How to Start Investing with $100
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You don’t have to be wealthy to start investing.
You don’t even have to have a full-time job or a high income.
With the advent of new startups and flexible brokerage firm accounts, you can start investing with just $100.
Low initial deposit amounts, coupled with the fact that the brokerage industry is currently in a race to the bottom, means that investing is now more accessible to the average Joe than ever before.
In recent months, major firms across the industry such as Fidelity, Charles Schwab, TD Ameritrade, and more, have all announced totally free and/or commission-free trading — a major win for small-portfolio investors who often see their returns wiped out by steep management fees.
There’s never been a better time to jump headfirst into the markets as there is right now.
The Importance of Getting Started Even if You Can Only Invest $100
There’s no need to wait to start. You can how to start investing today — and you probably should. The best thing about investing is that your returns compound over time so the sooner you start, the more money you’ll earn in the long run.
Let’s say you have $100 to invest with today, but you think, “No, I’ll wait until I have $200 next month or $500 in a few months.”
In the meantime, that $100 is just sitting in your checking account earning a tiny amount of interest, maybe a few cents. If you had invested that money, even in a conservative fund, you’d likely be able to earn money in a month.
If you had invested your $100 immediately, it’s possible you could have $102 by the end of the month. Then, that $102 would earn money and compound upon itself. That’s why you shouldn’t wait to start investing. The earlier you start, the better.
How Much Investing $100 per Month Could Be Worth in 30 Years
Suppose you start by investing $100 today. How much would that money be worth in 30 years? Assuming a modest return of 5%, compounding monthly, that initial $100 could be worth $446.77 in 30 years. You can change the amount invested and the return to see how much an investment could be worth in the future by using a compound interest calculator.
It’s possible to quadruple your $100 investment in 30 years if you begin by investing $100 right now. This is all because of the power of compound interest. Remember, there’s no guarantee of returns, but 30 years is a long time to average out the downsides and upswings of the market.
9 Ways to Invest $100
It’s relatively simple to get started investing, even if you’re new. Before you make your first investment, make sure you’re on solid financial footing. Pay off high-interest debt and build up your emergency fund before you begin investing money.
Spend some time researching your options and then choose what resonates with you. It’s better to get started than to try to do things perfectly. All investors make mistakes along the way, but what’s important is that you learn from them.
1. Investment Apps
Investment apps make it very easy to start investing. Some apps will help you automate your investing. Others allow you to invest in socially responsible companies. Regardless of your personal interests, there’s probably an app that will work for you.
There are a few things to keep in mind when you’re using an app to invest. Be aware of transaction fees before you commit to an app. Sometimes, the transaction fee is a high percentage of your investment, even though it might only be a few dollars every month. You should minimize these fees as much as possible so the majority of your money is working for you, and not going toward overhead.
2. Traditional IRA
If you’re investing primarily for retirement, you may want to consider opening an IRA. A traditional IRA works a lot like an employer-sponsored retirement plan. Money contributed to a traditional IRA is considered “pre-tax” and reduces your taxable income for that year. That means you’ll pay less in taxes while also building a nest egg.
Since an IRA is intended for retirement savings, you’ll have to wait until you turn 59 1/2 to withdraw money from the account. Otherwise, you’ll incur a 10% penalty. Contributions are also capped at $6,000 per year for 2019 (or $6,500 per year if you’re 50 or older). These usually increase every year, so make sure to check the contribution limit when the new year begins.
Stocks or a share of stock is a tiny piece of ownership in the company. There are two ways to make money on stocks.
The first way is if the price of a stock you own goes up after you purchase it. When that happens, you can sell the stock and make money on that transaction. Some stocks also pay dividends, which are payments to the shareholders. You can keep these dividends or reinvest them back into the company by buying more shares.
There are a few things to consider when purchasing stocks. First, you should think about your risk tolerance. A stock’s price can drop suddenly, and then you’ll lose money if you sell. You should plan to invest in the stock market for the long term, and know that there will be some winners and some losers.
There are no guarantees on the stock’s future price or future dividend payments. Many financial experts warn against investing solely in individual stocks. Instead, most recommend investing in groups of stocks to minimize risk. These groups of stocks are known as mutual funds or index funds.
A bond is a loan that you make to a company or the government. Companies may issue bonds when they need to pay for new equipment, build a new location or expand a factory. A bond is a binding agreement that you will be repaid the amount of the initial investment, plus interest, over a predetermined time period. They can also be bought and sold on the open market.
Bonds issued by the US Government or a major company are usually considered low-risk investments. Bonds issued by less stable companies are higher risk because the borrower could default on the bond. In general, because the interest rate and repayment schedule are pre-defined, bonds are considered to be less risky than stocks. The average return is also lower.
5. Peer-to-Peer Lending
Peer-to-peer lending is a newer way to invest. Platforms like Lending Club and Prosper make it easy to find prospective borrowers. Rather than running your investing dollars through a big bank, company, or brokerage firm, you’re lending directly to borrowers. This reduces some of the extra fees associated with traditional investment strategies.
On the flip side, these investments aren’t insured by the FDIC, so you’re out of luck if the borrower defaults. This is similar to stocks or ETFs that also don’t have an FDIC guarantee.
You can reduce your risk by only investing in borrowers with high credit scores and steady jobs. Some platforms also have different minimum investments. With Prosper, you can start investing for as little as $25. If you choose Lending Club, you have to fund your account with at least $1,000 initially but then you can invest as little as $25 in each opportunity.
An exchange-traded fund (ETF) is a collection of stocks, bonds, and other assets. With an ETF, you’re buying a portion of a fund with multiple assets, rather than buying each of those assets individually. An ETF is automatically diversified, and the fund is professionally managed to take advantage of market trends.
ETFs can be bought and sold in the open market, so you’re able to see the value of them in real-time. There may be management costs and other fees that can reduce your returns, so look into those before investing in ETFs.
7. Low Minimum Mutual Funds
Some brokerage firms will waive the account minimum to buy mutual funds if you automatically invest $50 to $100 a month after you open the account. A mutual fund allows you to buy a diversified set of assets in a single purchase. This is a great way to start investing if you’re only able to invest a small amount per month.
8. High-Yield Savings Account
The return on an online savings account won’t be as much as other, riskier investments, but you’re also guaranteed not to lose money. If you’re a nervous first-time investor, this can be a great way to dip your toes.
You don’t have to do much research, and you won’t risk losing your money. There are several high-yield online savings accounts offering 2% interest or more.
9. Employer-Sponsored Retirement Plan
If your employer sponsors a retirement plan like a 401(k), it’s usually a great idea to invest in it. Often, employers will do a full or partial match of the money you put into the account. For example, if you contribute 6% of your salary, your employer may contribute an extra 3%. Employer-sponsored retirement accounts also usually provide guidance on what to invest in once you have put money into the plan.
The downside is that you can’t withdraw money until retirement age, so this type of account isn’t a good choice if you’re planning to use the money for a short-term goal.
Setting Investment Goals
Setting the right investment goals is crucial when you only have a small amount of money to start with.
Investing $100 Weekly vs. Biweekly vs. Yearly
You can make big strides toward your financial goals if you invest consistently. It might not seem like much if you’re starting with $100. However, if you can start investing $100 every other week for a year, you could end up with $2,600.
And, if you can find $100 to invest every week, you could have $5,200 at the end of the year. Get started no matter how small your investments are because they really do add up over time.
Investing Now Determines Retirement Possibilities
People who invest consistently early in their careers open up many more retirement possibilities. You may want to retire early to travel, start a new business, or go back to school for a different career. If you’ve been investing since you were in your twenties, those goals start to become more plausible.
Is It Worth Investing $100?
Ultimately, there are many ways to start investing $100. Remember, small investments can still equal big returns. Even a $100 investment can lead to so much more in the future because of compound interest. It’s better to start investing today than to wait even one more month.
Over time, you can build knowledge and wealth, achieve your financial goals, and expand your retirement options down the road.