When money is tight, investing might seem like a luxury reserved for the affluent. If you find yourself with only a handful of dollars to spare each month, the notion of investing can feel out of reach.
This sentiment is particularly prevalent among young adults. According to a 2016 Stash survey, 41 percent of millennials believe they lack the funds necessary to enter the stock market, with 70 percent thinking they need a minimum of $100 to start. However, this mindset can lead to significant missed opportunities, potentially jeopardizing your retirement savings.
Contrary to popular belief, investing doesn’t require substantial wealth. There are accessible avenues to initiate your investment journey without hefty sums of cash. Below, explore some cost-effective methods to venture into the stock market.
Five Ways to Invest with Limited Funds
Traditional brokerage firms often impose high minimum investment thresholds. For instance, Vanguard mandates a $1,000 minimum for opening a Roth IRA and $3,000 for certain other accounts. For individuals with minimal funds to invest, establishing an account with a traditional broker can prove impractical, if not impossible.
Moreover, navigating these platforms can be daunting. They inundate you with complex terminology—mutual funds, index funds, exchange-traded funds (ETFs)—which may overwhelm novice investors. However, investing need not be overwhelming or costly. Here are accessible avenues to kickstart your investment journey:
- Utilize Spare Change Investing
If your budget constraints make allocating even $50 a month for investment purposes unfeasible, consider utilizing spare change investment apps like Acorns.
With Acorns, you link your credit and debit cards to your account. Each time you make a purchase—be it groceries or gasoline—the app rounds up the transaction to the nearest dollar, investing the spare change. For instance, if you spend $6.50 on lunch, the app rounds it up to $7, channeling the extra 50 cents into your investment portfolio.
Once your accumulated change reaches $5, Acorns invests it into a portfolio of your choosing. The app offers five portfolio options tailored to your risk tolerance, with subscription costs ranging from $1 to $3 per month.
- Explore Micro-Investing
If you have some discretionary income in your budget, consider delving into micro-investing, where you invest small sums to build a diversified portfolio. Robinhood, a commission-free micro-investing app, allows you to purchase individual stocks and ETFs with minimal capital. All you need is enough money to acquire a single share, which could be as little as $25, depending on the chosen company or ETF.
- Initiate Automated Contributions with a Robo-Advisor
As your income burgeons and your financial standing progresses, spare change investing and micro-investing might not yield the desired results. With these methods, your monthly investments could hover around $15 to $20—a commendable start, but augmenting your investment amounts could lead to superior outcomes.
To elevate your investment endeavors, consider establishing automated contributions via robo-advisors like Betterment. Betterment provides robo-advisor services, which prove invaluable if you possess limited knowledge about the stock market and seek guidance on selecting suitable stocks and funds. The platform levies a .25 percent annual fee for accounts below $100,000.
A recurring $100 monthly transfer can yield substantial dividends over time. For instance, if you’re 25 and make a one-time $100 investment, it could burgeon to $2,172 by the time you reach 65, assuming an annual return of 8 percent.
Persistently contributing month after month could result in even more noteworthy returns. By adhering to a schedule of recurring $100 contributions until age 65, you would have invested $48,000 of your own funds. Yet, thanks to market growth, your balance could soar to an impressive $337,909.
- Establish a Certificate of Deposit (CD)
If you’re hesitant to venture into the stock market, another avenue for investment is setting up a certificate of deposit (CD). With a CD, you essentially lend money to a bank, and they compensate you with interest on the loan. While CD returns surpass those of standard savings accounts, they still pale in comparison to potential market gains. Additionally, you forfeit access to the funds for a predetermined period, typically 12 months or longer.
- Commence Investing in a 401(k)
If your employer offers a 401(k) plan, you can commence investing immediately, sans any minimum opening balance requirement. Automated deductions from your paycheck enable seamless monthly investments. Initially, you can start with modest contributions, such as $25 per pay period. Over time, compounding interest can transform these modest investments into substantial returns.
As your income escalates, consider augmenting your monthly contributions. Moreover, your employer may extend a company match on these contributions—an opportunity for free money you shouldn’t overlook.
Finding Funds for Investment
If you’re grappling with financial constraints and struggle to allocate additional funds for investment, prioritize augmenting your income and leveraging surplus cash to commence investing. Explore avenues like negotiating a raise, undertaking supplementary employment opportunities, or selling items you no longer need around the house. Investing in the stock market is indispensable for securing a stable retirement; neglecting it entails the genuine risk of falling short of your financial goals.
