Many people want to get invested, but they don’t think they have enough money. It’s a shame, because anyone can open a position with relatively little money and still reap the benefits of market growth. So Investment U put together this guide on how to invest in stocks for beginners with little money.
Start by looking at how much you can invest—money you won’t need for at least one year. If you’ve got a couple hundred dollars, you’ve got more investing power than you might realize.
And if you’re pinching pennies to try and invest, be diligent about saving until you have at least $100. Remember, you’re not trying to amass a fortune—you’re merely setting up the building blocks for a growing investment portfolio.
How to Invest in Stocks for Beginners – Even with Little Money
Once you’ve opened a brokerage account and deposited your money, it’s time to consider what you can do with it. Here’s how to start investing in stocks with little money and establish a portfolio you can be proud of.
Weigh Volume against Share Price
Let’s say you start with $200. You’re going to be limited in what you can invest in based on security prices. For example, one share of Amazon (Nasdaq: AMZN) is well over $200, so you wouldn’t have the funds to make that investment. You’ll need to start your research focused on companies with share prices under $200.
Once you’ve compiled a list of interesting companies with share prices you can afford, you’ll need to consider volume. Do you want to buy one share of the Walt Disney Company (NYSE: DIS) or 20 shares of the Ford Motor Company (NYSE: F)?
Do your research and pick the company you think has the most potential for profit. It might be tempting to load up on more shares of a single company at a lower share price, but that’s only advantageous if you believe those shares will increase in the coming years. Learning how to invest with little money means learning to take baby steps.
Explore Low-Cost Investment Strategies
If you don’t have a ton of extra cash to put toward investing, one of the best things you can do is investigate low-cost investment strategies. Dividend investing with a DRIP plan, for example, is a great way to expand your position, with dividends going right back into share purchases.
You might also consider mutual funds, which help you leverage low buying power into more lucrative holdings. Another option would be to buy shares of exchange-traded funds (ETFs). ETFs give you the portfolio diversity of a mutual fund but shares trade on exchanges just like stocks.
Investing in stocks with little money is much easier when you explore the right investment strategies.
Avoid Costs and Fees
Nothing will deflate your low-cost investment strategy like unnecessary costs and fees. Watch out for them and be aware of exactly how much they’re eating into your investments.
For example, you might be attracted to an ETF like MCEF (Nasdaq: MCEF) for its low cost and high dividend yield. But what you might not realize is that it also has a 2.59% expense ratio. This is enough to take a huge dig into your profits.
Likewise, it’s also smart to find a broker who doesn’t nickel and dime you. These days, it’s easy to find brokers who offer zero-commission trading or zero-fee transactions. If you’re still paying for trades or for account maintenance, it’s time to switch brokerages.
There are plenty of online discount brokers like the Merrill Edge platform or apps like the Cash App and Robinhood.
Invest Diligently and Routinely
Even if cash flow is tight, you need to stay committed to investing if it’s a priority for you. Again, this doesn’t mean throwing hundreds at a brokerage account. Save $20 here, $50 there and set a goal—$100 or $200.
Then, when you reach your goal, purchase more shares in the positions you’ve already established. Do this with consistency and it won’t be long until you have a budding portfolio that’s making you money!
The most important thing to remember when learning how to invest in the stock market with little money is to weather volatility. Be prepared for both gains and losses.
It can be crushing to pinch pennies and save $100, only to invest it in a stock that drops 10% overnight. Don’t panic! Remember that the stock market has historically gone up. And while you might be down now, it’s likely your position will eventually climb back into the black.
Keep investing any extra you can, be mindful in avoiding fees, explore a low-cost investment strategy and take a long-term mindset. Even with a small amount of money, this is the strategy for investing in the stock market with little money that can lead to a winning investment portfolio!