Investing in the stock market is often an expensive endeavor. Individual stocks can cost hundreds or even thousands of dollars each, and you can easily spend tens of thousands of dollars building a portfolio.
Unfortunately, many people simply don't have that kind of cash to invest. The stock market is still a fantastic tool for building wealth, however, so it's wise to consider investing even if you don't have much money to spare. And with these three strategies, you can get started in the stock market with just $100 or less.
1. Contribute to a 401(k) or IRA
Maybe you only have $100 to invest right now, and you don't know when you'll be able to invest again. Stash it in your 401(k) or your IRA, and that money will start compounding. Even if you don't invest any additional cash, that $100 will continue to grow the longer it sits in your retirement account.
Investing in a 401(k) or IRA is perfect for those who want to take a set-it-and-forget-it approach. You don't have to worry about which stocks to invest in, when is the right time to buy, or whether you need to sell your investments. All you need to do is contribute whatever money you have, then leave it alone for as long as possible.
2. Invest in low-cost index funds
If you'd prefer a more hands-on strategy than saving in your retirement account, investing in index funds may be a smart move. Index funds are relatively low-risk investments, but they can also be less expensive than individual stocks and don't require much management.
Index funds are groups of stocks that track certain stock market indexes, such as the S&P 500. They're considered passive investments because they simply mirror the indexes they track. In other words, there's nobody deciding which stocks to include in the fund. This results in lower fees, often just a fraction of a percent of your total investments.
Compared to actively managed mutual funds, index funds are generally more affordable. Actively managed mutual funds have professionals choosing which stocks to include in the fund. Because there's a person managing those funds, they tend to have higher fees. However, although index funds are passive investments, they generally outperform their actively managed counterparts.
3. Consider investing in fractional shares
Fractional shares are just like individual stocks, except you're only investing in a small portion of a single share. This is a great option for investors who want to invest in particular stocks but can't afford to buy full shares. In some cases, you can invest in a high-priced stock for just a few dollars.
It's also easier to diversify your portfolio with fractional shares. When you're investing in individual stocks, aim to invest in at least 10 to 15 different stocks across various industries to limit your risk. If you're buying full shares that cost hundreds of dollars each, that adds up quickly. But when you're investing in fractional shares, you can build a robust portfolio for less than $100.
One thing to consider, however, is that not all brokerages offer this type of investment, and not all stocks are available as fractional shares. So if you have your mind set on a certain stock, be sure it's available before you begin building your portfolio.
Investing in the stock market doesn't have to be expensive. By being strategic with your investments, you can get started investing even if you don't have much cash to spare. And the sooner you begin, the faster you'll start building wealth.