Sometimes the idea of building wealth through investing seems impossible for those with little savings and little extra income to invest. You might think that investing with smaller amounts of cash is pointless, but the truth is that even if you start investing with only $100, your investments still have the potential to grow to six or seven figures.
I remember reading a story one time in a personal finance book about a couple in their sixties who were millionaires. When asked about how they got to millionaire status, they stated “We started by saving only ten dollars a week. We never dreamed our savings would grow to this magnitude.”
If you are feeling like it’s useless to start saving and investing because you have very little to save to begin with, don’t give up just yet. No matter how much money you have to start with, you can build an investment nest egg that’s big enough to fund your financial dreams by following the three investing rules we’ll talk about below.
How investing $100 can turn into over $400,000
The first rule of smart investing is to understand the power of compound interest. Check out the chart below. Most people think that investing is of no use when you’re starting with a smaller amount, but compound interest is a powerful tool no matter how much cash you are starting out with.
If you started an investment account with just $100, adding $25 per month and gaining a ten percent rate of return, in fifty years you would have nearly $400,000!
You see, the awesome thing about investing is no matter how small of an investment you start with, compound interest will grow your money like crazy. So the key is simply to start, no matter how small your initial contribution or monthly contributions may be. The truth is that it all adds up over time.
Using the chart above as an example, it might seem like 50 years is a long time to invest and wait just to reach $400,000. However, if you start investing early, say at age eighteen, the $400,000 you would accumulate by age 68 might mean the difference between retiring and not retiring.
No matter how much (or how little) you have to invest right now, just start saving. Chances are you’ll be able to increase your monthly investing amount as time goes on, and your nest egg will grow to proportions you never thought were possible.
Decide Which Types of Investing are Best for You
Before you start investing, you need to know what you’re getting into before you put your money down on the table. Check out different types of investments and figure out which types of investments are most suited to your risk tolerance and your knowledge base.
Start reading up on the different types of investments (there are thousands of articles on the Internet) so that you can learn to decide which investment avenues might be best for you. Also, take some time to figure out how long you want to invest the cash before you want to use it to live on. This is important because some investments do better over the long term, even though they may seem volatile during the short term.
The general rule is that the shorter the time you want to invest the cash, the lower risk your investment choices should be. Diversification is also important. Be careful not to put all of your money into one company’s stock or another single investment.
Instead, lean toward “basket” type investments such as index funds, mutual funds or real estate-based funds such as Fundrise. Although they require $1,000 to start, it is one of the least expensive ways to start investing in real estate.
Diversification of your investment choices will help protect you from market downturns or economic ups and downs, whether personal or global. Now we’ll talk a little bit about a few different types of investments and how to analyze them to see if they might be appealing to you.
Investing in the Stock Market
It’s smart to check out the fine print when investing in the stock market with small dollar amounts. Brokers who charge high fees can eat up the profits of beginner investors real fast. However, when done right, beginner investors who start investing with smaller dollar amounts can grow some serious wealth through the stock market by purchasing stock funds, index funds, etc.
Education is key before you start socking money into the market, and the Internet is filled with great articles explaining the ins and outs of stock market investing. Beware of get rich quick schemes and other promoted methods that promise big profits overnight. Smart stock market investing involves a “slow and steady wins the race” mentality.
It also involves sticking with your investment through the ups and downs of the market. And beginner investors – especially those starting with smaller amounts of cash – will want to choose a brokerage account that they can manage themselves online and one that charges little or no fees so that they can be sure that as much of their money as possible is used for growing wealth.
Here are some options for stocks investment accounts for beginner investors.
One of my favorite investment companies is Ally Invest because they allow people to begin investing with no account minimum and stock and EFT trades are as low as $3.95 each. Ally Invest is considered a “self-directed” investment firm, which means they don’t provide investment advice.
Instead, they provide custom charts and other investing tools to help members analyze trades and performance so that they can make their own educated choices about what to invest in.
They’ll allow you to access your investment account via multiple types of devices for easy and convenient investing, and they also keep members aware of the latest investing information with live news streaming information. Click here to learn more about Ally Invest.
Betterment is another company that offers stock investment accounts. One of the cool things about Betterment is that they charge zero for transaction fees and trade fees. They are a little different than Ally Invest in that they will actually give you investment advice based on your risk tolerance and how long you have to invest.
They do charge an annual fee, but it’s a super affordable annual fee (0.35% on accounts with balances below $10,000) that is a benefit for clients who make a recurring account deposit each month of at least $100.
Motif can also be a great option for beginner investors. There is no account minimum at Motif for investing in individual stocks or EFTs, but in order to start investing in a motif (a basket of up to thirty stocks or EFTs) you’ll need a minimum balance of just $300.
Unlike traditional investment accounts where you have to pay a fee per stock that you purchase, Motif allows you to create a fund with up to 30 stocks for just $9.95. That is almost a $300 savings compared to if you were planning on buying individual stocks. Get up to $150 for signing up for Motif.
All of these companies offer affordable fees and commissions for those just getting started in investing.
Online savings accounts are an option to make money if you are nervous about investing in the stock market. Most banks pay next to nothing, however, BBVA Bank pays close to 1% which is much higher than you’ll find at any local bank. You won’t get rich by investing only in high-yield savings accounts, but you will get paid much more than you would at most traditional banks.
Investing in Peer-to-Peer Lending
Another less traditional investing option is peer-to-peer lending (often called P2P lending). Peer-to-peer lending organizations such as Lending Club and others like it work like this: investors choose to lend money to those seeking personal loans for a variety of different purposes.
When investors open a Lending Club account, money is withdrawn for loans as the investor chooses, and repayment is made back into the investor account along with profits.
As loan applications are approved by the peer-to-peer lending staff, those loans are offered to investors who can contribute all or a portion of the loan amount to the applicant. Detailed information about the loan applicant such as credit score and payment history is shared with potential investors.
As the loan is paid back, a portion of the interest earnings go to you as an investor in a particular P2P lending loan.
It’s important to be aware of the fact that you can lose your cash if a customer you choose to loan money to decides to stop making payments, but many people choose to invest in peer-to-peer lending and are happy with the results. Proceed with caution if you choose this route.
No matter which of these investing routes you choose, you can start earning money on your cash if you’re willing to take the plunge and open an account, even if it’s only got $100 in it.
Investing in a Business
Many people choose to grow their money by investing in a business of some sort. Some people choose to invest in an existing business, while others choose to start their own business. Personally, I have found success with business ownership by starting an SEO company.
Investing in a business can be costly, but even those with only $100 to invest in a business with can make money with their $100 investment. In the case of my SEO company it cost very little up front to start because the business involved using my skills. I could share my knowledge with people and help them get better rankings with their websites by simply using my knowledge and my laptop.
Fortunately, there are many business opportunities that can be started for only $100. Chris Guillebeau, author of The $100 Startup: Reinvent the Way You Make a Living, Do What You Love and Create a New Future, shares in his book what he learned from interviewing over 1500 business owners who started their businesses with a smaller amount of capital.
In many cases, the successful business owners that Chris interviewed spent no more than $100 on their startups. And his interviewees weren’t necessarily people with any special skills. They were normal people like you and me who, as Chris states in his book, simply “discovered aspects of their personal passions that could be monetized.”
You never know: you might be one of those people who can turn doing what they know and love into a business opportunity that grows one day into unimaginable wealth.
I’m not saying that this will happen without a lot of hard work. Growing a business always involves hard work. However, if you are willing to put in the time, you might be able to grow a successful business even without having to put down a lot of cash up front.
The Importance of Contributing Regularly
Contributing regularly to your investments – no matter how small the contribution – is definitely one of the keys to successfully building wealth. The more money you put into your investment accounts each month, the more compound interest can work to grow your wealth on a greater scale.
Consider making a habit of contributing to your investment accounts on a regular basis by treating them like you would any other bill. Talk to your bank or investment firm about setting up an automatic transfer from your bank account to your investment account to make regular contributions on the same day each and every month.
This way you eliminate the need to think about investing each month and it happens magically for you. If you leave your investment contributions as a non-automated “choice” each month, you might find yourself making excuses for why you can’t contribute. Bills will come due, as will opportunities to spend the money on other things.
However, if you choose to treat your investment account like a bill and have it automated, you can train your mind to forget the money ever existed. You’ll probably find your investment growing at a more rapid pace than you had imagined it would, and your future self will thank you as the account grows trying to reach the six and seven digit figure range, creating a more secure future for you and your loved ones.
Are you investing on a regular basis? What types of investments do you prefer?
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