How to Invest Small Sums of Money

Often, people put off investing because they think they need large sums of money to get started. Fortunately, this simply isn't true. You can get started investing with small amounts of money, as there are options for people who want to invest even as little as $20. This allows you to start building a nest egg right away instead of waiting for a windfall of cash.

Instructions

Invest Small Sums of Money

1. Open a mutual fund account. Mutual funds are very diversified, often holding hundreds of different stocks and making it possible to grow your investment, even if one stock performs poorly. While some require investments of at least $1,000, there are some that allow you to invest as little as $100.

2. Sign up for an automatic investment account. With this type of account, you can often skip the hefty minimum investment as long as you agree to invest at least $25 or $50 per month. Automatic investments are typically withdrawn from the investor's bank account at the same time each month.

3. Buy directly from the mutual fund company. If you decide to purchase from a stockbroker, you'll have to let part of your already-small investment go towards his commission.

4. Try direct investing, which allows you to purchase stock in a company without using, and paying, a broker. You can do this through a direct stock purchase plan (DSP). Many companies offer these plans, allowing those with little money to invest with no or little fees involved. You can search for direct stock purchase plans on a site like The Direct Purchase Plan Clearinghouse.

5. Invest in a dividend reinvestment plan (DRIP) and have your dividends automatically reinvested, allowing you to watch your money grow without hovering over it. The reinvestment process is entirely automated, and you can sign up to have a set amount (as little as $25) invested from your bank account each month. You can visit a site like Direct Investing to find information about available DRIPs.

6. Visit a site like Direct Investing to find information and available DRIPs.

Tips & Warnings

• Don't overlook the need to have money in a savings account. Most financial experts agree that you should have at least 3 to 6 months of living expenses saved for unforeseen circumstances. It may be best to wait until you've met this goal before you invest even a small amount.

• Don't get stuck on imagining that a particular investment is risk-free. You will have to take on some level of risk with every type of investment.

Resources

• Dividend reinvestment plans at Direct Investing
• Direct investment plan options at the The Direct Purchase Plan Clearinghouse