What Is the Best Way to Invest Small Money?
Many people assume that they need thousands of dollars to get started with investing, but nothing could be further from the truth. If you choose the right investment vehicles, you can get started with only a few dollars. Starting small is a smart move, since one of the biggest impediments to investing is simply getting started. Once you become comfortable with regular investing, you can ramp up your savings and start building for the future.
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Employer-Based Plans
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Employer-based plans are perfect for new investors. These plans typically allow you to set aside as little as 1 percent of your pay, making it easy to get started and then ramp up your savings as you see fit. If you have access to an employer-based retirement plan like a 401k or 403b, you can designate the exact percentage of your pay you want to invest, then change that percentage as your circumstances change. Some employers also offer employee stock purchase plans, allowing workers to accumulate shares of stock through payroll deduction. If you have such a plan available, you can get started with as little as 1 percent of your paycheck.
Savings Accounts
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If you do not yet have an emergency fund in place, you should work on building one, and a savings account is a great vehicle for that purpose. Many savings accounts have no minimum balance requirements, and once the account is open you can easily transfer money from your checking account until you have at least three to six months' worth of living expenses put away.
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Mutual Funds
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Many mutual funds reduce their minimum purchase requirements if you agree to set up an automatic monthly transfer from your checking or savings account. Setting up a recurring transfer is a good way to invest in mutual funds anyway, since it allows you to buy more shares when the market is down. If you agree to set up an automatic investing plan, many mutual fund companies allow you to get started for under $1,000, and sometimes for as little as $250 or $500.
Direct Stock Purchase Plans
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Some companies allow the public to purchase shares of stock directly, without the need for a broker. These plans are typically called direct stock purchase plans or dividend reinvestment plans, and you can use them to build a holding in a particular stock a few dollars at a time. Since you are investing in a single stock, you do have more risk than you would in a mutual fund. But if you believe in the company and know the industry well, a direct stock purchase plan can be an efficient and low-cost way to invest your money.
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References
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