Investing is one of the smartest ways to improve your personal finances. There are many different ways to invest, each having its own risk and reward ratio.
Thanks to developments in the market, many companies are now offering investment services to the masses, making investments more accessible due to the little money required to get started.
Keep in mind that there is always an element of risk involved when investing, and you can lose your investment if you’re not careful. Always invest wisely and thoughtfully.
16 Ways To Start Investing with Little Money
Here are 16 great ways how to invest small amounts of money:
- High Yield Savings Accounts
- Real Estate Crowdfunding
- Invest in Fractional Shares
- Let Robo-Advisors Invest for You
- Try out Stash App for Beginner Investors
- Invest Your Spare Change with Acorns
- Commission Free Investing with Robinhood
- Ally Invest for Banking and Investing
- Peer-2-Peer Lending with Prosper
- Certificates of Deposit
- U.S. Treasury Securities
- Employer-Sponsored Retirement Plan
- Stock Options
- Precious Metals
- Mutual Funds with Target Dates
- Forex Trading
- Low-Cost ETFs and Mutual Funds
1. High Yield Savings Accounts
High Yield savings accounts are one of the easiest ways to invest with little money. These types of accounts offer a higher interest rate than standard online savings accounts, making them ideal as long-term savings – and no confusing words like “stock markets” and “index funds” involved!
APY rates work best when the interest earned is left in the account. This is because you will earn interest on your interest, and your account will grow that much faster. Because of this, you can invest relatively little money and still end up with a sizable amount at the end of the savings term.
High Yield Savings Accounts are offered by banks as well as other financial institutions. Typically, online banks will offer better deals with no minimum deposit requirements, so make sure you include them in your list when looking for the best available deals.
The other thing to look out for is promotions. Many banks offer promotions that include free cash bonuses to those opening a new account.
Of course, there are usually some qualifying criteria such as a minimum investment requirement, so you’ll need to make sure that you have enough money. If you clear these, you can receive a nice cash bonus to grow your account.
2. Real Estate Crowdfunding
Real estate is one of the safest and most lucrative forms of investment available. Traditionally, this type of investment was reserved for the ultra-rich, requiring a sizeable initial investment to purchase the actual land or property.
This is no longer the case, thanks to real estate crowdfunding, which brings real estate investments to the masses.
Through crowdfunding, your investment is combined with many others, creating the size of investment required to enter this market. It also offers the opportunity to invest in property in foreign markets such as emerging economies where the prices are likely to go up in a short period of time.
While investing in real estate is considered relatively safe, it does not mean that it is without risk. Take the time to understand what you’re risking and what you stand to make while making sure to check out different platforms before committing to one.
3. Invest In Fractional Shares
Fractional shares are a relatively new concept within market trading. They make it easy for the average person to invest in big-name shares that can cost hundreds of dollars for a bit of money, making them inaccessible to the average investor.
Fractional shares allow you to buy fractions of a share instead of a whole one, diving the price accordingly. This not only allows you to purchase shares of companies like Google and Facebook but also will enable you to diversify your investment portfolio without having to invest large sums of money.
Apps like Public make it easy to invest in fractional shares and funds without paying any commission. If you’re new to investing, Public also offers opportunities to learn from other investors who might have more experience than you.
You can also earn free stock by referring friends and accounts are insured up to $500,000, giving you peace of mind and a sense of security.
4. Let Robo-Advisors Do The Work
If you’re new or have limited time to dedicate to investing, Robo-advisors are a great place to start. Think of Robo-advisors as computer programs that can understand and interpret market data and then take actions accordingly. This not only saves you time but can also offer a safe way to invest.
On top of that, Robo-Advisors are usually a lot cheaper than working with financial advisors – they’ll cost you good money (even if you open a brokerage account with a discount broker).
Though bear in mind that the market can still be unpredictable, and Robo-advisors can still lose trades. In most cases, you get to choose the amount of risk you’re willing to take on, choosing between low risk and slow returns, high risk with the chance of faster returns, or something in between.
If you’re wondering which Robo-advisors to look into, check out Betterment. It’s an innovative company, and it definitely makes it easier to start investing with a simple and easy-to-use platform. Betterment will manage your investment portfolio for a small management fee (that’s 0.25% of your account balance).
If you’re looking for a free option, check out M1 Finance. No annual fee – and M1 Finance’s smart algorithm automatically spreads the money you invest among bonds and index funds.
5. Try Out the Stash App – Great for New Investors
If you’re a new investor, one app worth looking into is Stash. It offers a wide range of financial products and services, aimed at giving you control over your financial future with investment opportunities that include both stocks and ETFs (Exchange-Traded Funds).
This low-cost brokerage app charges only $1 a month (or $3 if you’re looking to open a traditional or Roth IRA).
Stash offers a wide selection of different shares, categorized by sector, to make them that much easier to find. One way the app makes investing in stocks more accessible is through fractional shares. This means that you can buy a fraction of a share, rather than needing to have all of the money to buy a full one.
You can start investing at a very low cost from as little as $5.00, and the cheaper Stash subscription plan ($1) includes a checking account, access to free financial education, and even a feature that allows you to get paid two days early!
You can also invest in a selection of ETFs within different categories. One interesting ETF category is that of Missions and Causes.
Here, you can invest in a number of companies that are working towards important causes such as combating carbon emissions and empowering women leaders.
6. Put Your Spare Change to Work with Acorns
While saving money is important, the truth of the matter is that it’s not always easy. Unexpected expenses, bills, and repairs are some of the more common culprits that can derail plans to save money.
Several micro-investing apps try to work around this by automatically saving spare change, making saving money as seamless and as fluid as possible.
The Acorns app takes this one step further. There’s a sophisticated algorithm, and what it does is round up your debit card or credit card purchases to the nearest dollar, investing your spare change in the stock market. This means you can start investing with very little money.
By investing in small amounts of money in a diversified portfolio, the risk is also minimized, with over $1 billion already invested in this portfolio.
Acorns also offer other ways to invest, including Acorns Later. This type of investing uses an IRA plan to invest for your retirements, with over 250,000 investors already on board. There are five different portfolios to choose from, ranging from Conservative all the way to Aggressive.
7. Commission-Free Investing with Robinhood
Traditionally, when it comes to investing, trade commissions kept traders with low budgets out of the trading market. This is because commissions can eat into the profits, requiring a larger amount of money to be invested in every single trade.
Trading apps like Robinhood are changing the game by offering commission-free investing in stocks, funds, options, and crypto.
With commission-free trading, no commission is payable for any trade placed. Do keep in mind that a fee is still charged. This is called the spread and is automatically included in the price of the stock that you see on the app.
Even so, commission-free trading makes trading easier and more accessible. With Robinhood, it is also easy to diversify your portfolio, helping you weather down unexpected market movements.
You can also invest in volatile assets such as gold and crypto, but caution should be exercised here. You can also join the waiting list for the cash management account offering an APY of 0.30%
8. Use Ally Invest – for Banking and Investing
While investing can be very exciting, taking the time to understand how it all works is very important. This is why many people are turning to managed accounts that use Robo-advisors to invest their money in the stock market.
Having access to a platform that offers both options can prove to be beneficial as it allows you to transition from managed to self-directed without having to move platforms.
This is one of the benefits offered by Ally Invest, along with banking accounts, including checking and savings accounts. You can also take out a mortgage, auto loan, or a personal loan – all using the same platform. This makes Ally a one-stop-shop for all of your financial needs.
If you’re looking to make as much money as possible, their High Yield Certificate of Deposit offers an APY of 1% when choosing a five-year term. This means you’ll earn an estimated $510.10 over five years when depositing $10,000 with no further deposits.
9. Peer to Peer (P2P) Lending
P2P lending became a thing in the 2000s, offering borrowers looking for low-interest loans access to money.
On the other hand, investors lending out the money can often look forward to greater returns – and this has made P2P lending a popular investment option.
P2P lending can be a great and effective way to diversify your portfolio. Some platforms also give you the opportunity to invest in loans. This means that instead of lending the entire loan amount to one person, you can invest in shares of a loan, making this form of investment less risky.
Most companies also offer smartphone apps that allow you to manage your investments from virtually anywhere.
If you’re looking to invest in P2P lending, it’s worth checking out Prosper. You can get started with just a little bit of money – and chose which risk category of borrowers you want to lend to.
10. Invest in Certificates of Deposit
Think of Certificates of Deposit as a special type of savings account. Unlike a regular savings account, C.D.s hold a fixed amount of money for a specified period of time. In return, you will be paid interest on your money, allowing your initial savings to grow accordingly.
A Certificate of Deposit is considered a very safe form of investment. This is especially true if the bank or financial institution you open the CD with is insured by the FDIC.
Do keep in mind that generally, insurance coverage tops out at $250,000. Some financial institutions are insured by NCUA instead of the FDIC.
Important things to look out for are account minimums as well as the APY rate offered on the CD. The APY rate, listed as a percentage, is the interest being offered on the money deposited.
APY rates allow your savings to grow even more since any interest earned during the term also earns interest.
11. Invest in U.S. Treasury Securities
U.S. Treasury securities are a form of government debt issued by the federal government. These are used to finance different projects and spending instead of taxation.
Essentially, there are four different types of U.S. treasury securities. These include bills, bonds, notes, and Treasury Inflation-Protected Securities, also known as TIPS.
All four types of securities are first sold in auctions held by the Federal Reserve Bank of New York. Once sold, they make their way to what is known as the secondary market where they can be bought by regular investors.
Investing in these types of securities offers a number of benefits, making them a popular option among different types of investors. They offer a very low risk of default, making them a stable and predictable type of investment, even if their return rate is relatively low.
They are considered very predictable, and interest is exempt from both state as well as local taxes.
12. Employer-Sponsored Retirement Plan
Employee-sponsored retirement accounts, also known as SIMPLE IRA, are an alternative to 401(k)s. SIMPLE is actually an acronym rather than indicating something simple about this type of IRA. It stands for Savings Incentive Match For Employees.
SIMPLE IRAs are available to employees of small companies, specifically to ones that have less than 100 employees. This type of IRA works in one of two ways. These are as follows;
The employer will either match your contribution up to 3% of your salary or else contribute 2% of your salary, regardless of whether you deposit or not.
Either way, all contributions are pre-tax with payable tax-deferred until such time as money is withdrawn at the retirement stage. Early withdrawals will incur a 10% penalty, going up to 25% of withdrawals are done within the first two years of plan enrollment.
However, not all employers will have a 401(k) or equivalent, so if yours doesn’t, see if you can open an Individual Retirement Account (IRA) at your bank or through a stock broker. It’s never too early to start saving for retirement.
13. Invest in Stock Options
Options are a useful type of financial asset that, when used strategically, can be an effective hedging device.
Since options are more complex than normal stocks, they are considered better suited to more experienced investors. Having said that, with a bit of research, they can be your friend.
Options are known as derivative contracts. A derivative is an important word here as it signifies that we are not buying the actual stock but something that is derived from it, in this case, a contract. The contract gives you the option to buy or sell a stock at a price listed on the contract on or before the contract expires.
Many investing apps offer options, making them accessible to any trader. Since they are not as straightforward as normal stocks, doing background research is highly recommended as this will help you avoid losing money.
Some apps also offer a demo account, allowing you to trade with virtual money before moving on to investing with your own. If you’re interested in investing in stock options, be sure to do a little more research and get some financial advice beforehand.
14. Invest in Precious Metals
You can invest in precious metals, such as gold, along with a number of others easily through trading platforms. These are known as commodities and can be bought and sold just like you would with shares.
Trading in commodities such as gold and other precious metals is not suited for everyone and requires a deeper understanding of market conditions. Many trading apps offer the possibility to buy these commodities, and they can make for a good strategy when looking to diversify your portfolio.
There are different ways to invest in gold, silver, platinum, and other metals, such as futures and options. When buying futures, you are basically buying the metal at a future price, hoping that the price will go higher or lower on the date the future becomes redeemable.
Options, on the other hand, work very similarly to futures. The only difference here is that you have the option of selling the commodity, hence the name.
15. Mutual Funds with Target Dates
Think of mutual funds like a basket containing a collection of investments. This basket, known as a mutual fund, can contain different kinds of investments such as individual stocks, bonds, commodities like others.
They are managed by a portfolio manager whose job is to make sure that the fund continues to achieve growth year after year.
Mutual funds with target dates are mutual funds that have a target date of when the investment can be withdrawn. Because they’re setup, they are particularly useful as a retirement savings plan.
One major advantage of mutual funds is that they can hold a diverse number of investments so that the portfolio manager can hedge against possible negative market movements.
While you won’t have much control over what kind of investments go into the fund, the portfolio manager should be experienced enough to make smart choices that grow your savings. Do keep in mind that most mutual funds carry an annual fee.
Interested in mutual funds? Vanguard’s target-date mutual funds are worth finding out more about.
16. Forex Trading
Forex essentially means trading in foreign exchange (or FX). You’re essentially buying or selling currencies for a profit. You can choose to trade in major pairs, minor pairs, or exotics at different lot sizes depending on your budget and risk tolerance.
Major currency pairs are currencies paired with the U.S. Dollar, while minor pairs, also known as cross pairs, are those pairs that do not include the U.S. Dollar. Exotic pairs include one major currency and currency of a developing country.
To trade forex, you will need to subscribe to a trading platform such as Meta Trader and a broker, with the broker holding your money and actioning your trades.
Having knowledge of strategies is also important as this will allow you to trade strategically. You can start with a very small investment account and grow your account over time. Doing so can help you minimize the financial risk usually associated with trading.
17. Low-Cost ETFs and Mutual Funds
One of the smartest ways to invest with little money is by looking for ETFs and funds with low expense ratios. This means they don’t take much money for managing the funds.
Most mutual fund companies will take somewhere between 1% to 2% of your money (sometimes more), this way reducing the amount of money your investment can make.
Luckily, as with everything, mutual fund companies are now competing for customers, so they’ve been forced to offer products at a lower cost – sometimes no fees at all!
One of the most popular low-cost options is index funds. They’re managed with a very hands-off approach, so fund companies tend to keep expenses low.
Again, Vanguard is an excellent company to check out for low-cost index funds.
You CAN Invest With Little Money
As you can see, you don’t need a lot of money to invest. There are plenty of excellent investment options and innovative platforms to invest with, even if all you have is some spare change.
Many of them offer no or low fees, low minimums, and are as easy to use as a bank account.
The truth is, most investors were once small investors. You’ve got to start somewhere – and using one of these investment options is a good first step.
As time goes, you’ll learn more, and your investment strategies will get more advanced. Maybe you’ll want to invest bigger sums – because you will have tried it with a little money and seen how your money can grow.