Yes, you can invest up to $ 100 – here are 4 ways to get started

This item reprinted with permission from Nerd wallet. The investment information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Regardless of whether your student loans have been forgiven, you’ve received a gift, or you’ve made some extra cash this month, using $ 100 or less to start your investment journey is now more possible than ever.

With investment products like fractional stocks and exchange-traded funds or ETFs, you can enter the market for dollars and cents and quickly build a diversified portfolio with little money. Not to mention the apps that can help you save or invest money.

So if that extra Benjamin lands in your lap, here’s what you need to know how to start investing, financial products that can help you diversify your portfolio at a lower price, and how to make your money work best for you.

What to consider before starting

Before you start investing, make sure you’ve taken care of more immediate financial needs like paying off high-interest debt and setting up an emergency or rainy day fund, says Jen Hemphill, Fairfax Accredited Financial Advisor, in Virginia.

If you have that covered, it can seem nerve-wracking to consider starting to put money into an investment account instead of your savings account. One strategy for overcoming investment fears is to focus on your goals, according to Hemphill, who also works with clients and provides free bilingual financial education on her “Her Dinero Matters” podcast.

See also: Regardless of your age, here’s how to tell if your finances are on the right track

Hemphill suggests that you first consider why you are investing. Whether the reason is college, home, retirement, medical procedure, travel, or something else, the reason you want to invest affects the type of financial product that best matches your timeline and goals.

The reason you want to invest also indicates how much risk you are willing to take. Investing always involves risk, says Hemphill. It is normal for the markets to go up and down and you need to understand this before you start investing. If you need money for something in the next five years, for example, a high-yield savings account might be a better option because even though your money has lower growth potential, it carries less risk.

But if you have a very long investment timeline, you may be taking more risk, with the thought that it will pay off in the end.

“When the market is down,” says Hemphill, “you have to be able to move forward.”

Although the stock market can be risky, the benefits of investing may make you think twice about keeping all your money in cash or savings accounts.

How to start investing with little money

Some beginners may feel confused or stuck on what exactly to invest and how.

“The hardest part for beginners is actually starting to put money into the account and click Buy,” says Maggie Gomez, a certified financial planner based in Orlando, Florida. Gomez’s experience of financial insecurity and homelessness in early childhood has informed how she approaches making financial education and services accessible to a more diverse range of people.

If you share this uncertainty about how to get started, here are four ways to start investing.

1. Pension plans for pension objectives

If your investment goal is retirement, you may already be invested if you’re taking part in an employer-sponsored 401 (k) plan.

If you are not and want to start saving for retirement, you can set up a tax-subsidized plan on your own with an individual retirement account or IRA. Since some providers require a minimum account for IRAs, be sure to look for a provider with a low minimum or $ 0.

Roth IRAs are tax-free accounts for long-term investors who want to contribute after-tax dollars and withdraw their tax-free investment in retirement. Traditional IRAs, on the other hand, allow you to invest dollars before tax. With this type of account, you pay income taxes by withdrawing your retirement money.

Moreover: The best ways to save for retirement at all ages

2. Low cost brokerage accounts for financial goals (not retirement).

If you have a different investment goal, a brokerage account might be for you. Brokerage accounts allow you to invest in things like stocks, ETFs, and index funds. They are easy to open and differ from retirement accounts in that you can sell at any time and withdraw your funds without penalty. However, keep in mind that you will probably still have to pay capital gains tax if you make money from your investments.

If you are opening a new account, be sure to look for a broker who offers commission-free trades, no minimum accounts and no commission to open the account.

You can look for a broker who offers fractional shares, which allows you to buy portions of a single share of a company’s stock, rather than an entire share. So, if you only have $ 20 to contribute to a share priced at $ 50, fractional shares can get you there.

Not to be missed: How Much Should I Invest? | How to invest: Ep. 1

3. Index funds and ETFs

Buying and selling individual securities generally carries a high level of risk. You could instead invest in ETFs and index funds, which are baskets of investments that include dozens, hundreds, or even thousands of stocks. These products can track various assets, such as stocks, bonds, currencies and commodities, or even an entire market.

By purchasing a share of an index fund or ETF, you will instantly have access to the shares of a wide range of companies, offering quick and easy portfolio diversification, making them an excellent choice for beginners. However, note that although index funds and ETFs are similar in many ways, they have their differences.

After selecting an account, consider whether you want to invest everything at once or over time. The $ 100 you have could be your first contribution, or you could split it into smaller contributions like $ 20 per month.

Spreading your purchases over time in this way is a financial strategy called dollar cost averaging. Micro-investing apps also have an average dollar cost by rounding off purchases to a debit card and investing small amounts in ETFs.

Find out more: I inherited some money. Do I have to invest everything at once? Or distance it? The ups and downs of the dollar cost average

4. The help of robo advisors

A robo advisor is an automated investment service that provides portfolio recommendations after assessing risk tolerance, investment preferences and time horizon through a questionnaire. Recommended portfolios are often composed of ETFs and range from more conservative to aggressive investment options. Once you have chosen a portfolio, the robo advisor makes the investment for you.

While some robo advisors charge portfolio management fees around 0.25%, others charge no management fees. We recommend that you look for robo advisors with a low or zero minimum account.

There is a lot to consider when starting your investment journey, but the important part, says Hemphill, is simply “start where you are”.

More from NerdWallet

Alieza Durana writes for NerdWallet. Email: adurana@nerdwallet.com.

    .

Leave a Reply

%d bloggers like this: