How to Invest in Stocks with Little Money
Many people want to start investing but don’t know how. Many more want to start planning, but don’t know how to invest in stocks with little money.
It’s unfortunate that investing requires money to make money. The only way to get started with any kind of investment is to have the cash available to make an investment. Thus, many find that investing in stocks with little money is almost impossible.
The good news is that you can invest in stocks, even without a lot of money!
Where to Start Your Investments
The best way to start investing with a small amount of money is to start with mutual funds. Mutual funds are pools of money that are collected with hundreds or even thousands of investors to make a much larger portfolio.
When you buy into a mutual fund, you are buying many different stocks that are either handpicked by an investment professional, or picked as part of a certain index.
Here are the two types of stock mutual funds you can invest in with small amounts of money:
- Actively-managed mutual funds – Investors can invest in stocks by buying a mutual fund that is actively-managed by an investment professional. Over time, investors can contribute more to their account, and watch as it grows with the stock market. This is one of the most “hands-off” approaches to investments, since the professional who runs the fund (and is paid a small annual fee) worries about all the balancing and investment decisions. You only need to worry about investing more money to reach your goals.
- Index funds – Stock index mutual funds are funds that buy shares of stock as if you were buying the whole index. The S&P500 is a popular stock market index, and it is made up of 500 different companies. When you buy a S&P500 stock index fund, you essentially buy all 500 stocks in the index. However, you don’t have to buy a single share of every stock – when you buy the fund you essentially own partial shares of every stock in the fund. These are known for their low fees and expenses, but there is no active manager who oversees the portfolio. Instead, investments are dictated by buying a small amount of every 500 stocks in the pool.
Little Money is Required to Invest
The best part about mutual funds is that you need to invest only a very small amount of money to get started. Most mutual funds have a minimum deposit of $1,000 or less. Others have a minimum deposit of $0, so long as you agree to make regular purchases of the mutual fund in a certain amount. (You can usually agree to make a monthly investment of only $25 into the mutual fund.)
Over time, the power of many small monthly investments will shock most investors. By retirement, even routine deposits made at a young age will swell to massive, thousand dollar savings amounts. Imagine how much you could do in the future with that much money – and it only takes $25 to get started.
If you’re interested in mutual funds, take the time to explore a brokerage firm that is right for you. Online discount brokers like TD Ameritrade, E-Trade, and others offer free mutual fund purchases online. That is to say that you’ll never pay a fee to buy more funds through their brokerage services.
