. Some popular brokerages you can consider using include:
- Robinhood: Commission-free trading for stocks, exchange-traded funds (ETFs), and options; invest with as little as $1; get free stock with a value between $2.50 to $200 for opening an account
- M1 Finance: Invest in stocks and ETFs for free with M1 Finance’s investing feature; low-cost borrowing available for accounts with at least $10,000; $95-per-year premium option available for an additional trading window, lower borrowing rates, enhanced credit card rewards, crypto trading, and custodial accounts
- Stash: Open an account with just $1; invest in fractional stocks with as little as $0.01; stock rewards card that pays cash back in the form of fractional shares; $1, $3, and $9 per month plans available that unlock different account types and financial advice; $5 account opening bonus
- Charles Schwab: Commission-free trading for stocks, ETFs, and a variety of other assets; robo-advisor and DIY investing options; access to advisor services; buy fractional shares of companies in the S&P 500 starting as low as $5
Robinhood is your best bet if you just want to buy fractional shares yourself and keep things simple. By contrast, M1 Finance or Charles Schwab are ideal if you want to use a robo-advisor.
Finally, Stash is a beginner-friendly solution for investing in fractional shares and is an excellent choice if you want an online bank and to earn stock rewards for your spending.
Whatever you choose, it’s important to remain consistent with investing. Even if you start by investing $1 per day and slowly increase your daily contribution over time, it’s amazing what compound interest and time do for your wealth.
4. Use Micro-Investing Apps
Investing in fractional shares is an effective way to begin investing with a small amount of money. However, unless you set up automatic deposits to your online broker or robo-advisor, you run the risk of forgetting to regularly invest your money.
Thankfully, with micro-investing apps, you don’t have to worry about forgetting to invest regularly. Many micro-investing apps, sometimes called spare-change apps, work by rounding up spare change when you make a purchase and putting the extra money toward your investments automatically.
Acorns is one of the most popular micro-investing apps available, and the platform largely started the trend of rounding up spare change to make investing more accessible.
To get started with Acorns, simply:
- Download the Acorns app for Android or iOS and create an account.
- Answer a questionnaire about your investment risk tolerance to help Acorns choose the right investment portfolio.
- Link your debit card to your account.
- Spend using your linked card and have Acorns round up your spare change and automatically invest it.
The spare-change model is straightforward. For example, if you buy a drink for $2.40, Acorns rounds up to $3.00, taking the extra $0.60 from your checking account and investing it for you.
You can also spend with a linked credit card and have Acorns round up your money, but the additional funds still come from your checking account.
Plans start at $1 per month. The $1 lite plan unlocks spare-change investing and cash-back rewards, known as Found Money, where you earn from shopping at over 350 partner retailers.
The $3 per month plan includes everything in the lite version plus a tax-advantaged retirement account option, a no-fee checking account with free ATM withdrawals, and more Found Money bonuses.
Finally, a $5 per month family plan includes everything in the $3 monthly plan but also lets you open investing accounts for your kids to help them learn to save and appreciate the value of money.
If you decide to use Acorns, be cautious with monthly fees. If you don’t make many purchases throughout the year, even a $12 annual fee with the lite plan is a significant percentage to pay in fees.
If the fees are off-putting, stick with a low-fee robo-advisor and set up automatic deposits from your bank.
5. Invest in Cryptocurrencies
While investing in cryptocurrencies isn’t for everyone, for some investors, diversifying a part of their portfolio with popular coins like Bitcoin and Ethereum is part of their strategy.
Cryptocurrencies are a volatile investment. However, according to a 2020 survey conducted by Statista, 7% of Americans own cryptocurrency.
Furthermore, in countries where the cost of sending money abroad can be prohibitive, adoption is even higher. For example, over 30% of people in Nigeria use cryptocurrency, and Vietnam isn’t far behind at 21% adoption.
The point is that more people are beginning to dabble with cryptocurrency either as a security or a form of currency. For some, these coins are a payment method. For others, buying coins is simply a speculative investment.
Whatever the case, if you decide to buy cryptocurrency to diversify your portfolio, you don’t need a lot of money to get started.
Cryptocurrency exchanges like Coinbase let you buy cryptocurrencies like Bitcoin (BTC) with as little as $2 in your local currency. You still need to create a wallet with Coinbase or another cryptocurrency wallet to store your coins. However, buying and selling cryptocurrency on Coinbase’s exchange is as simple as buying and selling stocks with an online brokerage account.
6. Start a Low-Cost Business
At its core, investing your money is really putting your money into something with the expectation that it will appreciate over time.
Therefore, starting a side business with a small amount of capital could be one of the most impactful investments of your life if your business grows and becomes profitable.
There’s a wide variety of zero- or low-cost business ideas you can try. Examples include:
- Starting a WordPress blog about a topic you’re passionate about
- Buying a road bike and delivering food for companies like DoorDash
- Selling crafts on Etsy or similar marketplaces
- Buying cleaning supplies and offer cleaning services in your city
These are just a few possibilities, but you get the idea.
If you spend a small sum of money on equipment or startup costs to launch your business, there’s immense potential to make your money back and more, provided you put in the work to find clients and grow your business.
7. Use Retirement Plans With Employers
A final way to begin investing without much money is to take advantage of an employer retirement plan if the company you’re working for has one in place.
For example, some employers offer 401(k) matching and match your 401(k) contributions up to a certain amount per year. Matching doesn’t count towards your annual contribution limit, so this is essentially free money in exchange for planning for your retirement.
Employers typically match some or all of your 401(k) contributions up to a percentage of your salary. For example, an employer might offer 100% matching or 50% matching of your retirement contributions up to 5% of your total salary.
While this might seem counterproductive for company profits, 401(k) matching is in the interest of both parties.
For starters, employers get business tax benefits for contributing to 401(k) plans. Plus, a company with a strong benefits package and 401(k) matching is more likely to attract top industry talent and retain employees for longer.
Check your benefits package to see if 401(k) matching is available. Even if you begin investing a small sum of money, matching makes your efforts more powerful. Over time, try to maximize your contributions to ensure you take full advantage of your company’s matching policy each year.
Alternatively, you can use Blooom, a 401(k) robo-advisor, to analyze and optimize your 401(k) and receive tailored investment strategies.
Final Word
When it comes to investing, there are many misconceptions that might scare new investors from even starting. For example, many people mistakenly view the stock market as gambling with their money or think investing is too difficult for the average person.
The reality is that investing is one of the most reliable ways to accumulate wealth if you buy quality assets and plan for the long term.
You should still hold liquid cash in an emergency fund to cover any sudden expenses in your life. However, once you have enough money to cover emergencies in your savings account, it’s time to start investing.
You can keep things simple and use a robo-advisor to start. Alternatively, online brokerage accounts are perfect for picking your own investments.
If you’re looking for something different as you become more comfortable investing, there are even alternative investment ideas like artwork investing through Masterworks to explore.
The bottom line is you don’t need a lot of money to start building powerful financial habits today that your future self is going to thank you for.
