Watch our video on how to invest in stocks for beginners with little money and learn the best way to go about it.
How to Invest in the Stock Market With Little Money
- Here's how to invest in the stock market with little money:
- Use an app like Acorns or Stash.
- Buy ETF's and hold long term.
- Trade Options (but only after lots of practice in a simulator).
- Buy mutual funds in an IRA.
Do you know how to invest in stocks for beginners with little money? It's easy to talk yourself out of investing when you don't think you have enough money to invest.
However, even a few dollars can go far. From trading apps that allow investments as low as $5 to ETFs and DRIPS, your opportunities to get started are endless.
Similarly, you can also invest directly in stocks, even the higher priced once through purchasing options. In our blog “How to invest in stocks for beginners with little money”, we'll show you how you can start with as little as $5. Sounds pretty great if you ask me!
First things first, let's debunk some common myths about investing! As a result, you'll better understand how to invest in stocks for beginners with little money.
Myth: Only the rich use brokerage accounts.
Reality: This is ridiculous and unfortunately one of the most common myths among non-investors.
The truth is, many online brokerages let you open an account and start investing with as little as $500. Personally, when I first started I opened an investment account with HSBC for nothing. And, I know there are others out there that are similar. Webull is our favorite zero fee broker.
Here is some question to ask when deciding which brokerage/bank to open an account with:
- What is the minimum initial investment required to open an account?
- Will this be waived in exchange for regular monthly deposits?
- Will I be charged a monthly inactivity fee?
- Is there a minimum monthly deposit so I won’t be charged a fee?
Myth: You need to be rich to buy a diversified portfolio.
Reality: Once again, ridiculous - apologies if I sound harsh.
You can spend as little as $100. Still not convinced? Ask yourself this,“ How much interest are you receiving in your “high paying saving accounts”? I’d suffice to say only a few cents. The reality is, a diversified fund typically gives a higher payout.
This is especially true if you’re in it for the long-haul. Hence the need to know how to invest in stocks for beginners with little money.
Myth: Investing is risky.
Reality: Not investing is risky.
2. ETF's: How to Invest in the Stock Market With Little Money
Furthermore, many firms offer ETFs (Exchange Traded Funds) which allow you to invest in a variety of investments with little money and minimal risk. ETFs, if you didn’t know, work alongside an index, such as the S&P 500.
So by purchasing ETF shares, you’ll get a portion of the entire indexes portfolio. In light of the fact some stocks may do better than others, you're relatively ok with an ETF. This is because they balance each other out. Which means, you diversify your risk.
Diversifying protects you as you learn how to invest in stocks for beginners with little money.
Myth: I’m stuck with penny stocks because I don’t have a lot of money.
I hate giving unsolicited advice but as a new investor, stay away from the highly volatile penny stocks. Yes, I said it, stay away. The reason is, they’re highly volatile and you need to be lightening fast to get in and out. If you don’t know what you’re doing, you’re going to lose your shirt (learn the differences between a stock loss vs stop limit order and how they can protect your brokerage account).
As a new investor starting out, I suggest starting with the higher cap and/or blue-chip stocks. They are predictable. Their charts are nice and less volatile than penny stocks.
You can easily trade them with options. I won’t get into the nitty-gritty details here, but we have an in-depth, options trading course with lots of free material you can check out here.
3. Options: How to Invest in the Stock Market With Little Money
Options are, in fact, a great way to learn how to invest in stocks for beginners with little money
Myth: I need a lot of money to buy stocks
Take DRIPS (Dividend Reinvestment Plans) for example. They make it possible to inexpensively investment in a company. How? With DRIPS, you invest the dividends you receive from the company back into the company. Essentially, you purchase more shares with the profits you make from the stock.
Let’s not forget mutual funds. They’re a great way and affordable way to learn how to invest in stocks for beginners with little money. In fact, many have extremely low minimum investment requirements if any. In my personal opinion, they’re a great long-term investment.
Some companies such Vanguard allow you to invest in some ETFs or Exchange Traded Funds for the cost of one share. Fidelity now offers several no-minimum investment funds as well.
Myth: I need a broker
Reality: You have an overwhelming choices you have at your disposal, even without a broker.
For example, your employers IRA plan. This is where your employer actually gives away free money! I’m serious, they match your monthly contributions. So, maximize your contributions. To make this easier, set up a monthly automatic deposit so you don’t even see or have the chance to spend the money. Don't miss this golden opportunity.
- Habit. With most things in life, getting started is sometimes the hardest part. You think you barely can even spare $100 a month let along $5. For one thing, I challenge you to re-think your thoughts. What can you trim? What about your daily $5.00 afternoon energy drink? It is this type of thinking is what prevents people from investing. Trust me, you have the money to invest.
- Snowball Effect. Investing is akin to the Snowball Effect. For example, as the snowball rolls down a snow-covered hillside it picks up more snow. It gains more and more mass and surface area, picking up even more snow and momentum as it rolls along. If you start with just $5 or $10 and contribute regularly, you get into the habit of investing regularly. Down the road, you will likely find yourself wanting to invest more and more and your money continues to grow and grow - just like the snowball.
- You Open Your Mind. A fringe benefit of starting with stocks is that you will start to be curious about investing in other securities. This will open you up to a whole new world of opportunities.
- Creative Thinking. Because you only have a small amount of money available to invest, it forces you to think outside the box. Investing in DRIPs or ETFs are great examples of profitable investments for little upfront capital.
How Much Should a Beginner Invest in Stocks?
- Here's how much a beginner should invest in stocks:
- Minimum of $500 - $1,000 to slowly grow an account.
- Swing traders ideally want between $5,000-$10,000.
- Options traders should have at least $2,500.
- Day traders need a minimum of $5,000 or $25,000 to avoid PDT rule.
1. Artificial Intelligence: How to Invest in the Stock Market With Little Money
In a nutshell, Robo Advisors use automated intelligence to provide digital financial advice based on mathematical rules or algorithms. Because of this, no prior investment experience is required and set-up is easy.
Here are a few of my favorites:
Wealthfront. Certainly great for first-time investors. Despite a $500 minimum to get started, their fees are reasonable at 0.25%.
M1 Finance: If you don’t have $500, look no further than M1 Finance. For just $100 you can choose from one of their pre-made diversified portfolios or make your own. What’s more, they charge no commissions or management fees. So, you can trade both stocks and ETFs for free. That’s right, FREE!
Betterment. In the event that you don’t have $100, you might want to consider Betterment. Just because the opening minimum is less doesn’t mean you need to skimp on quality. It’s great for beginners, just like M1 and the platform is super simple as you can see in the image below.
Acorns. Is actually an investing app that invests your spare change. With every purchase you make, it sweeps your spare change into an investment portfolio. Pretty ingenious if you ask me. Because of this I wrote a review on Acorns, check it out here if you want to know more.
2. Downsides: How to Invest in Stocks for Beginners With Little Money
Unfortunately, there are also downsides to investing with little money.
- Time. In reality, you will need to wait longer than usual for returns on your investments. You need to plan for the long term.
- Monthly account fees and deposits. Again, shop around to find a broker that fits your needs.
Everyone should invest and if you haven’t yet, that’s OK. By the same token, the sooner you begin, the quicker your money will grow. You have a lot of options at your fingertips. With many online and app-based platforms, there are plenty of ways to start investing.
Trust me, it’s easy and we are here to help guide you. Your future self will thank you for it. Check out our fabulous free materials and courses we have available.