Many people believe that you need a substantial amount of money to begin investing, but this is a misconception. In reality, you can start investing with a small amount of money. Even with modest funds, you can begin building your savings and investments. Over time, investing can become a rewarding and engaging habit, especially as you start to see progress towards your financial goals.

The important thing is to take the first step, even if it means starting with just your spare change. There are various investment options available that can help your money grow.

Here are some options to consider if you want to develop a healthy investing habit and begin your investment journey.

Workplace Retirement Account

If your primary investment goal is saving for retirement, participating in an employer-sponsored retirement plan is a great option. Many companies offer retirement savings accounts to their employees, where a portion of your paycheck is automatically deducted each month. You can decide what percentage of your gross income you want to contribute to this account.

Moreover, many employers provide matching contributions, either dollar-for-dollar or 50%, up to a certain limit. These retirement accounts often come with tax benefits, encouraging you to invest in your future now.

IRA Retirement Account

If your employer does not offer a workplace retirement account, you have the option to open an individual retirement account (IRA). There are two main types to choose from: a traditional IRA and a Roth IRA. Both types of IRAs offer tax advantages. For instance, Roth IRA withdrawals are tax-free after the age of 59½.

With an IRA, you can contribute up to $7,000 per year if you are under 50, and $8,000 per year if you are 50 or older. This makes it a straightforward way to accumulate a significant amount of savings over a few years.

Purchase Fractional Shares of Stock

Investing in the stock market is accessible to everyone. If you prefer selecting individual companies to invest in, you don’t need a large amount of money to get started. Several modern investing apps now allow you to purchase fractional shares of stocks and ETFs.

Instead of needing to save $1,000 to buy a single share of a popular tech company, you can invest as little as $1 to buy 0.001 shares of that company. This approach makes it easy to diversify your portfolio with individual stocks.

Index Funds and ETFs

Index funds and ETFs are excellent tools for diversifying your investments. These funds track specific indexes, such as the S&P 500, which includes the 500 largest publicly-traded companies in the U.S. By investing in an index fund or ETF, you effectively invest in the entire index without needing to purchase individual securities for each company.

These investment products can track a variety of assets, including stocks, bonds, currencies, commodities, or even entire markets.

Savings Bonds

If you are risk-averse, savings bonds or Treasury securities might be a suitable option. You can purchase savings bonds with maturities ranging from as short as 30 days (yielding minimal earnings) to as long as 30 years.

It’s important to only buy bonds that you can afford to hold until maturity; otherwise, you may not achieve the expected total return. Savings bonds are an excellent way to start investing with little money. Additionally, they help diversify your portfolio and ensure that at least a portion of your funds remains risk-free.

Certificate of Deposit (CD)

Certificates of Deposit (CDs) are one of the oldest investment forms. You can purchase a CD from your bank at a fixed interest rate. The bank then lends this money to the market. CDs carry minimal risk but typically offer lower returns. The advantage is that you know exactly how much money you will have when the CD matures.

Bottom Line

You don’t need a lot of money to start investing. What you need is consistency and commitment. While it may seem daunting to begin investing with a small sum, the key is to start as soon as possible. By consistently investing even a small amount over time, you can potentially see your investments grow through the power of compound interest.

Remember to conduct thorough research and seek advice from a financial professional before making any investment decisions. Additionally, ensure that you have addressed more immediate financial needs, such as paying off high-interest debt and building an emergency or rainy day fund, before you begin investing.