7 Ways to Invest with Little Money

And three investments to avoid

Written by Robin Hartill CFP® / December 6, 2021

Quick Bites

  • If you work a traditional job, investing in a 401(k) or other employer-sponsored retirement plan is a smart way to invest without much money, especially if your company matches your contributions.
  • Crypto is a high-risk investment. If you choose to try it, start small. Invest only if you’re already invested in the stock market, which delivers more predictable long-term returns.
  • An emergency fund is vital to protecting your investments. Having ample savings prevents you from having to sell investments when they’re down if you have an unexpected need for cash.
  • Avoid penny stocks, meme stocks and collectibles. When you don’t have much money to invest, don’t put your hard-earned cash at risk.

Investing may seem out of reach if you’re living paycheck to paycheck. But learning how to invest, even with a small amount of money, can help you build a substantial nest egg.

That’s because time is a powerful wealth-building tool. When you invest a small amount consistently over a long time, you reap the benefits of compound interest—when your investments earn money, that money is reinvested so you can earn even more money.

Here’s an example: If you invested just $200 a month for 30 years and earned an 8% return annually, you’d wind up with about $300,000. But if your money had 20 years to compound instead? You’d only get to $119,000, assuming the same returns.

Keep reading if you want to start growing your money but don’t have a lot to invest. Below are various ways to invest that don’t require much money. These options have low upfront costs or no minimum investment at all. We’ll also cover some investments to steer clear of when you’re getting started.

Inside this article

  1. Pay down debt
  2. Get your 401(k) match
  3. Use a micro-investing app
  4. Invest in the S&P 500
  5. Buy fractional shares
  6. Invest in real estate
  7. Try crypto
  8. Three investments to avoid
  9. Long-term investing

Pay down credit card debt

How can paying off your credit cards be a way to invest you say? It’s actually one of the best investments you can make for your future.

The average credit card interest rate was over 14% as of August 2021.

That means if you’re carrying a balance on a credit card that charges interest, you’re likely paying more than you could expect to earn in the stock market in a typical year.

Paying off high-interest debt offers a guaranteed return. With investments like stocks or cryptocurrency, returns are never a sure thing. There’s also a risk of losing money, particularly in the short term. But paying off $1,000 of debt on a credit card that charges you 14% interest annually is guaranteed to save you $140 over a year.

Take advantage of your 401(k) match

If you work a traditional job, investing in your 401(k) or other employer-sponsored retirement plan is a smart way to start investing without much money. The money comes out of your paycheck before you see it and is automatically invested.

The best part: Many employers match your contribution. A typical match is 50% to 100% of your contributions up to 3% to 6% of your salary.

Suppose your company matches your contributions dollar for dollar up to 5% of your paycheck. If you earn $40,000 a year and take full advantage, that’s $2,000 of free money.

An average 401(k) plan provides you with at least eight to 12 investment options.

Mutual funds, which pool your money with other investors’ money and invest in many different assets like stocks and bonds, are the most common choices.

Because they invest in so many companies, they provide you with portfolio diversification. (That’s investor speak for, “Don’t put all your eggs in one basket.”)

Tip: You get a tax break when you invest for your retirement. If you have a traditional 401(k), you can make contributions with pre-tax earnings. If you opt for a Roth 401(k), you don’t get an upfront tax break. But your money grows tax-free and is 100% yours when you retire, provided that you follow certain rules.

Use a micro-investing app

If you only have a few bucks to invest each month, consider using a micro-investing app like Acorns or Stash. A micro-investing app is a platform that lets you invest small amounts of money, often as little as $5.

Some platforms, including Acorns, let you link your debit or credit card to your account, then round up your purchases to the nearest dollar and invest the change. For example, if you spent $9.50 at the grocery store, you’d be charged $10. The app would let you invest the extra 50 cents. It might do so automatically, or it might stockpile your money until you reach a certain threshold, then let you decide how to invest it.

Several micro-investing platforms have $0 account minimums. Some will even give you a free stock when you sign up and deposit a certain amount of money.

A word of caution: Look closely at the fees with micro-investing apps. Even a fee that seems minor can eat into your returns when you’re investing small amounts. If you make a one-time $50 investment and are charged $1 a month, that works out to a 24% annual fee.

Tip: The expense ratio of a fund tells you the percentage of your investment that goes toward fees. A 1% expense ratio means that 99% of your money is being invested, while the other 1% goes toward fees.

Invest in the S&P 500

When you are considering what type of investment to buy, research the S&P 500.

The S&P 500 index tracks 500 stocks issued by some of the largest companies in the U.S. An S&P 500 index fund invests your money across those 500 stocks. You automatically become an investor in companies like Apple, Microsoft, Amazon and Google parent Alphabet, to name a few (though the list of companies can change). The performance of your investment mirrors the returns of the S&P 500 index. If the index gained 10% in a year, you’d earn roughly 10%, minus a minimal investment fee.

If you’re skeptical, consider the words of billionaire Warren Buffett, chairman and CEO of Berkshire Hathaway. He has frequently described low-cost S&P 500 index funds as the best way for most investors to build wealth. In fact, the instructions in his will state that 90% of the money he leaves to his wife should go into an S&P 500 index fund.

To buy an S&P 500 fund, you’ll need a brokerage account unless your workplace plan offers the option. You can choose to invest in an S&P index fund in your brokerage account. If you have a retirement account, such as an IRA or Roth IRA (as with a Roth 401(k), you contribute money you’ve already paid taxes on, but the money is yours tax-free when you retire), you can invest in the S&P 500 index fund there. You can set up automatic transfers to invest a small amount each month.

Buy fractional shares of expensive stocks

A single share of Tesla would cost you more than $1,000 as of November 2021. You’d pay well over $3,000 for one share of Amazon. Those prices are ridiculously out of reach when you don’t have much money to invest.

The solution: Invest in fractional shares. A fractional share lets you invest in less than a full share of a stock or another type of security. Let’s say you wanted to invest $100 in Tesla.. If you invested your $100, you’d get 1/10 of a Tesla share.

Many micro-investing apps allow you to invest in fractional shares. They’re now becoming commonplace at mainstream brokerages, as well. Charles Schwab and Fidelity now let you buy and sell fractional shares, as do many popular investment apps like Robinhood and SoFi.

Tip: While it’s easy to transfer whole shares between brokerage accounts, you’ll typically have to sell fractional shares if you switch brokerage firms.

Become a real estate investor without buying property

Investing in real estate may seem impossible when you don’t have much money, especially when prices are soaring nationwide. But it’s entirely possible to invest in real estate, even if you don’t have enough money to acquire property.

Real estate investment trusts (REITs) allow you to invest in income-generating commercial real estate without buying physical property. Publicly traded REITs are bought and sold via stock exchanges just like any other stock.

You can invest using a regular brokerage account. Some platforms like DiversyFund and Fundrise also let you invest in crowdfunded real estate projects with a minimum investment of $500 or less.

Try your hand at crypto investing

The year 2021 was a gangbuster year for cryptocurrency. As of mid-November, Bitcoin was up over 100% year to date, while the price of Ethereum skyrocketed nearly 500%. But crypto is a high-risk investment. In 2018, for example, the price of Bitcoin crashed by about 80%.

If you choose to invest in crypto, start small. Invest only if you’re already invested in the stock market, which delivers much more predictable long-term returns. Because smaller cryptocurrencies are extremely volatile, beginning investors are better off sticking with mainstream cryptos.

You can buy and sell crypto through a cryptocurrency exchange. Many online brokerages and investment apps also let you trade crypto. Most allow for fractional investing, so you won’t need to cough up $50,000 or $60,000 to buy an entire Bitcoin. You’ll also need a crypto wallet, which essentially stores the key to your holdings. Many platforms offer a custodial wallet that’s the default option for crypto investors.

Tip: An emergency fund is vital to protecting your investments. Having ample savings prevents you from having to sell investments when they’re down if you have an unexpected need for cash. Aim to build a cushion of three to six months’ worth of expenses in a high-yield savings account.

Three investments to avoid

You have plenty of investment options, even if you don’t have a lot of cash to spare. But here are three investments to avoid, particularly if you don’t have much money.

1. Penny Stocks

The term “penny stock” generally refers to a stock that trades for less than $5.

Many are over-the-counter securities, which means you have to buy them directly from a broker. That’s often because the issuing company doesn’t meet the requirements to be listed on a major exchange.

Penny stocks tend to be dirt cheap for good reason. The company may have no real track record, and it’s not required to have the same transparency requirements that a major stock exchange requires.

Penny stocks are widely associated with scams and they’re dangerous because they lack liquidity. Translation: You may not be able to find a buyer for your shares if you want to unload them.

The rule of investing in penny stocks is generally that you should invest only what you can afford to lose. When you don’t have much money to invest, don’t put your hard-earned cash at risk.

2. Meme Stocks

A meme stock is a stock that becomes wildly popular due to hype on social media and online forums. Think GameStop and AMC Entertainment Holdings Inc.

Some meme stocks have generated unbelievable returns in a short timeframe for investors. But it’s important to remember that no one knows how long the hype will last. If your timing is off, you could easily lose most, if not all, of your money.

3. Collectibles

Collecting things like sports memorabilia or comic books is fine as a hobby. But they don’t make for a good investment, particularly when you have limited funds.

The value of collectibles is widely subjective. They can also be expensive and difficult to sell, particularly if you need to do so quickly. Scams and counterfeits are also common.

If you don’t have much money to invest, don’t rely on collectibles to secure your nest egg. Invest in assets like stocks and mutual funds that have a history of delivering returns over time. The money you spend on a collection should come out of your entertainment budget.

Why long-term investing is the best strategy

No matter how much money you have to invest, thinking long-term is a good strategy. The goal of investing is to buy low and sell high. But when you focus on short-term performance, you’re likely to do just the opposite and sell in a panic when the stock market tanks.

A good strategy is to practice dollar-cost averaging, which means you commit to investing at set intervals no matter what’s happening with the market. (If you contribute to a 401(k) or you automatically fund an IRA each month, congrats. You’re already practicing dollar-cost averaging.) Doing so helps to lower your investment costs over time. Sometimes you buy high, but you’ll also lock in some lower prices when the market is down.

A final reason to invest for the long haul: You’ll save money on taxes. When you sell investments for a profit and you’ve held them for one year or less, they’re treated as short-term capital gains. That means it will be treated the same as ordinary income you’ve earned from working. But if you hold your investments for at least a year and a day, your profits will be taxed at lower long-term capital gains rates.

Regardless of how you choose to invest, don’t delay. It’s easier than ever to start investing if you don’t have a lot of money. With patience and consistency, investing even small amounts can help you reap substantial gains.

About the Author

Robin Hartill

Robin Hartill CFP®

Robin Hartill is a CERTIFIED FINANCIAL PLANNER™ and a personal finance writer and editor. Her work has been featured on The Motley Fool, The Penny Hoarder, the Tampa Bay Times, USA Today, Yahoo! Finance and more.

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