The 5 Best Ways To Invest Small Amounts Of Money
Whether you're looking to make your stock market investment debut or want to build up your rainy-day fund, here are five of the best ways to invest small amounts of money. In this article, you will learn how to make your money work for you.
Laura Klein from Cashero shares 5 great ways to invest small amounts of cash.
You may have heard the rumour that you can only be an investor if you’ve got six figures in the bank. But that’s a total myth. Everyone can find some way to invest their cash and start to grow their wealth.We’ll look at some of the simplest ways to invest under $1,000, whether you’re looking to make your stock market investment debut or want to build up your rainy-day fund.
The Small Investment Boom
Small investments are growing massively in popularity. As a global population, we have more access to tools like share-trading apps than ever before:
- The BBC highlights how investment app accounts have grown by 130% between 2020 and 2021.
- With a lack of consumer spending opportunities during the pandemic, millions of people have had extra funds to invest with.
- Younger men and women are far more conscious of their financial futures, looking for ways to prepare for retirement in their 20s, especially after many suffered reductions in their hours during lockdown.
Financial security is the golden ticket to a life well-lived, so it’s beneficial that so many people are choosing to be proactive with their cash.
Making Smart Investments With Under $1,000
Before discussing our top five investments, we must mention the need to balance out your risk exposure. If you’re looking for an all or nothing, double or bust investment, you’re taking on a considerable burden of risk – with no assurance of winning big. Lower risk means lower rewards but has the benefit of reduced exposure to sudden market crashes or devaluations. Services like a high yield savings account are an excellent choice for investors who aren’t interested in exposing themselves to risk and aren’t reliant on massive returns to finance their everyday living costs. Whether you like high-risk or low-risk investments, you can get in on the action without losing your life savings.
Five Top Options For Small Investment Values
Now onto the good stuff, here are our top picks for investments that don’t require large amounts of money but offer exciting returns.
1. High-Yield Savings Accounts
First up, the savings account – an investment option where you can earn up to about 1.7% in interest without putting your money on the line. If you’re not getting close to those returns (and you won’t with most conventional banks), you’ve got an easy opportunity to increase your savings. High-yield accounts allow you to safely grow your savings, often with a rate that beats inflation, so you don’t have to worry about your money depreciating over time.
2. Employer Retirement Plans/401(k)
We get it – a retirement fund isn’t the sexiest investment option, but it’s got a stack of compelling advantages. If we recommended an investment with a guaranteed $0.50 return on every dollar you pay in, you’d jump at the chance. That’s what you’re looking at with a 401(k) or comparable employer-sponsored retirement plan. You don’t need to be a high-flyer to invest and can kick off with just 1% of your regular paycheck.
3. Low-Fee Index Funds
Next up, let’s look at index funds. An index fund is made up of multiple different companies and tracks the market index, so it’s a bit like a mutual fund but automated. This passive investment doesn’t carry huge fees (although look at the charges before making any decisions!), and you can often invest with as little as $100 for your initial deposit. Index funds can be built up of companies within a specific region, such as a US based fund, different market sectors, like IT and Healthcare, or even emerging markets, which often see more fluctuations in their value, but carry the potential for large returns.
4. Investment Apps
If you’re new to investing, you can choose an investment app. These tend to use AI to either make Robo-investments or ask you to select from a range of products. There are lots of options:
- Some will link with your debit and credit accounts and round up spending to create a balance that’s auto invested in a range of exchange-traded funds (ETFs).
- Others work like an investment coach, showing you options to build a portfolio of stocks and ETFs, usually with a $5 minimum stock investment.
However, there’s a slight caveat here because not all investment apps are created equal. Keep an eye on the fee structure here because they vary a lot.
5. Individual Retirement Accounts (IRAs)
An IRA is often worth maxing out before thinking about an investment app. There are a host of perks here that usually outperform other options. You can open an IRA with a bank, and can often link it to your checking or savings account, but you can also open one through a broker or via a Robo-advisor. IRAs allow you to invest in both stocks, bonds, mutual funds, and some even now allow cryptocurrencies. There are annual caps to how much you can invest into your IRA (up to $6,000), and you can’t withdraw your cash before the age of 59 without facing some financial penalties, barring a few exceptions. However, contributions are tax-deductible, so it’s an efficient way to save for retirement if you only have a small amount to invest now, but know that you’ll be adding to it monthly for years to come.
No matter where you are with your finances, you can find a way to invest your money, and these five options are a great place to start. Long term financial health is often less about how much money you make, and more about what you do with your money on a regular basis. Never forget the power of compound interest, especially over the long run.