Setting aside enough money to invest can be difficult. Financial instability can be a huge barrier to entry for aspiring investors and some investment accounts require a minimum deposit of $5,000 or more. If you don’t have that much cash at your disposal, you can still start investing. Check out some easy ways to invest your money when you’re on a shoestring budget.
How to Invest $20
Sometimes the struggle is real. After you’ve paid your rent or your mortgage bill and you’ve made your credit card and student loan payments, you might only have about $20 that you can invest. That’s not a problem. The truth is, there are quite a few options available to people investing small amounts of money.
How can you invest the $20 you have left in your bank account every month? You might not have to look further than your own workplace. If you haven’t already set up a 401(k) or another employer-based retirement account, that’s one way to start investing and saving up for the future. Your contribution would be deducted straight from your paycheck, so you wouldn’t have to think twice about it.
A certificate of deposit (CD) is another place where you can invest $20. CDs offer rates that are higher than those associated with traditional savings accounts. Once the CD matures, you can reinvest your money in another CD and repeat that process over and over again. This is called a CD ladder. With a CD ladder you can watch your investments grow and if you’re strategic, you’ll have access to a steady flow of income as each CD reaches its maturity date.
If you’ve got $25 to spare, you can buy a Series I or a Series EE savings bond from the U.S. Treasury Department. Savings bonds can help you beat inflation and because they come from the government, you can trust that you’ll get your money back, plus interest. And get this: At tax time you can elect to have your tax refund automatically used to purchase a $50 Series I savings bond.
How to Invest $100
Maybe you’ve got roughly $100 a month to stick in an investment account. Consider buying an exchange-traded fund. ETFs follow major market indexes such as the Dow Jones and they trade like stocks.
What’s great about ETFs is that you won’t have to make a huge minimum deposit to begin investing. When you purchase an ETF, you’re only paying for one share. Plus, ETFs give you the opportunity to mix things up in your portfolio.
With $100 to spend you can also check out some of the other investments offered by the U.S. Treasury. Buying Treasury bills, notes or Treasury Inflation-Protected Securities (TIPS), for example, can cost you as little as $100. These are short-term, low-risk investments.
You won’t earn a lot of interest with government securities. But if you’re new to investing, this could be a good place to start. They’re available for purchase through treasurydirect.gov, your local bank or a broker.
You can also take advantage of myRA, a government-sponsored retirement savings initiative that allows you to contribute after-tax dollars to an account in your name. Assuming you meet the maximum income requirements, you can use a MyRA to earn tax-free growth on your savings.
Eager to enter the stock market? You can try your luck with dividend reinvestment plans (DRIPS). Instead of going through a broker, this kind of plan allows you buy shares from publicly traded companies. While you could invest in DRIPS with as little as $20, the catch is that you have to initially buy a share through a broker and then reinvest that money later through DRIPS.
You can also get into real estate investing with little money. Thanks to real estate crowdfunding, you can get involved in a real estate investment with just $100. You’ll be able to choose which projects to invest in and sit back while someone else manages the investment that you and others have put money into.
Factors to Consider Before Investing
Before you reach out to a broker, remember that investing generally involves taking on some sort of risk. Small investments that take a dive won’t hurt your bottom line as much as thousand-dollar investments. But it’s a good idea to ensure that you’re making the most of the funds you invest.
ETFs, for example, can be volatile and their prices can swing quite a bit throughout the course of a single day. And while your initial investment might not be that expensive, you might pay a lot per transaction if you frequently buy and sell shares. Depending on what your expense ratio is, the fees required to manage your accounts might take sizable bites out of your earnings as well.
To play it safe, it’s best to look for low-fee and commission-free investments. Looking for a discount broker is also a smart move, since you can get away with paying less per trade.
Just about anyone can start investing. Even someone with as little as $20 to spare can purchase one of the best CD accounts or contribute to an employer-sponsored retirement plan. Remember to watch out for fees that can reduce your returns and investment opportunities that require you to risk more than you’re comfortable with.
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