Think You Don't Have Enough Money to Start Investing? Look for This Brokerage Account Feature
- It's a common myth that you need a lot of money to begin investing.
- If you find a brokerage account that lets you buy fractional shares, you get a world of choices even if funds are limited.
You may be surprised at how easy it is to start investing.
Investing your money is a good way to grow it into a larger sum. And that's an important thing to do.
Not only can growing your money help you meet different goals, but you'll need to grow your money at a rapid enough rate to keep up with or, more ideally, outpace inflation. And while it's a good idea to invest in a tax-advantaged retirement account like an IRA or 401(k) plan, it's also a good idea to keep some investments in a regular brokerage account.
Why so? The money you sock away in an IRA or 401(k) is subject to strict rules due to the tax breaks these accounts offer (like tax-free contributions).
For example, you can't take an IRA or 401(k) withdrawal before age 59 1/2, and if you do, you'll generally face a 10% penalty on the sum you remove. But what if you save and invest well and want to retire at age 54? That's an option you should have without worrying about penalties -- and a regular brokerage account allows for it.
But new data reveals that many Americans aren't investing in a regular brokerage account for a silly reason. And it's one that's easy to work around.
Don't let a lack of money be a barrier
Salary Finance's fourth annual report reveals that among people who don't own stocks outside of a tax-advantaged savings account, 37% say it's because they don't have enough money to invest with. But many brokerage accounts don't impose a minimum balance requirement, which means if you have $100 to work with, you're good to go.
Now you might assume $100 won't get you very far with regard to investment choices. But actually, that's not necessarily true either.
Many brokerage accounts these days offer a feature known as fractional shares. What these allow you to do is buy a portion of a share of stock if you can't swing a full share, or if you don't want to buy a full share.
Let's imagine you have $100 to invest with and you're interested in owning a piece of a company whose current share price is $500. If you put your money into a brokerage account that offers fractional shares, you can take your $100 and buy one-fifth of a share of that stock. It's that simple.
In fact, brokerages that offer fractional investing often have you simply enter the amount of money you want to invest in a given company rather than indicate how many of its shares you want. It's a hassle-free way to invest, and one that could make it possible to build a nice, diverse portfolio even if money is limited.
An increasingly popular option
While not every brokerage account offers the option to buy fractional shares, many accounts do. And so if you're interested in investing outside of an IRA or 401(k), it pays to focus on finding a brokerage account that lets you make the most of whatever money you have available.
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