Investment 101: Easiest ways to start investing with little money

6 March, 2018

Investing your hard earned money is a lesser sought option, since most people believe they need a lot of money to start with. However, investment specialists like Gennady Barsky, Peter Lynch and Warren Buffet have repeatedly laid stress upon the fact that one doesn’t need to have heaps of money to begin investing.

With the changing times, several new and handy ways of making small investments have emerged through innovation in technology. There are plenty of ways to start investing with little money, with many online and app-based platforms making it easier than ever. All you need is to start somewhere, with investing as little as $50 a month.

The key to make a fortune through investments lies in developing good savings habits. This includes putting some money away every month. Investment experts like Gennady Barsky and Warren Buffet have always recommended developing an investing habit early in life, since it actually helps a lot down the road by putting you in a much stronger financial position.

We bring you the easiest ways through which you can start investing now, even if you have little money to put in. Take a look:

1. The cookie jar approach

There is a strong connection between saving money and investing it. To be able to invest money, you first need to save it. While one might think of it as a time-consuming process, it actually isn’t. If you have never saved some money, you can begin with small steps. Start with putting away $10 per week. That may not seem a lot, but over the course of a year it amounts to over $500.

Try putting $10 into an envelope, shoebox, a small safe, or even that legendary bank of first resort, the cookie jar. Though this may sound silly, it’s often a necessary first step. Get yourself into the habit of living on a little bit less than you earn and stash the savings away in a safe place.

Start with small amounts of money, and then increase as you get more comfortable with the process. It may be a matter of deciding not to go to McDonald’s or giving movies a miss and putting that money into the cookie jar instead. It’s not fancy, but it’s a start. And for people who’ve never been savers, getting that start is all the more important.

2. Enroll in your employer’s retirement plan

For those on a tight budget, even the simple step of enrolling in your 401(k) or other employer retirement plan may seem beyond your reach. However, there is a way that you can begin investing in an employer-sponsored retirement plan with amounts that are so small you won’t even notice them.

For example, plan to invest just 1 per cent of your salary into the employer plan.

You probably won’t even miss a contribution that small, but what makes it even easier is that the tax deduction that you’ll get for doing so will make the contribution even smaller. You can later increase it gradually each year. For example, in Year Two, you can increase your contribution to 2 per cent of your pay. In Year Three, you can increase your contribution to 3 per cent of your pay, and so on.

3. Go tech-savvy

We are living in a fast-changing world, and technology has grown to become an inseparable part of it. There are a lot of platforms on the web as well as in the form of mobile apps that can make the work tad easier for you.

For example, Betterment is an automated investment platform that invests your money by setting you up with a portfolio that includes several exchange traded funds (ETFs). It then figures out how to invest your money for you based on a short questionnaire. Investment management is actually performed by the platform, as this is not a do-it-yourself account where you buy and sell your own choice of securities.

If you are new to investing and don’t have a large amount of money to open an account, Betterment is the best bet for you. Not only will it handle the investment for you, but there is no minimum deposit amount to open an account and you can contribute as little as $10 at a time. What’s more? It’s cheap and super easy to use.

4. Low-initial-investment mutual funds are worth a consideration

Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds with a single transaction, making them perfect for new investors.

While many mutual fund companies require initial minimum investments of between $500 and $5,000, there are some companies that waive the account minimums if you agree to automatic monthly investments of between $50 and $100.

According to investor Gennady Barsky, if you’re a first-time investor with little money to invest through payroll savings, an automatic investing arrangement is particularly convenient. Ask your human resources department how to set it up.