I Don’t Have Much Money – Can I Still Invest?
June 29, 2015
What often causes people to not invest money is the perception that you need a lot of money just to get started. That’s actually not true. Even if you don’t have much money, there are still places that you can invest with very little.
This is important because the first obstacle to investing at all is just getting started. If you go through your entire life thinking that you can’t invest because you don’t have a lot of money, then you will never start.
Here are ways that you can begin investing, even with very little money.
An Employer Sponsored Retirement Plan
If you are covered by an employer-sponsored retirement plan, this is the first place you should begin investing. One of the advantages to these plans is that they don’t require any minimum upfront investment. You can simply start by making payroll deductions, having the money transferred over to the retirement plan.
And since the money is taken directly out of your pay, you’ll never see the transfer occur, and you can set it up so that you barely notice the missing money from your pay. For example, you can begin funding an employer-sponsored 401(k) plan with a contribution of just 1% of your pay. You probably won’t even notice that!
In subsequent years, you can begin increasing the contribution each year. For example, at the beginning of your second year of participation, you can increase your contribution to 2% of your pay. At the beginning of the third year, you can increase it to 3%. If you time increases in your contributions with annual pay raises, you won’t even feel the effects of higher contributions. This is also made easier by the fact that the contributions themselves are tax-deductible so in effect the federal and state governments will be subsidizing your contributions.
If your employer offers a company match on your contributions, you should make it a goal to get your contributions to the point where that match is maximized. For example, if your company does a 50% match up to 6% of your pay (meaning they add 3% to your account), you should get to a 6% contribution rate as soon as you are able.
Under this scenario, even if you don’t invest any of the money, you would still be getting a 50% return on your contributions. That’s just too much money to pass up!
Traditional or Roth IRA
If your employer does not provide a retirement plan for you to participate in, you can start your own using either a traditional or Roth IRA. TD Ameritrade will allow you to open an IRA, and they have no up front account minimums. You can simply fund the account at whatever level you feel comfortable.
You can set up a payroll contribution through your employer as well. Most employers will allow you to allocate direct deposits into three or more accounts. You can simply start moving a small percentage of your pay to the IRA account, and that way you will gradually and automatically build up your account over time.
Once again, these contributions are tax-deductible (for a traditional IRA, not the Roth), so you won’t feel the full effect of your contribution. And you can contribute up to $5,500 per year ($6,500 if you’re 50 or older) to either a traditional or Roth IRA.
TD Ameritrade Brokerage Account
TD Ameritrade will also allow you to open up a non-retirement brokerage account with no upfront minimum, called the TD Ameritrade Standard Account. You can also fund such an account using payroll deductions, or you can simply use the account as a place to put windfalls as become available (tax refunds, bonuses, gifts, etc.).
You don’t have to begin trading in the account until you have enough money to begin investing, and you feel comfortable doing so.
These are small denomination US Treasury securities that you can purchase through Treasury Direct. You can purchase them in denominations of as little as $25.
These are actually US government bonds with terms running between one year to as long as 30 years. And not only do they provide annual interest income, but they also make semi annual adjustments for inflation. Interest and inflation adjustments are added to the face amount of the bond and payable when you redeem the bonds.
Bonus: I Bonds are tax-exempt for state income tax purposes.
Betterment is what is often referred to as a robo advisor, and that can be the perfect investment account if you’re completely new to investing. When you sign up for a Betterment account, they have you complete the short questionnaire which determines your risk tolerance. From that risk tolerance they will establish a portfolio of exchange traded funds (ETFs) that will represent the allocation of your portfolio going forward.
This will enable you to take advantage of professional investment management but without the high upfront investment, or the high annual fees that normally come with it.
Betterment has no upfront minimum investment requirement. You can sign-up for an account, and commit to contributing a minimum of $100 per month – which you can do through payroll deductions. So you can simply begin funding your account, and never have to worry about getting involved in the technicalities of investing.
A Bank Savings Account
Failing all else, you can simply open up a bank savings account, and fund it through direct payroll deposits. Technically speaking, this is not an investment. However, it is an account that you can use to begin accumulating money until you have enough that you can move it into either mutual funds, ETFs, or an investment brokerage account that have upfront minimum account balances of say, $1,000 or more.
When it comes to investing, the single most important step is to get started. The fact that you don’t have much money should never be an obstacle. If you can carve a few dollars extra out of your budget each month, then you will have all that you need to start investing. But you have to take that first step.
All posts by Kevin Mercadante