How to Start Investing on a Small Budget

More than a few of the world’s richest people earned their fortunes by investing in the stock market. Many people never dip their toes into the stock market because they think they need a lot of money to get started. Not true. You can start investing with just a small amount of money. Even a hundred bucks can get you in the door and potentially get you some nice returns.

Check your budget to determine how much you can afford to invest. Before putting money into the stock market, make sure all your other expenses are covered. It’s also a good idea to build an emergency fund before you start investing serious money.

Pay off any high interest rate debt since the amount of interest you’re paying on that debt would negate your stock earnings. Your excitement to start investing in stocks may just give you the push you need to finally get rid of your credit card debt. 

Once you have the basics in place and you’re ready to start investing, open an online brokerage account. If you’re starting out with a small amount of money and your employer doesn’t have a 401(k), an online brokerage account is one of the best ways to get started investing. Some have no minimum deposit requirement, which makes it easy to get started investing no matter how much money you have for starting out.

Add some funds to your account. The last thing you want is to spot a great stock at a great price and be unable to purchase it because there’s no cash in your account. You’ll have to transfer funds from your checking account into your brokerage account before you can make any trades. Since it can take a few days for the funds to clear, you should have a habit of adding funds to your brokerage account periodically. That might be $25 or $50 every two weeks or every month.

Minimize the fees you pay. You don’t want the small amount of money you’re investing to be eaten up with trading fees or commissions. Look for a brokerage that charges a small trading fee (or no commission fee at all) and minimize the number of trades you make until you can afford to pay higher commissions. So, if you’re investing $100 with a brokerage that charges $10 per trade, for example, you’ll pay $10 commission if you purchase one stock versus a $40 commission if you purchase four stocks. The more you pay in commissions, the less you have available for investing.

Consider starting with ETFs. Exchange traded funds or ETFs are a kind of like a mini-portfolio. Each fund is made up group of securities and trades like individual stocks. There are ETFs that are based on the whole stock market and ETFs that are based on a single sector, like biotech for example. Because ETFs contain so many different securities, they offer instant diversification and are not not as volatile as owning an individual stock.

No matter how much money you start investing with, it’s important to do sufficient research into the brokerage account you choose and the stocks or ETFs you decide to trade. Keep in mind that there’s a possibility of gaining or losing money when you invest and your invested funds aren’t FDIC-insured as they are with deposit accounts, like savings and checking accounts.