Getting started with investing can be a challenge, especially if you don’t have much money to put into the market. However, you might be surprised at how little cash it takes to start investing. In fact, even if you only have $100 to invest, you can find a place in the market for that money and grow it over time.
So, how much money do you need to start investing, really? In this article, we’ll take a look at why investing is important, the types of investments available, and how much money you need to start investing now.
Importance Of Investing
Investing is critical to growing your money over time. Without investing, you’re missing out on a chance to put your money to work to generate more revenue for you. In fact, the amount you’ll ever be able to save is simply what you make from your job minus the amount you spend.
Over the long term, returns from investing can add up significantly. You can use gains from investing to reach major financial milestones like buying a home or funding your kids’ college education. Investing is also key to being prepared to retire while maintaining your standard of living.
Benefits Of Investing
If you have money sitting in your bank account, why should you invest it rather than simply leave it sitting there as savings? The number one reason is that investing offers a much better return on your money.
Most high-yield savings accounts offer around 0.60% interest per year. That’s not even enough to keep up with inflation, so you’re actually losing money over time by keeping your savings in the bank. By contrast, the stock market is up over 14% so far this year and has averaged around 8% gains each year for the last 60 years. While there will be up years and down years, if you’re investing for the long term you can expect a return roughly on the order of 8% per year.
Types Of Investing
When it comes to investing your money, you have a lot of options. The most common route investors choose is to put their money in stock funds, such as exchange-traded funds (ETFs) and mutual funds. With these funds, you can invest in a broad swath of the stock market in a single purchase. Better yet, you don’t have to do any work once your investment is done – fund managers handle the day-to-day management of balancing the fund to match the market. In exchange, you should expect to pay a small fee that can range from 0.1% to 0.5% of your investment for ETFs or up to 2.5% for some mutual funds.
Alternatively, you can invest in individual stocks. This is somewhat riskier than investing in a fund since your return is dependent on a single business rather than hundreds of different businesses across the market. However, your potential return is also greater – one company’s stock price could skyrocket, but the stock market as a whole is unlikely to rise hundreds of percent in just a few years.
The stock market isn’t the only investment available to you, either. Other types of investments may offer more financial risk in exchange for potentially greater rewards, or less risk in exchange for scaled-back rewards. Real estate investing, commodity investing, or even cryptocurrency investing are all potential options. If you want a low-risk investment, consider investing in the bond market.
How Much Money Do You Need To Start Investing?
So, how much money do you need to start investing? It used to be that you needed to have hundreds or even thousands of dollars stowed away in order to start investing. But nowadays, you can invest in the market with just $100 – or even $1 in some cases.
Ultimately, how much you need depends in large part on what you want to invest in and your investing goals. Let’s say you’re eyeing the stock market. Many brokers will allow you to buy fractional shares of a company, so you could invest as little as $100 in, say, Tesla stock or an ETF that mirrors the S&P 500 index.
The problem with starting with just $100, though, is that your potential return is pretty unexciting. Let’s say Tesla shares double this year. That would represent a once-in-a-lifetime investment, but you would only have made $100 from your great stock pick. If you invested $1,000, on the other hand, you would have earned a quick $1,000 profit on your investment, which you could then use to invest in something else.
If you’re young and investing for retirement, though, every dollar counts. Say you make a $100 investment in the S&P 500 today and the index continues to grow at a steady 8% until you retire in 40 years. By that point, your initial $100 investment will have turned into over $2,100. That’s not enough to retire on, but it demonstrates that getting started with just $100 if that’s all you have now is definitely worth it. ($1,000 would turn into $21,000 over 40 years!)
Of course, $100 won’t be enough for every investment. If you want to invest in real estate through a real estate investment trust (which works a lot like an ETF), there is typically an investment minimum of $1,000 or more. Similarly, mutual funds may have minimum investment requirements that can be $2,500 or even $5,000. If you want to invest in real estate by buying a property, most mortgage lenders require that you put down at least 20% of the value of the property.
If all you have is $100, your best option might be to invest in a single stock. While this is risky, the chances that you’ll double your money are much greater than if you invest in an index fund. On the other hand, if you have several thousand dollars, you can invest all of it in an index fund or split it into a couple different investments to build a diversified portfolio.
Conclusion: Investing Your Money
It doesn’t take much money to start investing. In fact, the sooner you can start investing for the long-term, the greater your eventual returns will be. Whether you have $100, $1,000, $10,000, or $100,000 to put into the market, there are plenty of sound investment options available for you.