A common misconception among people is that investing is for wealthy people. However, that’s untrue. You don’t need a fat bank account to start investing. Below are 6 of the best investments for beginners with little money. Many companies and services have made it available to anyone. So with a few hundred dollars, or less, you can begin building a solid portfolio.
Before investing, you must know your risk tolerance level. Are you a low-risk or high-risk investor? You have to ask yourself this question as some investments are riskier than others, so you don’t end up surprised after investing. Other things to consider are the period you can stay with your money outside and if you’d be comfortable not being able to access your money for a long period.
A couple of investment options are available if you’re interested in investing. Below are some of the best investments for beginners with little money.
1. High-Yield Savings Accounts
A high-yield savings account is a simple and easy way to get interest on your cash in the bank. It’s similar to checking accounts, but they have a higher interest rate. A high-yield savings account lets you earn more money than your regular savings bank account. Different banks set their rates.
You can open high-yield savings accounts via an online bank. And there’s no guarantee that they may offer that specific interest rate when you sign up long-term.
If you want to keep short-term savings or have an emergency fund, a high-yield savings account is an excellent choice, as they keep your money in a separate location at higher interest rates.
2. An Employer Retirement Plan - 401 (K)
Immediately after you have an emergency fund or a bank account with sufficient cash; you should invest in the market. The best way to start is to take advantage of your employer’s retirement plan options. Most employers have this, and the most common is a 401 (k). A 401 (k) is a type of retirement plan that allows individuals to set money aside before taxation and invest it. Your company may match your contributions; of course, this match is at no cost to you and adds up as a return on your investment.
It’s an investment plan for beginners with little money. You can make monthly contributions, starting with 1-2% of your paycheck, but it’s always best to contribute as much as your employer match.
Here’s how a 401 (k) works; when you sign up for it, the designated percentage goes directly from your paycheck to the retirement plan account. A 401 (k) aims to grow your money until you’re at retirement age.
So, some retirement plans involve monthly contributions to a fund with a target date of withdrawal, while others don’t. For example, you’re subject to penalties if you withdraw your money before age 59.5.
3. Index Funds
Index funds can be referred to as mutual funds that run on autopilot. They track market indices on behalf of a skilled fund manager.
Market indices are investments that represent a specific portion of the stock market. Popular mutual funds track index is the S&P 500, an index of stocks from the largest 500 companies in the U.S. An S&P 500 index fund, for example, works by monitoring the S&P 500 and buying stocks in that index.
Index funds have lower expense ratios when compared to mutual funds. An expense ratio is a fee charged to an investor based on the amount invested. Most index fund investors usually buy a huge section of the market in a single transaction, but it’s something beginners can invest in as they come with low fees or no fees for the funds’ investors.
Most brokerage firms offer index funds without a minimum amount. With as little as $100, you can start your investment journey in index funds.
4. Certificates Of Deposit
A certificate of deposit is a fixed-period investment instrument offered by banks, credit unions, and brokers working for a financial entity. Certificates of deposits are a great way to earn interest on yout money. A CD’s tenure could be a few days, months, six months, yearly, five years, or more. The interest rates may be fixed or fluctuating depending on the tenure and are typically paid per month or semi-annually.
A certificate of deposit is an investment platform with low risk. Purchases from a federal bank are covered by insurance up to $250,000 per depositor. However, the only disadvantage of this investment is its lack of liquidity. So, an investor cannot withdraw their money if there’s an urgent need for it if they pay a penalty fee. Some CD types include liquid CDs, broker CDs, jumbo CDs, and many more.
5. Exchange-Traded Funds (ETFs)
ETFs are similar to index funds in that they track market indices, have lower fees than mutual funds, and are passive approaches to investing. You can also buy an ETF that tracks a market index like the S&P 500 Composite Stock Price Index.
The significant difference between the two is that ETFs are up for trade 24 hours a day, and an investor can buy any of these funds for something referred to as a share price. The share price can be anywhere from $100 to $300 or more, depending on the fund. The share price fluctuates and is referred to as the investment minimum for exchange-traded funds.
To invest in an ETF, you had to do that through a broker who may charge a commission fee. However, if you intend to invest these funds regularly (automatic payments weekly or monthly), you could do that by choosing an ETF that is commission-free to eliminate paying commissions each time. ETF’s are one of the best investments for beginners with little money.
6. Investment Apps
A couple of investment apps exist which are perfect for beginner investors with little money or no experience. Examples include Acorns and Stash
Acorns works by rounding up all purchases on the credit or debit card linked to it and investing the loose change in a portfolio of different asset types (exchange-traded funds (ETF)). There is no minimum amount restriction to register for an Acorns account, and once the app has accumulated up to $5 from the roundups, it starts investing for you. There’s also an option to make lump deposits.
Stash is another app that teaches beginners how to invest and build their portfolios from different types of assets, such as ETFs or individual stocks.
Final Thoughts on Best Investments for Beginners With Little Money
Investments are a great way to beat inflation and get greater returns on your cash at hand. Many investment options are available to newbies and experts alike. Get started by trying some of the best investments for beginners with little money mentioned above.
Disclaimer
Information provided on InflationCents.com is for informational/entertainment purposes only. This information should not be considered as professional advice. Please seek a certified professional financial advisor if you need assistance. Rates and offers provided by advertisers can change frequently and without notice. We attempt to provide up to date information, but it could differ from actual numbers. Inflationcents.com may be compensated by 3rd party companies that are mentioned either through advertising, reviews, affiliate programs, or otherwise. All reviews and articles are based on objective analysis and no compensation will tilt our opinion.