Investing in the stock market can be expensive, especially if you're buying individual stocks. Each stock can sometimes cost hundreds or even thousands of dollars per share, and you could easily spend several thousand dollars building a diversified portfolio.
Fortunately, there are more affordable ways to get started investing. Whether you're on a tight budget or simply want to get your feet wet before diving into the stock market, there are a few options to get you started for $100 or less.
1. Contribute to a 401(k) or IRA
Contributing to an IRA or workplace 401(k) is perhaps the easiest way to begin investing, because it doesn't require any advanced knowledge or research. Once your account is set up, all you have to do is contribute as much as you can afford and then leave your investments alone.
If you're investing through a 401(k), you may be able to simplify the process by setting up automatic transfers from your paycheck to your account. With an IRA, you can usually transfer a set amount of money from your bank on the schedule you choose.
One of the best parts about investing in a 401(k) or IRA is the flexibility. If you can only invest a few dollars a week, that's OK. If you want to contribute a few thousand dollars at once, you can do that, too. Regardless of your budget, these accounts make it easy to start investing.
2. Invest in ETFs
Exchange-traded funds, or ETFs, are investments that include many different stocks bundled together into a single fund. Some ETFs are broad, such as the S&P 500 ETF which includes all the stocks within the S&P 500 index itself. Others are more niche and many only contain stocks from a particular industry.
ETFs can make it easier to build a diversified portfolio. When each fund contains hundreds or thousands of stocks, that lowers your risk. If a few stocks within the fund don't perform well, it won't have a drastic effect on your overall portfolio.
This type of investment can also make it easier to branch out into certain sectors of the market. Say, for example, you're interested in buying tech stocks, but you don't want to spend hours researching different companies. If you invest in a tech ETF, you can gain exposure to dozens or hundreds of tech stocks with a single investment.
3. Buy fractional shares
If you prefer the hands-on experience of buying stocks without the hefty price tag, fractional shares may be your best option.
With fractional shares, you can buy just a small slice of a share of stock for a fraction of the cost. For example, rather than buying a full share of a particular stock for, say, $200 per share, you could buy one-tenth of a share for $20.
Not only can fractional shares save you money, but they can limit your risk, too. If you only have $100 to invest, for example, you could buy one full share of stock for $100. Or you could buy 20 fractional shares of stock for $5 each, which will create a more diversified portfolio.
Of course, the smaller your stake in a company, the less you'll see in earnings. However, fractional shares can make it more affordable to build your base portfolio. Over time, you can gradually add to your positions in each stock.
Investing in the stock market can be a smart financial move, but it's important to avoid contributing more than you can afford. With these three options, you can start your investing journey without breaking the bank.