Investing can seem daunting, especially if you don’t have a lot of money to spare. However, you don’t need thousands of dollars to get started. With some planning and discipline, you can begin investing with just a little bit of money. Here are some tips for starting to invest when you don’t have much capital.
How to start investing with little money can be intimidating but is very doable with proper research and planning. The keys are starting early, staying consistent, minimizing fees, and investing in yourself. With time and sustained effort, even small sums can grow into something great.
Set reasonable expectations
How to start investing with little money requires accepting you won’t get rich overnight. However, with compound growth, even small, regular investments can grow significantly over decades. Patience and persistence are critical.
Rather than obsessing over huge returns, focus on maximizing what you can regularly contribute, and give your investments time to grow. Avoid get-rich-quick schemes that can wipe out your capital.
Take advantage of workplace benefits
One of the easiest ways to begin investing with little money is through your workplace. Many employers offer matching 401k contributions, which is essentially free money.
At a minimum, contribute enough to get the full match. This instantly doubles your investment. If your employer doesn’t offer a match, contribute whatever you can afford to tax-advantaged retirement accounts.
Use a robo-advisor
Robo-advisors like Betterment and Wealthfront make investing with little money simple and affordable. You can open an account with no minimum and have your money automatically invested in low-cost ETFs.
Robo-advisors offer automatic portfolio rebalancing and tax loss harvesting. They charge fees starting around 0.25% annually. This is far less than traditional advisors, allowing more of your money to work for you.
Look into index funds
Index funds like those offered by Vanguard track market indexes like the S&P 500. They provide instant diversification and low fees, especially for larger account balances.
Many index funds have minimums of $1,000 or more. However, some brokers like Fidelity and Schwab offer select index funds with no minimums, making them ideal for How to start investing with little money.
Use fractional shares
Fractional share investing allows purchasing partial shares of expensive stocks. This permits greater diversification without large upfront investment.
Apps like Stash let you start with just $5. Look for fractional shares to invest small amounts in top companies previously requiring thousands per share.
In addition to Stash, apps like Acorns and Robinhood offer low or no minimums. Acorns invests your spare change in ETFs. Robinhood offers commission-free trading of stocks and ETFs.
Both allow starting with tiny amounts, making them great tools for learning the ropes of investing with little money. Just beware of overtrading on Robinhood, which can rack up fees and hurt returns.
Start an emergency fund
Before investing, build a starter emergency fund with 3-6 months’ expenses. Savings accounts or short-term guaranteed investment certificates (GICs) are good options. This cushions you from needing to sell investments or go into debt when unexpected costs arise.
With your emergency fund established, any extra cash can then be directed into investing. Building this foundation first helps you invest stress-free knowing you have cash reserves on hand.
Invest in a TFSA first
In Canada, Tax-Free Savings Accounts (TFSAs) provide flexible, tax-free growth on investments. Max out your TFSA contribution each year before using other accounts, as you’ll keep all profits earned.
In 2023, the TFSA limit is $6,500. Even small, regular contributions will quickly reach this limit. A TFSA is a powerful tool for investing with little money in Canada.
Buy individual dividend stocks
Some companies pay consistently high dividends. Buying just a few shares of these stocks generates dividends you can reinvest. Over time, reinvesting dividends accelerates growth through compounding.
This strategy allows investing in quality companies without needing lots of capital up front. Research firms like the “Dividend Aristocrats” which have increased dividends annually for 25+ years.
Invest in yourself first
Perhaps the best investment when funds are limited is in your own education, skills, and career. Pursuing additional training and certifications in your field can unlock higher income potential. Funding continuous learning pays dividends.
Also consider investing any raises or new job pay boosts back into your long-term investments, accelerating your ability to invest for the future.
Avoid fees where possible
Even small fees can eat away at returns. This has an enormous impact over long periods. Investing in simple, low-cost index funds avoids the higher fees of actively managed funds.
If you do use a traditional advisor, compare fee-only versus fee-based models. Fee-only advisors charge hourly or flat rates rather than a percentage of assets under management.
Set up automatic transfers from your paycheck or bank account into investment accounts. Even small amounts like $25 or $50 per pay period will add up quickly, especially when going into a tax-deferred retirement account.
Automation keeps you disciplined by enforcing consistent investing as a habit. You remove the temptation to manually delay or skip deposits.
Take advantage of found money
Tips, gift money, tax refunds, and any other surprise cash are great for investing. Direct these unexpected windfalls straight into your investment accounts rather than splurging on impulse purchases.
Small sums frequently trickle into your life. Put them to work consistently investing and they’ll grow faster than you expect.
Start early and be consistent
The biggest keys to investing with little money are starting early and sticking with it. Thanks to compounding growth, time is your most powerful asset.
Begin investing as soon as income allows, preferably in your 20s. Commit to making regular, automated deposits from every paycheck no matter how small. Given enough time, stunning portfolio growth is achievable even on modest savings.
Sample starter portfolio
Here is one example of a simple starter portfolio requiring minimal upfront investment:
|Emergency Fund||Savings Account||$2,000|
|Taxable Account||Schwab S&P 500 Index||$200|
|Retirement Account||Vanguard Target 2055 Fund||$100/month|
|TFSA||Canadian Couch Potato Model ETF Portfolio||$50/month|
|Total Initial Investment||$2,200|
This balances emergency savings with index funds, target date funds, and broad asset allocation via ETFs. Regular automated deposits put your investing on autopilot. Reinvest all dividends and profits to supercharge compounding.
The examples above illustrate that How to start investing with little money is very achievable. Anyone can begin investing, even with just $100 per month. Commit to a long-term, automated strategy, and your portfolio can realistically grow into the hundreds of thousands over your lifetime.
- Start with any amount you can afford, even if just $5 or $10 to get the habit going
- Use workplace retirement plans and robo-advisors for easy, low-cost investing
- Focus on maximizing your time in the market over trying to time the market
- Reinvest all dividends and profits to benefit from compound growth
- Automate deposits on a recurring schedule for disciplined investing
- Avoid fees and taxes to keep more money working for you
- Start early and stay consistent – time is your most valuable asset
With the right approach, investing with little money can set you up for long-term success and financial security. Be patient, start where you can, and let compounding work its magic. Your future self will thank you.