In 16 Ways to Invest $100 I gave suggestions on how to invest when you have just a few dollars.
In this article I want to take it up a notch, which is to say how can you invest when you have more than a few dollars, but not the thousands that traditional investment vehicles usually require? You can also check out my post on the best short term investments for your money!
Before I started investing, I was under the same misunderstanding that you had to have thousands of dollars to get started, and my thoughts were how to invest 10K or how to invest 100k? Well now I know more about the world of investing and I can help you out with these same thoughts and fears.
I was surprised – shocked really – that I could start investing in the stock market via mutual funds with only $50 per month.
And that’s exactly what I did. Even though I later found out that the mutual funds were okay at best, the fact that I started investing in myself was huge for me.
And for many, it’s that first step that prevents them from amassing wealth later on.
For our purposes here we are going to define small amounts of money as something more than $100, but not more than $1,000. Based on that parameter, here are 15 ways to invest small amounts of money. Do you need help finding some extra cash to get started with your investment? Check out these tips on how to make money fast!
The top 15 best ways to invest small amounts of money:
1. Bank Investments
To be sure, you won’t be able earn much money on your investments at the bank, at least not in the current investment environment. However, the advantage that banks offer is that you can invest very little money (in money market accounts or certificates of deposit), earn a little bit of interest on your money, and have virtually zero risk of principal loss.
Let me be honest, these are not the most exciting investments, but the best purpose for bank investments is to use them as a place to accumulate a larger amount of capital for higher risk/higher reward type investments later on. Some of the investments in this list will require $500 or $1,000 to get started. While that is not a ton of money, if you are getting started with a smaller investment, your best bet might be to take your time to build up a little cash and expand your investment options.
2. Betterment
There are a number of “robo advisors“, online investment platforms that offer professional management of your portfolio with very low fees. One of the best for small investors is Betterment. You start by completing an online questionnaire that enables the site to determine what your risk tolerance is.
Based on that evaluation, a portfolio is created for you with an allocation that includes several different exchange traded funds (ETF). Because of this allocation, your only responsibility is to fund your account – there is no need to concern yourself with investment selection, or with re-balancing your investments.
Betterment investments actually hasn’t no minimum initial account deposit requirement. You can open up an account by committing to monthly contributions of as little as $100. The annual management fee to maintain your account is 0.35% of your account balance, on accounts of less than $10,000. The management fee works on a sliding scale, and drops as your account balance grows.
3. Lending Club
Lending Club is an online peer-to-peer (P2P) lending platform in which borrowers come to get loans, while investors – a.k.a., lenders – provide the cash for those loans. In exchange, investors are rewarded handsomely for their investment. Rates of return in double digits are hardly unknown with Lending Club.
You can invest as little as $25 in a single loan (or note), which means that with the $1,000 minimum initial investment, you can spread your portfolio among 40 different notes.
The limitation with Lending Club is that many states have minimum net worth requirements in order for you to invest on the platform. So while the actual amount that you can invest is small, you might still need to show a significant asset base in order to participate. If you are interested in more details on investing with Lending Club check out my Lending Club review.
4. Motif
Motif is a different kind of investment platform, one in which you either build or invest in existing mini-mutual funds that are based on a certain investment criteria. These mini mutual funds are called motifs, which is where the platform gets its name from.
For example, you can invest in a motif that is built on solar energy in Hawaii, or trash recycling in Panama. There are literally hundreds of motifs available and to learn more about those, study a Motif Review, and if you can’t find what you like, you can always create your own.
The minimum investment is $250, which is the minimum to invest in any single motif. Each motif can be invested in as many as 30 different securities, and there is a transaction fee of $9.95 to either create a new motif, or to invest in an existing one.
Motif sponsored the Grow Your Dough Challenge 2.0 which where I and 20 other bloggers are dueling it out to see who can grow a $500 investment the most over a year’s time. Here’s a look at the leaderboard to see how we’re doing. (Hint: I’m not in the lead. Not even close!)
5. Paying Off Debt
There are two reasons for leading off with the suggestion to pay off debt. The first is that you shouldn’t be investing small amounts of money if you have debt, especially unsecured debt or have money to save for emergencies.
The second is that paying off debt is one of the very best ways to lock in an above average and guaranteed rate of return on your money. This is especially true if the interest charge on a credit card balance is in double digits – there are no places available to the average investor to get double digit returns that are guaranteed.
Let’s say that you have a credit card with a balance of $1,000 with an interest rate of 15.99% per year. By paying that card off, you’ll lock in a nearly 16% rate of return on your money, virtually forever!
You can make that card go away faster by surfing the balance to one of the many credit cards with 0 interest. This way each payment goes directly to the balance on the card and not to interest (these offers only last a limited time so pay them off fast!).
6. Your Employer Sponsored Retirement Plan
This is probably the easiest way to invest small amounts of money, or even if you don’t have any money at all. That’s because it’s generally set up as a payroll deduction, so that you can allocate a percentage of your paycheck to go to the retirement plan.
You can designate just about any amount of your paycheck that you choose – as low as 1% to 20% or more, depending on the rules established by the employer plan. In this way, you don’t even need to have a large nest egg to invest. You can just add small amounts to your account with each paycheck, and then begin investing in any types of investments that your available capital (and the employer plan) will permit.
Best of all are the tax benefits! Not only are your contributions tax-deductible, but the income earned on your investments will not be subject to income tax until you retire begin withdrawing money. In addition, if your employer offers a matching contribution, it will be like you get free money just for saving a little.
No matter how much money you have to invest, investing in your employer-sponsored retirement plan should be one of the first steps you take.
7. Your Own Retirement Plan
If you don’t have employer-sponsored retirement plan, you can almost always set up your own retirement plan. All you need to qualify is earned income. The two best plans for most people are either a traditional IRA or a Roth IRA. Much like an employer-sponsored retirement plan, any returns on investment that you earn are tax-deferred until you begin withdrawing the funds in retirement.
Also, contributions to a traditional IRA are generally fully tax-deductible. Roth IRA contributions are not tax-deductible, however withdrawals will be free from taxes as long as you are at least 59 ½ at the time the withdrawals are made, and you have participated in the plan for at least five years.
And though there is no employer matching contribution (since there is no employer), a self-directed traditional or Roth IRA can be held in a brokerage account that offers nearly unlimited investment alternatives.
You can contribute up to $5,500 per year to either a traditional or Roth IRA ($6,500 if you are age 50 or older), which means you can build up a substantial portfolio in just a few years. Also with the best Roth IRA providers there is very low entry cost.
8. Prosper
Prosper works much the same as Lending Club. You can invest as little as $25, so you can spread a few hundred dollars across many different loans. There is also a state-by-state minimum net worth requirement here as well.
Prosper reports that the average annual return on a note approaches 16%, which is an incredible return on a fixed rate investment.
In the case of both Prosper and Lending Club there is risk of loss to your principal in the event that one or more loans you’re holding goes into default. There is no FDIC insurance protecting your investment the way it would with bank investments. I also did Prosper reviews for both borrowers and lenders. You can get full details of the platform there.
9. US Treasury Securities
If you are looking for a more conservative investment, one where your principal is protected from market swings, you can invest in US Treasury Securities. These are debt obligations issued by the United States Treasury Department, to fund the national debt. Securities have maturities ranging from 30 days to 30 years (longer term maturities do involve a risk of principal if you sell before maturity).
You can invest in these securities through the US Treasury’s Department’s portal Treasury Direct. By using the portal, you’ll be able to buy US government securities in denominations as low as $100. You can sell your securities there as well, and there are no early withdrawal penalties for doing so.
You can also use Treasury Direct to buy Treasury Inflation Protected Securities (TIPS) too. These not only pay interest, but they also make periodic principal adjustments to account for inflation based on changes in the Consumer Price Index.
10. Investing in Your Own Skills
Are there any skills that you could acquire that could bring you up to the next level in your career? Think in terms of learning a new computer application, a foreign language, or taking a public speaking- or sales-course.
It’s possible that you could acquire certain career enhancing skills that would enable you to either get a promotion on your current job, or even transfer to a new, higher paying position with another employer. A few hundred dollars is often all it takes to take a course to learn that kind of skill.
11. Dividend Reinvestment Plans
Better known as DRIPS, these are plans that allow you to invest small amounts of money into stocks of companies that pay dividends. Many large companies offer DRIPS, so if you want to invest directly in stocks, and you like certain companies, you can invest in those companies – usually without having to pay any kind of investment fees.
DRIPS typically allow you to build your investment over time by making periodic contributions. Often, this can be done using payroll deductions. This can also be an excellent way to dollar cost average your way into large investments in major companies. And when you earn dividends, the money will automatically be reinvested to buy more company stock.
12. Low Minimum Investment Mutual Funds and ETFs
Different mutual funds and ETF’s have different initial investment minimums. Many do require that you have several thousand dollars to open an account, but there are some that allow you to start an account with far less.
For example, there are some funds available through Scottrade that require a minimum as low as $100. An example is the Schwab Total Stock Market Index (SWTSX). With a required minimum that is that low, you could spread $1,000 across 10 different funds.
You can check with any large mutual fund families, and even some investment brokerage firms, to see which funds are available with a minimum initial deposit of $1,000 or less. You may find index funds to be your best bet, since they represent the best play on the entire market.
13. Loyal3 For Individual Stocks
Loyal3 is a limited investment platform, but an excellent place to start for a small investor. To begin with, you can invest in stocks with as little as $10. Loyal3 even allows for the purchase of fractional shares. The platform offers you an opportunity to purchase stock in one of the 66 companies they currently have available on the site. But those companies represent virtual household names in stocks – Microsoft, Apple, Walmart, Time Warner, and many more. And you can both buy and sell those stocks with no commissions or other transaction fees.
The disadvantage is that it is not a diversified investment platform. You can only invest in the stocks that they have available on the site. There are no mutual funds or ETF’s, nor any bond offerings. However, the low minimum initial investment and the absence of fees, makes Loyal3 a perfect platform for a small investor to purchase stocks in major companies.
14. Online Brokerage Firms
It can come as surprise to many small investors that you can actually open up an account with an online brokerage firm with $1,000 or less.
For example, the minimum initial deposit to open an account with Charles Schwab is $1,000 but even that can be waived if you set up an automatic monthly transfer of $100 through direct deposit or Schwab MoneyLink or open a Schwab Bank High Yield Investor Checking account linked to your brokerage account.
In addition, you can open a brokerage account with E*trade with as little as $500. And TD Ameritrade has no minimum initial deposit to open a new account.
The advantage of investing through a brokerage firm is that will provide you with a wider variety of investment choices than you can generally get through direct investments alone. Check out some or our great investment brokerage reviews for your reference: TradeKing Review and OptionsHouse Review.