How To Invest Without A Lot Of Money

“It takes money to make money.”

You’ve no doubt heard that phrase thrown around before. It’s a phrase that unfortunately stops people from investing before they even start. The idea that you need to have a lot of money before you’re able to invest (and make more) is all too common, and it’s simply not true. 

Years ago when you needed a financial advisor at a big brokerage firm, and you had to pay them insane commissions in order to trade this may have been true. But now, the internet is your savior! You don’t need a financial advisor at all! Thanks to the internet, it doesn’t matter if you have $100, $1000, or $10,000. You can invest and get your money working for you no matter who you are.

A couple of assumptions before we continue with this post…I’m assuming that A) you don’t have a mountain of debt hanging over your head. If you do, focus on paying that off first! Paying off a credit card at 18% interest will give you more bang for your buck than investing in the market. B) I’m assuming you have something resembling an emergency fund. Just some amount of cash in a savings account that you feel safe falling back on should something bad happen. 

So, with that out of the way…let’s get down to it.

“How do I invest if I don’t have much money?”

Employer Sponsored Retirement Plans

I know, I know. It’s not the sexiest thing in the world, but investing through your 401k or other similar type of retirement plan is the absolute easiest way to get started investing. No matter how much money you make you’re able to invest in a 401k. If you’re lucky you employer will match the funds you contribute and really help you to get started on your investing journey. Even if your employer doesn’t match your 401k contribution it’s still a good idea to contribute, simply because it’s the easiest and most available way for each of us to invest.

If you don’t know how to get started investing in your employer’s retirement plan, contact your HR rep and they will be able to help you get started. Many employers are now automatically enrolling new employees into their 401k plans, so there is a chance you’ve contributed all along and just didn’t know it!

The Game Changers: Online Brokerages 

Online brokerages have made it increasingly easy for the average joe to get started investing. With most online brokerages you can open an account with as little as $500 (sometimes you don’t need any money at all!). The best part about online brokerages is that you don’t have to pay a lot to buy or sell an investment. $9.99 per trade is standard these days, but there are ways to pay $0 in commission.

Commission Free ETF’s – Commission free ETF’s have totally changed the investing game and made it possible to invest with as little as $50 or $100.  Don’t believe me? Here’s an example:

Vanguard’s Total Stock Market ETF (VTI) is available commission free from a number of online brokerages. This ETF invests in over 3000 stocks, representing the entire U.S. stock market. At the time of this writing it was trading for around $83/share.

That means you can take that $100 your grandma gave you for your birthday, buy a share of VTI and automatically be diversified across each size and sector of the US stock market. It really is that easy!

Have $500 you want to invest? You can have a completely diversified portfolio for $500…

Buying VTI will give you all the exposure you need to the US stock market. If you want to add a little international flair to your holdings it’s as simple as buying VXUS which is Vanguard’s Total International Stock Etf.  For $50/share (as of writing) you can gain exposure to foreign stocks across the globe. China, Brazil, Japan, Germany, India, England…you name it, it’s in there.

Next up you can add a little more stability to your portfolio with Vanguard’s Total Bond Market ETF (BND) which gives you exposure to the entire market of investment-grade bonds in the United States.

To recap your balanced, totally diversified, all-encompassing $500 portfolio could look like this:

2 Shares VTI: $83 *2 = $166
3 Shares VXUS: $50*3 = $150
2 Shares BND: $83*2 = $166

Total Cost: $482 

See! Who says you need a lot of money to invest?! You can take $500, invest in all the worlds stocks, the entire US bond market and still have $18 left over for pizza! After your initial investment you can just keep adding to your shares of those 3 investments any time you have some extra cash lying around. You never have to worry about owning anything else, just keep watching your investments grow!  You can do this in a Roth IRA, Traditional  IRA or a taxable brokerage account, the choice is yours.

Dividend Reinvestment Plans

Many people will suggest dividend reinvestment plans (DRIP) as a way to cheaply invest. It is true that DRIP plans are a great way to invest in individual stocks cheaply, I don’t agree that they should be something you look at if you only have a few hundred dollars to invest. Because you’re investing smaller amounts of money you won’t be able to spread out your risk if you invest in individual stocks. That’s why I prefer the broad index etf’s mentioned above. You diversify your holdings and spread out your risk as widely as possible with your investment. What I do recommend is that you reinvest the dividends of whichever investment you do buy. With most online brokerages it’s as simple as checking a box or a one-time enrollment for your account.

Automatically reinvesting dividends will start a snowball effect with your investment very similar to how the power of compounding helps your savings grow.

What are you waiting for? Get started now!

E*Trade, TD Ameritrade, Charles Schwab, Fidelity and Vanguard are all reputable online brokerages where you can get started investing on the cheap. They all offer a large list of commission free ETF’s and have super low commissions on other investments you may make.

Choose whichever broker you like the best. If you need help figuring out an asset allocation (proper mix of stocks and bonds) for yourself. Check out my post on how to do just that.

If you didn’t think you had enough money to invest, or you’ve been dragging your feet getting started. I hope this post served as a little kick in the pants to get you investing! Time is your friend when it comes to investing and even small amounts now can add up to big bucks down the road. Stay patient, keep investing what you can, and barring a zombie apocalypse…you’ll make money.  Good luck!

If you have questions about getting started investing a small sum, ask away in the comments! Myself or some of the more experienced readers will be glad to help! 

Are you an experienced investor? What other advice would you give someone starting out with a small amount of money?

Thanks for reading! If you enjoyed this post be sure to subscribe by email or RSS to keep up with all the latest posts! 

 

 

 

Disclaimer: I own shares & am long BND. I used Vanguard EFT’s in my examples…this was for simplicity as they are among the most popular ETFs on the market. Their appearance in this post does not constitute an official recommendation. As always, do your own homework and choose your own investments. Don’t trade based solely on what some guy on the internet says!
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22 Responses to How To Invest Without A Lot Of Money

  1. For someone with a small amount of money, just get started! The power of compounding is amazing, and really time is a great asset in that regard. I’m thankful I started when younger and having very little at the time.

    • It can’t be said enough, starting early and taking advantage of time is the best thing you can do when investing. It’s really amazing how those $50/mo deposits into my IRA from years ago added up and compounded over time.

  2. If you have very little money to invest each month I definitely recommend going the low/no-cost mutual funds and ETFs that are out there. Vanguard definitely has some of the better ones and when I roll my 401k over whenever I leave my current job, I’ll be purchasing mostly their offerings with my funds, although I might keep some for investment in individual stocks. If anyone thinks they don’t know enough about investing or can’t get good diversification needs to wake up to what’s out there. As you mentioned for only $500 you can pretty much own every single stock that can be purchased. I’d say that’s good diversification.

    • low cost, commission free ETFs are really a small investors best friend. The more money that doesn’t get eroded away by commissions and fees is more money that compounds for us over time.

  3. Integrator says:

    I agree with you that just getting started is the most important thing. I think even $500 lots are fine to start investing. I’d actually suggest money in some dividend stocks when starting out so an investor feels they get paid to hold and aren’t discouraged from investment values being flat/in decline in the initial few months

  4. Martin says:

    Jay, thanks for reminding me the commission free ETFs. I completely forgot about them. I am going to check my broker which he is offering and which meet my investment strategy criteria. That would be an excellent way to save tons of cash on fees.

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  6. Trading options also provides a great way to invest when you’re starting out with little cash.

    I have many younger siblings that I’ve influenced to start investing. Most of them have less than $5000 to start with, but they’d like to purchase shares of solid companies. Instead of buying shares of stock, they buy deep in the money LEAPS. A January 2015 in the money call will trade close to its in the money value, so instead of buying 100 shares of Microsoft for $3200, they can by one $25 LEAP for $700.

  7. krantcents says:

    The key to all investing is to start saving. As soon as you have $1,000 together, you start investing. Find a mutual fund or ETF and add to it.

  8. Good post. I’d definitely recommend getting started with a few Vanguard ETF’s. The Expense Ratios are about as low as one can find and the company is SOLID.

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  10. Great tips! And you are absolutely right – investing is not only for people with loads of money. One can start small and build it from there.

  11. I don’t invest a lot, but I do invest – particularly in retirement funds. I have one through my employer but I also have one that I started. It works.

  12. I totally agree. You don’t need too much money in order to invest. You can always start saving and invest little by little.

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  14. David says:

    Vanguard is both reliable and can help you in the long run. Without much money, I would use Vanguard.
    Great post!

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  16. Kelly says:

    I think that Vanguard’s gone up since you wrote this post – any idea how much you need these days?

  17. Okanya Christian says:

    I need the latest investment feed up all the time. Thank you.

  18. There’s individuals that view investing as a rich man’s game. That thinking prevents people from investing and just spending the cash. Loyal3 is a great non fee way to invest.

    Great post!

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