I was talking to a friend about investing the other day, and he bemoaned the fact that he wanted to invest but didn't have enough money to pull it off.
"Do you have a few hundred bucks?" I asked him. And sure enough he did, which means investing is by no means off the table for him.
It's a huge misconception that to start an investment portfolio, you need a lot of money. The reality is that the sooner you start investing with what little you have, the greater your chances of eventually having a lot of money to work with.
That said, if money is limited, there are some things you can do to maximize your investment strategy. Here are three moves to consider.
1. Set priorities
Maybe there are a few stocks you've been eyeing, but only one or two are in your budget. That's OK; you don't need to buy every stock you're interested at once. If you do your research, you'll be able to narrow down your choices and buy those stocks worth snatching up immediately. To figure out which those are, ask yourself:
- Which of these stocks has the most growth potential?
- Which of these stocks is the most innovative?
- Which of these stocks offers the best deal right now (meaning, its share price is low relative to its ultimate value)?
When you're investing on a budget, establishing priorities is key.
2. Focus on index funds
You'll often hear that diversification is an essential part of building a solid portfolio. But how are you supposed to diversify when you don't have a lot of money to buy stocks with?
It's simple: Choose index funds.
When you buy index funds, you're buying a bucket of stocks instead of investing in a single company. When you buy shares of an S&P 500 index fund, for example, you're effectively putting money into the 500 largest publicly trading companies on the market. Index funds let you build a diverse portfolio without doing a ton of research (though the more legwork you want to put in when choosing investments, the better), and because they're passively managed, you won't be hit with exorbitant fees when you buy them.
3. Look at fractional shares
With fractional shares, you can buy a piece of a share of stock rather than an entire share. That's helpful in situations where you want to invest in a certain company, but a single share of its stock is well out of reach.
Like index funds, fractional shares can help you build a diverse portfolio without a huge outlay. And while not every brokerage allows investors to buy fractional shares, the option is becoming increasingly popular.
Investors with million-dollar portfolios don't always start out rich. Some, in fact, come from humble beginnings and get to where they are by consistently investing what little money they have wisely. If you don't have a lot of cash to invest, don't sweat it. Instead, focus on the ways you can make that money work for you.