No need to wait until you have hundreds or even thousands of dollars before opening an investment account. In the past, it was necessary to have a large amount of money available to make the initial investment in a mutual fund or to open a brokerage account.
Direct Stock Purchase Plans
If your goal is to invest in individual companies, you may want to consider direct stock purchase plans or “DPPs” for short. As the name suggests, you buy these stocks directly from the company. There is no brokerage account or broker, and you deal directly with the company that issues the shares. However, the downside is that not every company offers a direct stock purchase plan, so you may be somewhat limited in your choices.
Online Brokers and Investment Apps
Another way to start investing with a small amount of money is to sign up with an online discount broker. Currently, many online brokers offer commission-free trading on ETF funds, and you can set up an automatic investment plan that will help you build your portfolio over time. Remember that some brokers may impose account restrictions and fees, but overall, it’s a great way to start investing today without a lot of money.
Another option is to use one of the investment apps that are currently very popular in the market. These apps work in different ways – some allow you to round up the difference on purchases and invest it, while others let you invest in fractional shares – but they all share a common goal of helping investors build a diverse portfolio with the money they have available, all with a simple tap of an iPhone or iPad.
Like online brokers, investment apps can charge fees for service and maintenance. The investment options offered can vary widely; some allow you to invest in pre-selected portfolios of ETFs, while others offer individual stocks. Remember that these individual investments may carry fees. If you are looking for an investment app to start with, here are some options you might consider: Robinhood, Acorns, Axos Invest, M1 Finance, Stash. These apps have different minimums to start. For some, the minimum is $0, but others may expect you to begin investing with $100 or more, so choose the app that fits your budget and your ability to invest.
Investing in ETFs
Are you considering investing in something like a mutual fund so you can achieve immediate diversification? If you don’t have a high initial deposit to make that happen, you may want to consider buying shares of an exchange-traded fund. Unlike mutual funds, which may impose a minimum for an initial investment, ETFs trade like stocks. They have a specific share price and can be purchased through almost any broker. With an ETF, you can buy a few shares as long as you have enough money to buy them.
But there are drawbacks to ETFs. First, you must buy whole shares. Second, you typically pay a trading commission each time you make a trade. Since commissions can usually range from $4.50 to $11, they can quickly eat into your investment. If you buy ETFs less frequently and with slightly larger amounts of money, you can keep transaction costs low.
Fund Companies with Low Minimums
One of the largest and most reputable fund companies that do not charge a purchase fee is Vanguard. For most of its funds, the minimum investment required is just $3,000 to get started. Many people may take nearly a year to save this type of money if it’s their first time investing, and that’s just to buy one single fund. Vanguard isn’t the only company, and most major fund companies have a high minimum for initial investment.
Fortunately,
Luck, there are some other families of mutual funds that do not impose high restrictions on new investors. For example, you can check out Charles Schwab, which offers a low minimum of $100 on its no-load funds, and T. Rowe Price, which imposes no minimum on investor class funds if you open an account with the company. These are two great families of low-cost mutual funds that make it easy for new investors to get started even with a small amount of money.
Source: https://www.thebalancemoney.com/how-to-start-investing-with-small-amounts-of-money-1289723
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