There is a common belief that the best investment options require a lot of money to get started, but the reality is there are investments that allow you to start with as little as a $10 per month contribution, or a one-time deposit of $25.
While saving for a comfortable retirement should be a top priority, there are a couple of things you should take care of before you start thinking about how to invest.
Before you look at small investment ideas, there are two financial steps you need to take to be ready:
1. Build an emergency fund. Whether it's $1,000 or $10,000, it's wise to have a couple months' worth of expenses stashed away in a savings or money market account (here's why).
2. Pay off all high-interest credit cards. You might be excited to invest your money, but one of the best things you can do for your financial situation is eliminate the compound interest you're paying first.
Once the emergency fund and high-interest debt are taken care of, you can focus on investing in your future.
While options might be limited if you're trying to invest with less than $500, there are still some great small investments to start with -- after all, you have to start somewhere.
Small investment ideas to build your portfolio
1. DRIPs or DRP
A "dividend reinvestment plan" (sometimes referred to as DRIP or DRP) is a great small investment option that offers investors the opportunity to buy stocks directly from companies without the use of a broker. These programs typically allow you to start as long as you can afford to buy at least one share.
Some other benefits include:
- Dollar cost averaging. You can invest a specific dollar amount (say $10 or $25) on a monthly basis. By investing regularly, you're buying during all points of the market — both when it's up and when it's down. This concept of dollar-cost averaging is key for long-term investing as it gives you a truer return over time.
- Dividend reinvesting. As the term suggests, dividends paid by the company are reinvested in your holding, which will allow you buy more stock. Dividends are simply earnings that the company pays out to its shareholders.
- Little-to-no fees. There are DRIPs that don't charge any fees at all, though some do charge a small fee for ongoing contributions and dividend reinvestment.
2. Individual stocks
If you have less than $500 to invest, buying individual stocks might still be an option for you!
Through discount brokerage firms like E*TRADE (NASDAQ:ETFC), TD Ameritrade (NASDAQ:AMTD), Scottrade, and TradeKing, you can buy individual stocks for a small fee of $5 to $10 per trade. So if you have $500 to invest, that would leave you $490 to buy stocks that have a share price less than that amount. For instance, if a stock sold for $25 per share, you could buy 19 shares and become a small owner in that company.
3. Mutual funds
There are hundreds of mutual funds that will allow you to make an initial investment of at least $500. After a quick search through a mutual fund screener, I was able to find over 500 different mutual funds that you can invest in with a minimum deposit of $500.
If you're looking for an even smaller investment, there were 150 mutual funds that required a $100 minimum investment and over 90 that had no minimum requirement at all!
Mutual funds are one of the best investment options for somebody who is just getting started. They allow you to be diversified (so instead of owning one stock, you might own a few hundred) and they're a great approach for long-term investing. Here are some top characteristics to look for when selecting a mutual fund.
With this option, you will have to go through a discount brokerage firm and could pay $5 to $10 fee to buy the fund.
Regardless of how much you have to invest, there are a number of small investment options out there for you. The important thing is that you get started as soon as you can. Use a few of these ideas and start investing in your future now.
This article originally appeared on GOBankingRates.
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