How to Start Investing With Just $100

How to Start Investing With Just $100 article image.

You may think you need thousands of dollars to get started with investing, but the truth is that you can start with as little as $100 or even less. No matter what you're working with, here are some of the best ways you can start putting your money to work with investing.

Start an IRA

If you don't have a 401(k) plan through your employer, consider opening an individual retirement account (IRA) and start putting money away for retirement. Because IRAs provide tax benefits that you wouldn't get with a traditional brokerage account, they're perfectly suited for retirement savings.

There are two types of IRAs: Traditional and Roth. With a traditional IRA, you can deduct your contributions on your tax return for the year that you make them. Once you're in retirement, though, your withdrawals will be considered taxable income. In contrast, contributions to a Roth IRA are made using money that's already been taxed and aren't tax-deductible, but they grow tax-free, and tax-free withdrawals can be made in retirement too.

Setting up your retirement account is a good place to get started with investing. The sooner you begin saving for retirement, the less you'll have to save over the years.

You can open an IRA with most major brokerage firms. Before you start investing your money, consider taking a quick test to assess your risk tolerance. This can help you decide where to invest your money and the right mix of risky and relatively safe investments.

Open a Brokerage Account

A taxable brokerage account allows you to invest in a variety of stocks, bonds, exchange-traded funds (ETFs), mutual funds and more. While it won't give you the same tax benefits as a retirement account, you'll be able to withdraw your funds whenever you wish without penalties.

There are a few different ways you can manage your investments with a brokerage account:

  • Do it yourself. If you want to learn how to invest on your own, you can make your own trades. Several brokers even offer helpful resources to get you started learning about investing, and most major brokers don't charge commissions on stock and ETF trades.
  • Hire a financial advisor or investment manager. If you want someone else to do the legwork for you, you can hire an advisor or investment manager to trade on your behalf. Keep in mind, though, that this is the most expensive of the three options, and not the best choice if you're starting small.
  • Sign up for a robo-advisor. Robo-advisors manage your investment portfolio using computer algorithms instead of human intervention. You'll pay a fee for this service, but it's generally much lower than what you'd pay for a financial advisor or investment manager who can personally work on your accounts.

Carefully consider each option to determine which is the best fit for you—and keep in mind that you can change your mind if your needs or preferences change.

Buy Fractional Shares

Fractional shares allow you to own just a slice of a share of a company's stock or an ETF. For example, if you can't afford to buy a share of Amazon stock, which is currently priced at about $3,600, you could buy a fractional share with $100 or less. You'd still benefit from any gains the stock experiences—if the stock goes up by 10%, so does your investment—but you won't have to set aside nearly as much money.

Many major brokers offer fractional shares, but you'll want to consider their minimum investment requirement and whether the broker charges fees on fractional share trades. Fractional shares can be a great way to diversify your portfolio across multiple stocks and ETFs without having to invest a lot of money.

Use a Micro-Investing App

Micro-investing apps make it easy to invest small amounts throughout the month. With these apps, you can round up purchases made with your debit card to the nearest dollar, then the app will take the difference and put it into an investment account, which you can use to invest as you please.

Micro-investing apps can be a good way to invest on a regular basis without having to manually transfer money to your investment account.

Start an Emergency Fund

Putting money in a savings account won't give you the same returns as investing it. But having money in a safe place you can use for an emergency can give you more peace of mind.

Financial experts recommend having three to six months' worth of expenses in an emergency fund. But even if you only have $100 to start with, depositing that money into an emergency fund can be an excellent first step.

Pay Down High-Interest Debt

Investing your money in the stock market can be exciting, but you may be better off using that money to pay down high-interest credit card debt if you have it. In general, if a debt has a higher interest rate than what you could typically expect to earn in the stock market in the long term—experts usually use 7% as a benchmark—you'll get more value by paying off that debt.

If you have credit card debt, consider taking steps to pay it off quickly so you can focus your efforts on investing for your future.

Investments to Avoid

With so many options available, it's important to know which investments may be too risky if you're new and don't have a lot to invest. Here are some investments it's usually best to avoid for now:

  • Penny stocks: Penny stocks are any stocks that sell for less than $5 per share. While not all penny stocks are especially risky, the ones that don't trade on major stock exchanges don't have to adhere to the same standards of financial reporting. As such, they're best to be avoided unless you're an experienced investor.
  • Cryptocurrency: Digital currencies like Bitcoin can be extremely volatile. They're not inherently bad, but they aren't the best place to start investing. Cryptocurrency investments are becoming a more popular way to diversify an investment portfolio, however, and may be an option to consider once you're a more comfortable investor.
  • Margin trading: Most brokers allow you to trade on margin, which means borrowing money at a low interest rate to invest it. This may seem like a good idea if you can get a high return, but you may need to put in more cash to cover it if you experience a big enough loss.

There are many other risky investments that might not be well-suited for novice investors, so it's important to do your due diligence to determine which ones to avoid.

How to Invest for the Long Term

Investing $100 right now can help you get started, but the most successful investors have a plan to invest for the long term. Configure your budget so you have money to set aside every month specifically for investing and saving.

Then determine the best strategy for you based on your needs and goals. In the beginning, for example, you may choose to focus on your emergency fund and on paying off high-interest debt, or you may decide to spread out your money across multiple investing goals.

Whatever you do, take your time to research your options to determine the best strategy for you.

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