How to Invest Without Much Money

Introduction

It’s a common misconception that you have to be rich to invest. The truth is, the stock market is a gold mine waiting for you, and it’s one that everyone has access to. No matter how much money you have. Yep, you heard me right. Even if you have one spare dollar, you can invest it. This article will cover a variety of tips and tricks to help you tap into the stock market, no matter your financial situation.

Risk

Risk. The word that keeps coming up. No matter what type of investing you do, there will always be risk. Now, if you’re a billionaire, managing risk probably isn’t all that important. After all, what’s a couple million dollars? However, I highly doubt that anyone reading this article is a billionaire. If you are, feel free to reach out. But the vast majority of people out there don’t have the opportunity to burn money. In fact, for many, losing a couple dollars is devastating. And for these people, risk management is the most important thing they can learn. For you guys out there, here are a couple of tips to manage your risk. I have individual articles on all of these, so I’m just condensing them all here for convenience.

Diversification

As I’ve said time and time again, diversification is THE most important thing you can do to reduce risk. Buy different stocks from different industries so if one stock or industry falls, others can balance it out. For my full article on diversification, click here. Now you may be wondering how you can diversify without much money. Keep reading!

ETFs

I love ETFs. I’ll just throw that out there. As a quick refresher, an ETF (exchange-traded fund) is a collection of stocks, often based on an index, that you can buy as a package deal. This means you can buy dozens of stocks with one purchase. It’s pre-diversified! This makes them much safer than individual stocks. For more information on ETFs, click here. However, another issue presents itself. Many ETFs cost a lot. SPY, a very popular ETF based on the S&P 500, costs around $400/share at the time of this writing. How can you buy into it with just $1?

Fractional Shares

Fractional shares have to be the greatest thing since sliced bread. They allow you to buy a portion of a stock using however much money you have. Say you only have that $1 of yours, but you want to buy a stock that costs $100/share. You can buy 1/100th of a share using that $1! It’s amazing. Apple, a very strong company, costs around $150 right now. Don’t have that much to spare? Just buy a fractional share! What’s even more amazing is that you can also buy fractional ETFs! That SPY that I just mentioned? You can tap into the power of the S&P 500 with just one dollar! This is very exciting stuff. I should note that not all brokers offer fractional shares, so do your research. Robinhood does though, which is great! It’s incredible that even if you don’t have a lot of money to invest, these 3 concepts combined can allow you to see great returns. You can check out my article on fractional shares right here.

Penny Stocks

I’ve talked a lot about what you should do, so now I’m going to mention something you 100% shouldn’t do. That is to buy penny stocks. The definition for a penny stock varies, but a commonly accepted one is a stock that trades for under $5/share. If you don’t have a lot of money to invest, penny stocks can seem very attractive. Many stocks out there trade for mere pennies, so you can buy a lot of shares of these. However, there’s about a million and one reasons why you shouldn’t buy penny stocks. I cover a couple in my article here. Probably the biggest reason why penny stocks are bad is because they are often very small companies that are nearing bankruptcy. The reason the stock price is so low is because the company isn’t doing well. You definitely don’t want to be buying stock from a company that is about to not exist, so just avoid them. Buying fractional shares of large, well-established companies is way better.

Conclusion

The goal of this article is to help those of you who want to invest, but don’t have much money to put into investing. Hopefully you now have a better understanding of how to do exactly that. The stock market is such a powerful tool for getting some extra cash, but many feel that they are excluded from it. This is not the case. Although it is harder, it is still doable. I wish you luck in your endeavors!