In 2020, you can get a date, a ride or a pizza with the swipe of a smartphone screen. Investing is no different. If you can automate your bills, why not your investments? It’s just as easy.
With a robo-advisor or savings account, you can make your money work while you play. With a stock trading app, you can play with a little money and learn valuable investing lessons at the same time. With so many different options, investing for beginners is simpler and more straightforward than ever before.
Here are simple ways to get there:
1. Try the cookie jar approach
Saving money and investing it are closely connected. In order to invest money, you first have to save some up. That will take a lot less time than you think, and you can do it in very small steps. Get yourself into the habit of living on a little bit less than you earn, and stash the savings away in a safe place.
The electronic equivalent of the cookie jar is the online savings account; it’s separate from your checking account. The money can be withdrawn in two business days if you need it, but it’s not linked to your debit card. Start with small amounts of money, and then increase as you get more comfortable with the process.
Chime currently offers a strong 1.00% APY for their online savings account. There is no minimum deposit required and the yield is earned on all balances (no minimum balance required).
- 38,000 fee free ATM’s
- Spot Me feature that means you won’t be charged an overdraft fee if you overdraw your balance
- Direct deposit that gets you paid 2 days faster
2. Start investing in the stock market with little money
The internet has made it easy for consumers to get started with very little upfront money. That means you can put a few dollars in to familiarize yourself with investing before making a bigger commitment. It’s a great way to learn about investing while putting very little money at risk.
Today, there are increasing numbers of options that have swung open doors to a new generation of investors – letting you get started with as little as $1 and charges no trade commissions.
Plus the ability to invest in companies with fractional/partial shares is a complete game-changer with investing. With fractional shares, it means you can diversify your portfolio even more while saving money. Instead of investing in a full share, you can buy a fraction of a share.
Robinhood designed for young traders new to investing, and Robinhood is currently rolling out fractional share investing to make it easy to start investing with little money.
And the best part? Robinhood gives you one free stock just for joining. That gives your portfolio a small headstart at no cost to you.
Importantly, Robinhood promotes equality of access with a $0 account minimum and no transaction fees. Robinhood also has free options trading. Users who opt for the premium account Robinhood Gold pay $5 a month for access to extra perks like after-hours trading.
Public, an investing app, offering thousands of stocks and ETFs with no commission fees on trades and no account minimums. With Public, you can purchase most stocks through what Public calls “Slices”- so you don’t have to plunk down thousands of dollars to become a shareholder in huge companies that you want to invest in but cannot otherwise afford.
Public makes investing easy and user friendly: you simply pick your stocks and ETFs, enter the amount of money you’d like to invest, and Public “slices” off a portion of a share to fit the amount you’ve chosen.
Public also offers a social investing experience making it a great option for beginner investors. It’s like peeking into someone’s investing account for ideas – but it’s what everyone is doing and totally legit.
3. Put your money in low-initial-investment mutual funds
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.
Automatic investing is a common feature with mutual fund and ETF IRA accounts. It’s less common with taxable accounts, though its always worth asking if it’s available.
4. Let a robo-advisor invest your money for you
Robo-advisors entered the investing scene about a decade ago and make investing as simple as possible. It work by asking a few simple questions to determine your goal and risk tolerance and then investing your money in a highly-diversified low-cost portfolio of stocks and bonds. Robo-advisors then use algorithms to continually rebalance your portfolio and optimize it for taxes.
It’s important to note that robo-advisors fees are on top of the fees charged by the exchange-traded funds (ETFs) that robo-advisors buy to make up your portfolio. You can avoid paying the robo-advisor fees by building your own portfolio of ETFs or mutual funds. For the vast majority of investors, however, that’s a lot of additional work and responsibility.
The important thing is Robo-advisors are cheap and well worth it.
Wealthfront fees are reasonable at 0.25%, but the kicker is that you can get your first $5,000 managed free.
So if you’re looking to start investing with little money, Wealthfront could be the way to go. You will need $500 to get started though with Wealthfront so keep that in mind.
M1 Finance charges no commissions or management fees. You can choose from one of their pre-made diversified portfolios or customize your own by purchasing stocks and ETFs through their platform. The user interface is super easy to use.
5. Dip your toe in the real estate market
Believe it or not, you no longer need a lot of money to invest in real estate. A new category of investment known familiarly as “real estate crowdfunding” makes it possible to own fractional shares of large commercial properties without the headache of being a landlord.
The upside is owning a piece of a real physical asset that’s not necessarily correlated with the stock market.
As with robo-advisors, investing in real estate via a crowdfunding platform carries costs that you wouldn’t pay if you bought a building yourself. But here, the advantages are obvious: You share the cost and risk with other investors and you have no responsibility for maintaining the property.
I think real estate crowdfunding can be an intriguing way to learn about commercial real estate investing and also diversify your assets. I wouldn’t lay all of my money on these platforms, but they do make an intriguing alternative investment especially in these times of unprecedented market volatility and pitiful bond yields.
6. Play it safe with Treasury securities
Treasury securities, also known as savings bonds, are easy to buy through the US Treasury’s bond portal Treasury Direct. There you can buy fixed-income US government securities with maturities of anywhere from 30 days to 30 years.
You can also use Treasury Direct to buy Treasury Inflation Protected Securities, or TIPS. These not only pay interest, but they also make periodic principal adjustments to account for inflation based on changes in the consumer price index.
And as is the case with mutual funds, you can also arrange to have your Treasury Direct account funded through payroll savings.
Unfortunately, the yields on treasuries have been getting closer and closer to 0% for a while now, and there’s no end in sight to their lackluster performance. This makes treasuries mostly a place to stash cash for safekeeping rather than a way to grow your money.
7. Consider a 5% return with Worthy Bonds
For as little, you can invest in Worthy Bonds. Worthy Bonds are fixed interest bonds that fund loans for creditworthy American businesses. The bonds have a term of 36-months, but interest is paid weekly and you can withdraw your money at ANY time, without penalty.
The simple idea is that Worthy is going to take the money you use to buy bonds and invest it into companies with a greater return than 5%. They win, you win and it’s a fixed rate so you know the rate of return every day.
The platform is open to all U.S. investors and can be a great way to diversify your portfolio with a low-risk solution. Worthy only invests in fully secured loans (liquid assets having a value significantly greater than the loan amount), so the quality of loan and investment is always high caliber.
8. Enroll in your employer’s retirement plan
If you’re on a tight budget, even the simple step of enrolling in your 401(k) or other employer retirement plan may seem beyond your reach. But you can begin investing in an employer-sponsored retirement plan with amounts so small you won’t even notice them.
This is one step that everybody should take!
For example, plan to invest just 1% 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.
Once you commit to a 1% contribution, you can increase it gradually each year. For example, in year two, you can increase your contribution to 2 percent of your pay. In year three, you can increase your contribution to 3 percent of your pay, and so on.
If you time the increases with your annual pay raise, you’ll notice the increased contribution even less. So if you get a 2 percent increase in pay, it will effectively be splitting the increase between your retirement plan and your checking account. And if your employer provides a matching contribution, that will make the arrangement even better.
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 have to do is start somewhere. Once you do, it will get easier as time goes on, and your future self will love you for it.