When you want to invest, you may think you need a lot of money before you can start. But this isn't true, and investing small amounts over time could potentially get you to the same place as if you invest bigger sums infrequently.
But if you're new to investing, you may not know the best place to put your money. Here are six ways you can begin your investment journey with just $100.
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1. Build your emergency fund
An emergency fund is a sum of money that you set aside for unexpected life events or expenses like losing your job or suddenly needing a new car. And while this may not seem as exciting as buying stocks, building this fund up could help you be a better investor in the future.
A stock market cycle will include good years or bull markets, bad years or bear markets, and years where it finishes about the same as where it started. And the bad years may be where your tolerance for volatility is tested.
If you're seeing your accounts decline in value, you may fear that your livelihood is threatened and in an attempt at preserving it, sell your investments. But having cash set aside for covering your expenses could help calm these nerves and help you stay invested during a trying time.
2. Fractional shares
There are many companies that have shares of stock that trade for $100 or less, like AstraZeneca (AZN 0.24%). But if you have your heart set on a certain company that costs more than that, like Boeing (BA -1.42%), all hope is not lost.
Now it's possible to buy a fraction of that share. And your portion will still appreciate by the same percentage as a full share. You can see below how this works.
- Boeing costs $230 per share.
- You have $100 to invest.
- You can purchase almost half a share of this stock.
- (100/230) = .43
- If Boeing increases by 10% to $253 a share, your fractional shares will increase from $100 to $110.
3. Consider exchange-traded funds
Exchange-traded funds (ETFs) pool individual stocks or bonds together into a fund, and many of them follow a particular index like the S&P 500 or a sector like energy. There may be some degree of variance but the performance of the ETF should mirror the index that it follows pretty closely.
ETFs trade like stocks, and you can buy a single share of one as opposed to a mutual fund which may have a minimum investment amount greater than $100. And compared to stocks, ETFs will offer you the added benefit of diversification.
4. Put it into your 401(k) or IRA
If you put $100 into your 401(k) or IRA you can still invest it in stocks or ETFs. But you get another benefit that you won't get in a non-retirement investment account -- tax deferral.
When you put money into a traditional 401(k) or IRA, your taxable income gets reduced by the amount of your contribution. This reduction in taxes could make accumulating your first $100 in savings easier; as well as additional sums since the decrease in your paycheck isn't as big as the increase in your investment account.
5. High yield account
You may want your money earning more than what it would in your checking or savings account, but you may not feel entirely comfortable investing it yet. If this is the case, you should consider a high yield savings account.
A regular checking or savings account may only earn around 0.03% to 0.06% interest. But with a high yield savings account, you could get as much as 0.6%. The more you accumulate and the more time your money has to grow, the bigger the impact you'll see on this difference in rates.
6. Use a robo-advisor
A robo-advisor is an investment platform that lets you buy a portfolio of stocks and bonds, even with smaller sums like $100. But you'll also get some financial planning guidance. When investing, things like your risk tolerance and financial goals are important, and a robo-advisor should take these things into consideration.
One of the main benefits of this approach is that it's automated and there's very little management that will be needed from you. This could be especially helpful if you are learning how investing works and don't feel comfortable doing it on your own. Or if you have a busy life and don't have much time for managing your accounts.
If you invest the $100 extra that you have, you've made a fantastic first step toward building wealth. You could've done anything else with it but you chose to invest in your future. The more you take actions like this, the more you should accumulate; which can then be used for an important milestone like your retirement.
