How to Start Investing With Little Money

In general, the earlier you start investing for a financial goal, the easier it will be to meet that goal. That’s because as your money grows or earns interests, that new money will start earning interest or growing as well, creating an effect known as compounding. Investing early also helps you start good financial habits, and encourages you to continue. Even if you only have a little money to start with, you can start taking advantage of the benefits of early investing.

Things You'll Need

• Internet access
• Low cost investment firm

Instructions

Start Investing With Little Monies

1. Determine your financial goal and the time frame you have to meet it. In general, stocks and mutual funds are best when you have ten years or more to meet your goal, such as retirement or a college education. If you have a short term investment goals, such as buying a house or car in a year or two, you’ll want a safe investment that protects your funds, such as a federally insured CD or US Treasury bonds.

2. Choose an investment firm or bank that offers the type of investment you want. Look for one that offers accounts with low minimum and opening balances, and low minimum purchases, so you can get started with only a little money, and avoid paying high fees.

3. Look at the cost of buying the investment. Some investments, such as CDs and US Treasury bonds, often have no transaction fees, while buying individual stocks usually requires a commission fee every time you buy or sell. Since these fees can vary widely, make sure to compare the fees of several companies before you open an account.

4. Find out how much it costs to add more money to the account. Some CDs only allow an initial deposit, while savings and money market accounts usually allow you to add money as often as you want. If you want to make small monthly contribution to your stock account, you may want to consider a mutual fund that allows you to make contributions for free, rather than buying individual stocks and paying a transaction fee for every purchase.

5. Consider signing up for an automatic investment plan to continue making small, regular contributions to your account that can be deducted directly from your checking or savings account. This can help you continue investing, and some companies offer reduced fees or minimums if you use this service.

Tips & Warnings

• If you want to invest in stocks or mutual funds, but you don’t have enough money, consider saving in a safe place, such as a bank account or CD, until you can meet the requirements for opening an account.

• Research all investments and companies carefully before opening an account or making purchases. Make sure that the investment is federally insured and guaranteed, or understand that you may lose money in the investment.

Resources

• Treasurydirect
• Sharebuilder