Updated: Mar 3
"We explain why you should invest, how to invest and we also try to answer questions to help you get started. Even if you do not have a lot of money, investing is one of the few ways to help most people build wealth."
By: Allan R. Kirby
Why invest? Low barriers to entry!
It's been an exciting few years where technology has finally created a scalable solution to help those who have not been able to invest money in the stock market. Barriers have been broken down and there are now several financial technology companies that provide inexpensive products and services that help those who either have lower-income or not a lot of disposable income to invest in.
There was a time when you could only invest in mutual funds (with high fees) and stocks through brokerage firms and banks, and more often than not the barriers to entry were high. Sometimes you would need a minimum of $10,000 or higher just to use their services. This is no longer the case, so with high barriers to entry being completely broken down, the question then becomes: Should you invest even if you do not have a lot of money?
“Is it worth investing small amounts? Yes it's absolutely worth it, even if you only invest a small amounts of money, over time it can help you build wealth.”
It's important to try and invest some money
Look, we all have circumstances that are unique and different from everyone else, so the ability to commit to investing and the amount of money available to invest can be challenging. However, regardless of where you are at in life, Investing to build wealth is something you seriously need to look into. I fully understand that you may feel overwhelmed and uncomfortable because you’re not an investment guru but that’s ok. This is because newer low-cost trading platforms coupled with inexpensive exchange-traded funds (ETFs) allow people with little money the ability to participate in stocks; through micro-investing without being an investment expert.
“Can I buy stocks with only a small amout of money? Yes there are many trading platforms that allow you to invest small amounts of money with no minimum blanaces, no fees and you can even buy fractional shares. Robinhood and Charles Schwab are two good examples.
Trading platforms and lower cost investments (ETFs)
The two major advances in investing over the last few years have made it much easier for people with very little money to participate in the stock market. The first is the new trading platforms that provide free stock trades, fractional share purchases as well as no minimum trading balances or high fees. Second is the popularity of Exchange Traded funds, which is a security you can buy and sell like a stock but contains a collection of investments, such as stocks and bonds. These types of securities are low-cost ways to invest while also eliminating single stock risks. ETFs allow an investor with little experience to be well-diversified. We will look at both Trading Platforms and ETF's to help you understand a little more.
What is a trading platform?
A trading platform is software that enables investors to set up accounts in order to buy and sell securities such as Stocks and ETF's. At one time most people used brokerages to buy and sell their stocks but this was expensive with the commission fees and only allowed wealthier people to participate in the stock market. However today new inexpensive platforms help people with little money to participate in the stock market through either stock purchases as well as micro-investing. Two of the most popular trading platforms are Robinhood and Charles Schwab.
"Robinhood and Charles Schwab are two of the most popular and inexpensive trading platforms best for people with little money to get started with investing."
Why use Robinhood? Because there are no minimum balance requirements for Robinhoods account, No Commission Fees; so their platform provides free stock, options, ETF, and cryptocurrency trades.
Why use Charles Schwab? There is no minimum balance requirement for the Schwab brokerage account, Additionally no fees to maintain the account and zero fees to purchases stocks and ETFs.
"What is Micro investing? - It's buying small amounts of low dollar valued shares, ETF's as well as fractional shares. Micro investing allows people with low incomes and/or small amounts of money to participate in the stock market."
Which is the best stock trading platform?
Ultimately you need to do your homework to see which trading platform works best for you however as we mentioned Charles Schwab, as well as Robinhood, are two low-cost trading platforms. However there are many more platforms such as Alley Invest, Merrill Edge, TD Ameritrade, and E*TRADE, just to name a few. It's important to read reviews and look at minimum balances, trading costs as well as any other fees that you may end up paying.
Make sure you select a trading platform that allows for the purchase of fractional shares if you want to invest directly into a company but you do not have a lot of money, some good examples are Amazon which trades north of $3000 for just one share or Apple which is currently trading over $100 US.
What is a fractional share? A fractional share is when you own less than one whole share of a company.
What is an ETF?
The great news for many small-time investors who are feeling overwhelmed with investing is that not only can you buy fractional shares of many common stocks, you can also diversify by investing in ETFs.
An ETF is a security that contains a collection of investments, usually stocks and bonds. The investments could be a collection of stocks in the same industry or one that tracks an index such as the Dow Jones Industrial Average (DJIA), S&P 500 Index, or the Nasdaq Composite Index. Additionally ETF's are similar to mutual funds but can be bought and sold on the stock exchanges and provide expenses that are much lower than what a mutual fund would charge.
Some of the benefits of an ETF include:
1. ETF's are a great way to invest in a sector or index for both professionals and novice investors alike.
2. Eliminates single stock risks.
3. Allows you to be diversified.
4. Expense fees to run the ETF are very low.
5. It's easy to buy and sell ETF's.
6. Great investment for the more passive investor.
We selected three ETFs to give you an example of what you can buy! These were selected from another article 3 Top Electric Vehicle (EV) ETF's to buy
#1 The Global X Autonomous & Electric Vehicles ETF (DRIV)
#2 iShares Self-Driving EV and Tech ETF (IDRV)
#3 SPDR S&P Kensho Smart Mobility ETF (HAIL)
These EV ETFs are designed for people who want to invest in an ETF for electric cars as well as components found in electric vehicles. Although an EV ETF might be of interest to you there are many other more broadly based EFTs that might suit your needs.
Cash as an Investment?
Cash is still important and not investing every cent you have is also good advice because stock markets go up and down and if you need cash soon, investing may not be a good idea. However keeping cash or short-term deposits, even if you utilize a high-interest savings account will decrease in value over time if your interest rate is lower than the inflation rate. If you want to keep all your money in cash I would only suggest using a high interest/ no-fee savings account over a regular account paying low interest, however, you need to understand this will not help you build long-term wealth.
Is investing risk-free? No, most investments do have risks, however some investments are more risky than others. Generally speaking, the type of investments you make can depend on how much risk you are willing to take.
Investing is important even if you do not have a lot of money, the good news is inexpensive trading platforms, micro-investing, and ETFs now make it possible for people with little money to build wealth. As I explained, investing is one of the few ways to build wealth. Although it's not without its risks, buying into an ETF can reduce your risks and allow you to participate in the stock market.
Questions and Answers on Investing and building wealth with little money.
We ask and answer some important questions about investing and building wealth with little money. The key to success is to use products and services that have very low fees, no minimum balances, and are easy to understand and use. We will never advocate highly risky investments such as speculative penny stocks. We believe in high-quality long-term securities, you can make money in risky investments but you need to be willing to risk your investment if it does not work out.
How do I start investing with little money?
The best way to start investing with little money is to open an account with either Robinhood or Charles Schwab. These trading platforms allow you to set up an account with $0 money and no maintenance fee. You can buy stocks and ETF's free of charge and can even purchase fractional shares. It's an inexpensive way to participate in the stock market without requiring thousands of dollars.
Can you make money micro-investing?
Yes, Keep in mind however micro-investing is about buying small amounts of low dollar valued shares, ETF's as well as fractional shares. Although Micro investing allows people with low incomes and/or small amounts of money to participate in the stock market it does not necessarily mean your returns will be significant. However, micro-investing does allow people with modest means to see meaningful growth in their investments over time when compared to a savings account or just keeping their money in cash.
How can I invest $1000?
There are so many ways you can invest your $1000, however it also depends on what your goals are? If the money is for an emergency or for something you will use in the near future, savings and short term investing is the best choice as shown below. However, if you are looking more long term and want to build wealth then you can invest in stocks and ETF's,
Short term Investment ideas:
High yield savings account
Money Market Accounts (MMAs)
Certificates of Deposit (CDs)
Note: Money market accounts and High Yield savings accounts allow you to access your money anytime. CD's are locked for a period of time and you cannot access your money until the end of the term.
Can I invest $10 dollars in stocks?
The best way to start investing with only $10 is to open an account with either Robinhood or Charles Schwab. These trading platforms allow you to set up an account with $0 money and no maintenance fee. You can buy stocks and ETF's free of charge and can even purchase fractional shares. It's an inexpensive way to participate in the stock market without requiring thousands of dollars.
What should a beginner invest in?
This is one of the toughest questions because it can be overwhelming for many beginners to figure out not only how to invest, but what to invest in. Generally speaking for beginners the safest way to invest is through low-cost Exchange-traded funds (ETF), which is a basket of stocks that either mimic the entire stock market or in a particular sector of the market such as the Technology, Financial, Alternative Energy sectors. The main reason for ETFs is that they provide a more diversified portfolio and is less risky than owning a single stock.
How to start trading? Through Robin hood and Charles Schwab
For beginners who do want to take on more risk and invest in individual stocks, the best way is to begin trading through online broker platforms such as Robin Hood and Charles Schwab, both allow for the purchase of ETF's, stocks, and even fractional shares of a company if you only have a small amount of money.
What is a fractional share? A fractional share is when you own less than one whole share of a company.
This is a MySmallBank.com blog written by Allan Kirby, who writes and produces Personal Finance and Money Management articles and videos.