Do you think that it is impossible to build a balanced investment portfolio if you have very little money to invest? Think again. Using very little money, you can spread your investments across the full spectrum of asset classes – stock-based mutual funds and exchange-traded funds, bonds, and even commodities.
All you have to do is know where to find investments that you can start with as little as $50 or $100. And there are plenty of options.
1. Try out I Bonds.
I Bonds are US government securities and they can make the perfect bond allocation of a small investor’s portfolio. You can buy them directly from the U.S. Treasury through their website at Treasury Direct.
You can purchase I Bonds in denominations as low as $25 ($50 if you buy using your income tax refund), up to a maximum denomination of $10,000. The minimum term is one year, running to a maximum of 30 years.
Rate of return on the bonds is a combination of interest and semi-annual adjustments for inflation. All income is added to the face amount of the bond and payable at redemption. The current rate of return on an I Bond is 1.76%, which is far better than what you can get on certificates of deposit for much longer terms, and for far larger denominations.
I Bonds are also tax-exempt for state income tax purposes, though the income earned is taxable at the federal level.
2. Buy mutual funds or ETFs through an IRA.
Most mutual funds have minimum initial investments that range anywhere from $1,000 and up. If you’re just beginning to invest and doing so with small amounts of money you generally will not be able to participate in funds. But there is a way around that.
Most mutual funds will waive minimum requirements if you invest in them through an individual retirement arrangement (IRA). You’ll be able to fund your IRA with periodic contributions of only say, $50 or $100 each month, and investing the money in funds as you do.
3. Invest in silver coins.
If you are interested in diversifying into tangible assets, a good option for small investors is silver coins. Silver is currently trading around $30 an ounce, so you will pay roughly that amount for one ounce coins, plus a mark up for broker fees.
Fees will vary from one broker to another, and depending on which type you choose. There are large national dealers, such as Goldline and Blanchard & Company. When you buy from companies such as these, you’ll pay a fee per coin, plus either shipping charges if you want take delivery, or storage charges if the company stores the coins for you. Transaction fees will be lower for the purchase of a larger number of coins.
You can also buy from a local dealer. The process will be similar, except that you will eliminate shipping charges. And generally speaking, you’ll take delivery of the coins rather than having them stored by a small dealer. This is a less expensive way to purchase silver, however the integrity of a small dealer can sometimes be an issue. If you do work with a local dealer, be sure to check them out with the Better Business Bureau, and get referrals from anyone you know who might have done business with them.
4. Find brokerage firms that waive minimums.
Some brokerage firms will either lower or waive minimum initial investment requirements on certain funds. In the process, they will generally insist that you make regular monthly contributions to the account.
One such firm is TD Ameritrade. There is no minimum to open an account. They offer more than 100 commission-free exchange traded funds (ETF’s). This won’t allow you to invest in anything you want, but as a small investor, it still an excellent way to get started.
Check with other investment brokerages too. Firms are always changing their product lines, and you may find that you have more options than you think.
5. Give Betterment a whirl.
Betterment is an online investment firm that has no minimum investment or balance requirement. They do however require that you contribute a minimum of $100 per month to your account. It is not a traditional brokerage firm that will allow you to invest in the stocks and funds of your choice, but is an excellent place to start investing with very little money.
With Betterment, you basically have two investment options. Each option is referred to as a basket that is made up of a mix of exchange traded funds, or ETFs. One basket is comprised of stocks, and the other of treasury bonds. All you need to do is to choose your allocation between the two baskets, and your contributions will automatically be invested based on the allocation.
Another benefit to small investors is that Betterment does not charge transaction fees. The only charge they assess is an annual fee equal to .35% of your account balance, on account balances up to $10,000. If you have $1,000 in your account, your annual fee will be $3.50. When your balance exceeds this amount, the annual fee will be progressively lower.
The strategy is simple yet aggressive, and this can be a benefit to someone investing with very little money. Since you don’t have a lot of money to spread over many different assets, you need to keep your investment system as simple as possible. And since you want to grow a small amount of money into a large amount, Betterment’s aggressive approach is a solid way to get there.
Nearly every large investor started out as a small one. But the advantage that you have today is that there are more options for the small investor than ever before. Start with the investment options above, build a larger amount of money, and then you’ll be able expand your options even more. The most important part of investing is always getting started. And having very little money is no longer an excuse.
Read more in our Betterment Investing Review.
Have you been avoiding investing because you think you don’t have enough money? Have you tried any of the investments above? Leave a comment!