For a lot of us “investing” is something done by Wall Street bankers and big business players in dark suits behind closed doors, not normal people like us. But that is not and has never been the case! Investments don’t require millions to make money and even by investing small amounts you can make profitable gains to aid you and your family on your financial journey. In this article, we talk about how to invest with low capital.
It starts with smart financial decisions and good spending and saving habits. Some great tips are to eat out less, make your daily coffee at home, and put some money aside every single month. By doing this even for a little while you can save enough money to start to invest and let that money work for you to make and save more.
Investing today doesn’t require hiring an investment firm or stock portfolio manager. With technology and just about everything available at your fingertips through a smartphone app; investing is no different. There are incredibly powerful relatively new ways to invest on your own with limited money to begin with.
Let’s take a look at the best ways to invest with low capital.
1. Saving to Invest with Low Capital
You can’t invest without having some available funds to do so and that means starting to save up. Because you don’t need huge amounts of money to invest this may be possible for you far quicker than you believe.
When you start to invest with low capital, start your saving practice small. Put $10-$20 away every single week. It seems small but over the course of a year, that means $520 – $1,040 saved. You can do this a number of ways as well. Put your cash in a safe, envelope in your sock drawer, a rainy day fund jar, or even at the bank. There are free online bank accounts and savings accounts that offer small interest that you can open with as little as $25. This are all good options but if you feel having the cash around may lead you to lose or spend it, put it in the bank.
Savings account at online banks like Chime offer a 1.00% APY for all of their online savings accounts. You can also open the account with any amount of deposit your comfortable with there are no minimums. But there are also other online banks offering similar terms.
Saving enough to invest in this manner won’t even take a long time. It can be as simple as cooking at home on the weekends instead of going out for dinner for even a short period of time. So think about your long term goals versus your short term pleasure. There will be ample time to eat at restaurants when your investments are working for you! This is the #1 way to start to invest with low capital
2. Invest in Stocks with Low Investment Funds
It used to be that, in order to invest with low capital, you needed quite a bit of capital to successfully invest in the stock market. But that is no longer the case. The internet and increased connectivity globally mean even small investments can be placed into the stock market. It’s a smart idea to start investing in stocks with $100-$500 or less to learn the ins and outs and without putting huge sums at risk of loss.
Nowadays there are loads of options where you can literally start investing in stocks for as low as $1 with no fees or commissions when you get started. This is a major change from traditional stockbrokers taking large commissions and ultimately sucking up much of your stock investment profits. That meant it was very hard for the average family to invest into stocks because the risk was too high and the profits weren’t entirely their own.
Because of the way these low-cost stock trading brokers operate, the entire industry has shifted with even the biggest players now offering low to no cost stock trades and low to no commissions. Places like Fidelity investments now offer $0 commissions having their hands been forced to follow suit considering the movement of the marketplace towards that direction – a great thing to have since commissions and fees can eat into your profits when you invest with low capital.
There are also fractional investing options available today. The way this works is you don’t invest in a full share but a partial share of stock. This makes it easier to diversify and save money at the same time. The point is that you can get started with very little investment capital.
3. Use Your Employer’s Retirement Plan like a 401(k) to invest with low capital
Just because you’re on a tight budget doesn’t mean you can’t start saving and investing. Most employers offer a 401(k) or other retirement plans that can be started with very low monthly investment amounts. This is something everyone should do. Planning for the future is something that many of us don’t do properly or don’t do at all and that can mean major financial hardships later in life.
Start investing just 1% of your salary into your 40(k) or other retirement plans, especially if you are going to invest with low capital. It is usually an amount that even folks on a budget can handle and it is also tax-deductible which means it’s actually cheaper than it seems as well. Over time you can start to increase that salary % to invest year by year, 1 percentage point at a time. It’s very smart to time that increases with your annual pay raise so you feel that burden far less.
When you get to retirement age you’ll be confident in the nest egg you’ve been saving over the years and can safely retire. We’ve all heard stories of people who did not plan for the future and were forced to work low paying jobs until they were in their 80’s. This is something you can avoid even on a very tight budget.
4. Utilize Low-Initial-Investment Mutual Funds
Another way to invest with low capital is to use a mutual fund. A mutual fund is investment security where you invest in a portfolio of bonds and stocks in a single shot. This is ideal for folks new to investing because you don’t have to do research on individual stocks and buy and sell individual shares. It is all managed by the mutual fund so you invest, and they handle the rest.
There is a slight barrier to entry though as typical mutual fund companies have minimum initial investments of $500 or more. If you’re on a tight budget this figure can seem too high at the moment. But there are still options. Some mutual fund providers will waive your minimum initial investment amount if you agree to automatic monthly investments. So this means you can get started with as low as $50 to $100 a month.
Many electronically traded funds (ETF) utilize automatic investing features so it’s another option to look into for a low initial cost. You can also usually set up automatic deposits into your mutual fund int he same manner that you can into your 401(k). Making it seamless and smooth.
5. Other Low-Cost Investment Options
There are also other ways to invest with low capital. Some of these will have smaller profit returns but they’ll also carry little or no risk. Making them very safe, albeit small, investment options.
- Treasury Securities aka. Savings Bonds – these are always a safe long term investment with guaranteed payouts.
- Utilize real estate crowd-funding where you own a fractional share of commercial properties without the trouble of being the landlord.
As you can see from the shortlist above there is a multitude of low-cost ways to invest with low capital. There are investment options available to you on a tight budget. The point is to get started. Investing is a marathon and the faster you save enough to get started the better off you’ll be on your long term financial journey.