How To Start Investing In Stocks With Little Money

How to How To Start Investing In Stocks With Little Money

Think you don't have enough money to start investing in stocks? Think again! To many young folks use the “not enough money” excuse to not invest in the stock market over the long run.

Unfortunately for them, not you, they will likely end up missing out on one of the best ways to build wealth over the long term. In one study, the amount of net worth people under 35 had in cash was over over 60%. It's clear that people don't know where to start.

I admittedly failed to invest in my Roth IRA in my 20s because I thought investing a couple thousand dollars a year was a waste of time. I regret this decision now that I'm a father of two kids. No matter how little you earn, it's good to invest in a tax-advantageous way and build saving and investing fundamentals and habits.

You don’t have to be an expert to invest in the stock market. You also don’t need to have thousands of dollars to start. There are many tools that can help the most novice investors do quite well, even with limited resources.

How To Invest In The Stock Market With Little Money

Everybody has to start somewhere. So you might as well start today. Today, you can invest in stocks with just $100.

I started investing in the stock market when I was a sophomore at The College of William & Mary in 1996. I had opened up my TD Ameritrade account at the time with $500 I saved up from working summer minimum wage jobs. It was a thrilling process investing in stocks with the little money I had.

If you have held back from investing due to lack of funds, this post will help you overcome your fears and concerns about investing in the stock market. After online investing for three years, I was able to graduate and get a job at Goldman Sachs in New York City in their equities department.

From 1999 – 2012, I worked in Equities as an Executive Director before I finally negotiated a severance to focus on Financial Samurai for good. If you want to know about investing in stocks, bonds, and real estate, Financial Samurai is the place for you.

First Step To Investing In Stocks: Leverage Your Employer

The absolute number one place to start investing in the stock market is through your employer. Hopefully your employer has a 401(k) retirement plan.

It is important that you try and max out your 401(k) every year for as long as possible. You can tap these funds for retirement once you turn 59.5. As of 2023, you can contribute $22,500 a year to your 401(k). The contribution maximum goes up about $500 every two years. The max is up from $20,500 in 2022.

If you max out your 401(k) every year until age 59, I'm pretty sure you will end up a 401(k) millionaire by the time you're 60. Below is my 401(k) by age guide to follow.

401(k) By Age Guide - How To Start Investing In Stocks With Little Money

The 401(k) and IRA are your primary first steps to investing in stocks and building wealth. You can buy equity funds, bond funds, and potentially other types of assets, depending on what your 401(k) plan provides.

The key is to follow a proper asset allocation of stocks and bonds by age. It's important to invest in a risk-appropriate manner.

But investing in your 401(k) and/or IRA is not enough. You should also be building a taxable investment portfolio that spits out dividend income and is liquid for use.

Second Step To Investing In Stocks: Utilize A Digital Wealth Advisor

Many people ask themselves “how can I invest with little money” and believe there are no available resources to help them invest. Thanks to robo-advisors, that is not the case.

A robo-advisor is a digital platform that helps you invest your money based on your specific goals. Think of a robo-advisor as another option to automate your investing.

Using a robo-advisor not only helps remove the emotion from investing, but it also helps ensure your investments are doing what they should be. The best part is many robo-advisors have no minimum balance requirement and are very cheap.

Betterment is a great option for those looking to invest in the stock market with little money and get assistance managing their investments. Betterment has no minimum balance requirement. You can start investing with as little as you want, and can contribute as little as $10 at a time.

Why Betterment is better than Vanguard

When you open an account with Betterment they ask you a small handful of questions. They use your responses to build your portfolio in a risk-appropriate manner. Betterment also charges a minimal annual fee of .25 percent of your assets with them.

Think of using a robo-advisor like Betterment as having a financial advisor, and all their resources, for minimal cost. If you’re new to investing and trying to figure out how to invest with little money, a robo-advisor can be a great option. One you link up your checking account, you can start automatically contributing, which is key.

You can check out our Betterment review to get a more in-depth look of the tools they have to offer. Betterment is the largest pure digital wealth advisor today.

Open An Online Brokerage Account

Since I first opened an online brokerage account in 1996, online brokerage accounts have gotten a lot more sophisticated. The user interfaces are incredible, with real-time quotes, tremendous amount of research, commission-free ETFs, and low cost trading.

You should open up an online brokerage account to buy index ETFs and/or mutual funds. An actively run mutual fund is run by a portfolio manager and a team of analysts, whose entire job is to try and pick the best stocks in their specific industry or style e.g. large cap, small cap, tech, consumer cyclicals, basic materials, etc.

Mutual funds don’t trade like stocks, trading only once a day after the stock market closes. Another way mutual funds differ from stocks is they often have a minimum initial investment, typically $1,000 or more.

However, some mutual funds waive this if you agree to invest $50 or $100 per month. This gives you the benefit of automating your investing, plus you can start with little money. Below are the best brokerages to find low initial investment mutual funds:

These two online brokerage platforms are the best. There is no need to look elsewhere.

The Stock Market Is A Powerful Wealth Builder

In order to build great wealth over the long term, you need to save aggressively and invest appropriately on a consistent monthly basis. Let time in the market create compound returns. Investing in stocks isn't hard nor does it require much money.

The sooner you can start investing, the better. Take a look at the below graph from Business Insider as an example of how compound interest works. The chart shows how much wealth you'll have if you start investing $100 per month at age 25 and 35 versus $200 per month starting at age 40 with just a 3% annual compound interest.

The importance of saving and compounding growth starting at different ages - How To Start Investing In Stocks With Little Money

The reason why it's important to not only save and invest in your 401(k) and IRA, but also save and invest in a taxable brokerage account is because you need money to pay for life's big expenses. Namely:

You need both a pre-tax and after-tax portfolio to create a desirable lifestyle. There is no rewind button in life. You want to end up with a little too much money when it's time to retire versus a little too little.

Invest In Stocks With Little Money

When I started investing in stocks in 1996, I had $500. Today, after over 23 years of investing, my stock portfolio is several million dollars that spits out a healthy passive income stream. This amount speaks to the power of compounding, aggressive savings, and discipline.

Have a purpose for your investments so you can get more motivated to save and invest. My goal is to simply provide for my family. Over the long run, you won't regret investing for your future.

You really don't need a lot of money to start investing. You just need to start. In 10 years, you will be happy you did. Take it from someone who was able to retire at 34 and never have to work again.

Currently, my favorite place to invest as little as $10 an investment is with Fundrise. Fundrise is one of the leading private real estate platforms today with over $3 billion in assets under management. It invests in single-family homes specifically in the Sunbelt region we are property values or lower and rental yields are higher.

So far, I have invested $810,000 in the Sunbelt to take advantage of long-term demographic trends.

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