Watch our video on how to invest in stocks for beginners with little money and learn how to make the best with what you have.
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.
Here is some question to ask when deciding which brokerage/bank to open an account with:
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.
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.
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.
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.
Unfortunately, there are also downsides to investing with little money.
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.
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