From Pennies to Portfolios: Your Guide to Investing Today with A Small Amount
- Davina Jackson
- Aug 25, 2024
- 19 min read
Welcome to The Woman CFO – a space crafted just for you, where we embark on a journey of financial empowerment.
When it comes to building wealth and securing your financial future, the idea of investing can feel overwhelming - especially if you think you need a large sum of money to get started.
But here’s the truth: you don’t need to be a millionaire (or anywhere close) to begin investing.
In fact, starting with what you have, no matter how small, is one of the smartest financial moves you can make.
In today’s blog post, we're going to break down how you can begin investing with small amounts - starting with the essentials of choosing the right starting amount and finding the best broker for your needs to strategies for growing your investments over time.
So, if you need an easy to follow guide to help you get started investing without feeling overwhelmed then this is for you.
Are you ready? Let’s go!
Instant Gratification Zone: Skip to the Good Stuff
Why Start Investing Now?
If you’ve ever found yourself thinking, “I don’t have enough money to start investing,” you’re not alone.
Many people, especially women, often feel that investing is something they’ll get to once they have a bigger paycheck or fewer financial obligations.
But here’s the truth: the best time to start investing is now - even if you don't have a lot to begin with.
So why start investing now? Are there any benefits to it?
There are many benefits to investing including the most important: significantly growing your finances, giving you a powerful advantage in building wealth, and securing the financial future that you want.
Let's highlight the key benefits of investing and help you understand why you should be investing:
Key Benefit #1: Compound Interest and Growth
The earlier you start investing, the more time your money has to grow.
This is due to the power of compound interest, where you earn returns not only on your original investment but also on the returns that the investment has already generated.
Over time, this compounding effect will lead to growth, and even small investments (when given enough time) can result in significant financial gains.
Key Benefit #2: Beat Inflation
Inflation reduces the purchasing power of your money over time. And because investments often grow at a rate that exceeds inflation, investing can help you preserve and increase your wealth.
Invest in assets like stocks, real estate, or bonds to help outpace inflation (which currently sits at 2.9% as of July 2024.)
Key Benefit #3: Build Wealth Over Time
When it comes to investing, time is one of your greatest assets. Meaning, the longer your money is invested, the more opportunity it has to grow.
This can provide financial security, allowing you to achieve your goals (such as buying a home or retiring comfortably), and giving you more options in life.
So, investing consistently, even with small amounts, helps build significant wealth over the long term.
For example, if you invest $50 a month at an average annual return of 7%, you can expect to see those funds grow to approximately $12,000 in 10 years.
Key Benefit #4: Achieve Financial Goals
Investing can help you reach your financial goals faster, whether it's saving for retirement, a child's education, or a down payment on a house.
By setting clear goals and choosing appropriate investments, you can work towards these milestones more effectively.
Key Benefit #5: Diversification and Risk Management
Investing allows you to diversify your financial portfolio.
Spreading your investments across different asset classes (like stocks, bonds, and real estate), helps reduce the risk of losing money - as different assets often perform differently under the same economic conditions.
Key Benefit #6: Take Advantage of Market Opportunities
Markets can offer opportunities for growth. By investing, you position yourself to take advantage of these opportunities and gain access to potential gains, whether it's investing in emerging industries (like technology or renewable energy) or taking advantage of market dips.
Key Benefit #7: Tax Benefits
Many investment accounts, like 401(k)s and IRAs, offer tax advantages that can enhance your investment returns.
Key Benefit #8: Empower Yourself Financially
Investing isn’t just about growing your money. It’s about taking that first step toward financial independence and proving to yourself that you can navigate the world of investing.
By starting your investment journey now, you’ll be empowering yourself to learn, grow, and build a more secure financial future - without having to rely on help from family, partners, spouses, and loved ones.
Now that you understand why you should start investing, let’s look at some of the fears many have when it comes to investing.
This is important because once you minimize the fear, you can finally take the investing leap.
Overcome Your Fear of Investing
Investing can be an intimidating prospect, even if you’re starting with a small amount or have limited experience.
Add in the fear of losing money or not knowing where to begin and even the most financially savvy individual can be paralyzed into inaction.
Overcoming the fear of investing is crucial to building wealth and securing your financial future. You must face it head on.
So, let's talk about the most common fears and how you can overcome them:
Fear #1: Fear of Investing
The first step in overcoming the fear of investing is to acknowledge and understand it. Sounds simple, right?
Yet many hesitate to invest because they're afraid of making mistakes, losing money, or not having enough knowledge to make informed decisions.
It’s important to recognize and acknowledge that these fears are common and valid, but they can be managed with the right approach.
Understand that investing involves some level of risk. But also realize that not investing is a risk, particularly in the long term, because inflation, rising costs of living, and missed opportunities can erode your savings if they’re not working for you.
It's why you want to have an investment strategy to help offset.
Fear #2: I Don't Have / Know Enough to Invest
Starting your investment journey with a small amount allows you to gain experience and confidence without the anxiety that comes with larger investments.
Invest with a manageable amount (like $20 or $50) so you can get your feet wet without feeling overwhelmed.
Also, understand that education will be another powerful tool in overcoming the fear of investing because the more you learn about investing, the more comfortable you’ll feel making decisions.
There are plenty of resources available from online courses to books, podcasts, and financial coaches/advisors who specialize in helping women navigate the world of investing.
Just remember that you don’t have to become an expert overnight and building a foundational knowledge will help ease your anxiety.
Fear #3: Losing Money
Another common fear that can deter many from investing is the thought of losing money in the short term.
First, never invest more than you can afford to lose or recover.
Second, you must understand that the stock market and other investment vehicles, by nature, have fluctuations, but will trend upward over time (history show this).
The way you overcome this is to adopt a long-term perspective.
Focus on your long-term goals and stay committed to them. That way you can ride out the market’s ups and downs and, over time, see growth in your investments.
Fear #4: Making Investment Mistakes
It’s important to accept that mistakes are a natural part of investing and even seasoned investors experience setbacks or make decisions they later wish they hadn’t. (Myself included)
Learn from these experiences and use them to improve your investment strategy moving forward.
Remember, the goal is progress not perfection.
Fear #5: Forgetting to Lean on Your Support System
Don’t underestimate the power of community and support when it comes to investing.
A support system can make the journey less daunting whether it’s friends, family, or a group of like-minded women.
Join investment clubs, attend financial workshops, or simply discuss your fears and goals with someone you trust. This support system can provide the encouragement and guidance you may need to take that first step.
Next up, we dive into the nitty gritty of investing.
We'll discuss how much to invest, where to invest, investment options, and key strategies for growing your investment portfolio.
How Much Do You (Really) Need to Start Investing?
One of the biggest misconceptions about investing is that you need a large sum of money to get started.
You don't and, no, investing isn’t just for the wealthy or those with a lot of disposable income.
In fact, with the advancements of technology and the rise of micro-investing platforms, anyone can start their investment journey with surprisingly little money (as little as $5 in some cases).
This means you don’t have to wait until you have thousands of dollars saved up. You can start right now with whatever amount you’re comfortable with.
So, how much do you really need to start investing? And is it really ok to start with a small amount? (the answer is yes)
Let’s discuss.
How You Can Start by Investing Small
#1: Understand the Initial Investment Requirements
Thanks to the rise of micro-investing apps and platforms that cater to small investors, the barrier to entry into investing is lower than ever.
However, it’s important to note that the amount you need to start investing will depend on the type of investment(s) you’re interested in.
Make sure you read the minimum investment requirements before starting, as some investment platforms will allow you to start with as little as $5, while others may require a higher minimum investment, such as $500 or $1,000.
#2: Look at Investing Platforms for Small Investors
There are two main types of investing platforms for small investors: traditional or micro-investing.
Traditional Brokerage Accounts:
Traditional brokerages cater to small investors by allowing new accounts to be opened with $0 deposit or have low to no-minimum balance.
These brokerages, such as Charles Schwab and Fidelity, also offer fractional shares where you can purchase a portion of a stock rather than the whole share, making it more affordable to invest in high-priced stocks like Amazon or Tesla.
Micro-investing Accounts:
Micro-investing platforms, like Acorns or Stash, are designed for those who want to start small.
You can start investing with a small amount or set up recurring investments of just a few dollars a week.
#3: Build Confidence Through Knowledge
Starting with a small amount will help you build confidence as you learn more about investing.
As you watch your money grow, you’ll become more comfortable with the process and will most likely choose to increase your investment amounts over time.
Just remember that the goal is progress, not perfection. So, whether you choose to invest $5, $50, or $500, start now and let time work in your favor.
How to Choose the Right Amount for Investing
Your financial situation is unique and so should be your investment strategy.
Let your investing be part of a broader financial plan that includes budgeting, saving, and managing debt.
So choose a starting amount that feels comfortable and sustainable, allowing you to invest consistently without sacrificing other financial responsibilities or goals.
Factors to Consider When Choosing Your Investment Amount
1. Your Financial Stability: The first step in determining your investment starting amount is to assessing your financial health because you want to make sure you’re on solid financial ground before diverting money into investments.
This is where you'll take a good look at your income, expenses, and savings.
Ask yourself: Are my debts under control? Do I have an emergency fund of at least 3-6 months of living expenses?
The goal is to make sure you aren't risking funds that you might need for unexpected expenses for the sake of investing.
2. Your Investment Goals: Your goals will influence how much you should start with.
Ask yourself: What am I investing for? Is it for retirement, a down payment on a house, or simply growing my wealth?
If you’re investing for the long term, starting with a smaller amount might be perfectly acceptable. However, if you have a shorter timeline, you might want to allocate a bit more.
3. Your Risk Tolerance: Consider how comfortable you are with risk. If you’re new to investing, it might be wise to start with a smaller amount as you learn the ropes and understand how the markets work.
On the other hand, if you have a higher risk tolerance and a good understanding of your investments, you might choose to start with a larger amount.
4. Budget Considerations: Look at your monthly budget and determine how much you can allocate to investing without straining your finances.
It’s important that you do not invest money you might need for everyday expenses.
A good rule of thumb is to start small, with an amount you won’t miss, and gradually increase it as you become more comfortable.
5. Think Small: If you’re new to investing, starting small with amounts like $25 or $50 a month can help you get comfortable with the process.
The key is consistency, so commit to a regular investment schedule, whether it’s weekly, bi-weekly, or monthly.
6. Using “Found” Money: Consider using unexpected or “found” money, such as tax refunds, bonuses, or gifts, as your initial investment.
This way, you can start investing without impacting your regular budget. Just remember to not invest more than you can afford to lose.
7. The Role of Automation: One of the best ways to stick to your chosen investment amount is by automating your contributions.
Many investment platforms allow you to set up automatic transfers from your bank account to your investment account. This way, you don’t have to remember to invest each month - it happens automatically, helping you stay on track with your goals.
Choosing the right amount to start investing is a personal decision that should be based on your financial situation, goals, and comfort level.
There’s no magic number that works for everyone; the key is to find an amount that you can commit to consistently.
Where to Invest: How to Find the Best Broker for You
Finding the right broker is more than just having a platform to buy and sell stocks. It’s about having a partner in your investment journey.
The right broker can offer valuable educational resources, low fees, a user-friendly interface, and access to a wide range of investment options - all of which are essential when you're beginning with a modest investment.
A poor choice, on the other hand, could lead to high fees, poor customer service, limited investment options, and an overall frustrating user experience - all of which can eat into your returns and dampen your enthusiasm for investing.
So, when selecting a broker, it’s important to consider the following factors:
Fees and Commissions: For those starting with a small amount, minimizing costs is crucial. Look for brokers that offer low or no commissions on trades and have no account minimums. Some brokers also offer fractional shares, which allow you to invest smaller amounts in expensive stocks without having to buy a whole share.
Investment Options: Ensure the broker offers a variety of investment options, including stocks, bonds, ETFs, and mutual funds. This diversity will allow you to build a balanced portfolio even with a small starting amount.
Ease of Use: A user-friendly platform is essential, especially if you're new to investing. Look for brokers with intuitive interfaces, mobile apps, and tools that make it easy to manage your investments on the go.
Educational Resources: A good broker should provide ample educational materials, such as articles, videos, webinars, and tutorials. These resources can help you learn about different investment strategies, market trends, and financial planning, empowering you to make informed decisions.
Customer Service: Reliable customer support is vital, particularly for new investors. Check whether the broker offers live chat, phone support, or in-person assistance to help you resolve issues quickly.
Account Types: Consider what types of accounts the broker offers. If you’re investing for retirement, you might want to open an IRA. If you’re investing for a shorter-term goal, a taxable brokerage account might be more appropriate. Make sure the broker you choose offers the account types that align with your goals.
Top Brokers for Beginners
To help you get started, I’ve compiled a list of brokers that are known for being beginner-friendly.
Please note this list is not exhaustive and is only meant to highlight brokers known to be beginner friendly. I encourage you to do your own research before deciding on a broker.
Fidelity
Fidelity is a great choice for new investors looking to build a diversified portfolio on a reliable platform as it offers no-fee accounts, a wide range of investment options, and robust educational resources.
Key Features:
Commission-free trades on stocks, ETFs, and options
Strong customer support and user-friendly mobile app
Offers fractional shares, allowing new investors to start with smaller amounts
Special Offers: There are currently no special offers for opening a Fidelity account, but I still encourage you to check out Fidelity’s brokerage offerings here.
Charles Schwab
Charles Schwab is a strong option for those who value comprehensive support and educational resources. It offers a variety of account types, low-cost funds, and excellent customer service, and is good fit for those who want flexibility in their investing journey.
Key Features:
No commission on stock and ETF trades
Access to a wide range of research and educational content
Schwab’s "Intelligent Portfolios" offer automated investing with low fees
Special Offers: Schwab often offers new enrollment bonuses such as StarterKit™ that gives new investors $50-$100 to apply towards the purchase of fractional shares after opening and funding a new account. Interested? Read more about it here.
E*TRADE from Morgan Stanley
E*TRADE stands out for its educational resources and easy-to-navigate platform, making it an attractive option for new investors. The platform also provides access to a broad range of investment products.
Key Features:
Commission-free trades on U.S. stocks, ETFs, and options
Offers paper trading for beginners to practice without risk
E*TRADE’s mobile app is intuitive and feature-rich. Perfect for on-the-go investing.
Special Offers: E*TRADE is offering up to $1,000 or more when you open a new brokerage (non-retirement) account by 9/30/24 and fund it within 60 days of account opening with $50 or more of new funds or securities. Use promo code: REWARD24. Read more here.
Robinhood
Known for its zero-commission trades and user-friendly mobile app, Robinhood is a good choice for beginners who want to start small. It also offers fractional shares, making it easier to invest modest amounts (some as low as $1).
Key Features:
Commission-free trading for stocks, ETFs, and options
Fractional shares and cryptocurrency trading available
User-friendly mobile app focused on simplicity
Special Offers: Currently, Robinhood is offering 1 free stock after you link your bank account to a brokerage account (stock value range $5.00-$200). Read more here.
SoFi Invest
SoFi Invest is a great option for new investors looking for an all-in-one financial solution. It offers commission-free trades, automated investing options, and access to financial advisors, all within a modern and easy-to-use platform.
Key Features:
Commission-free trading on stocks, ETFs, and crypto
Automated investing with no management fees
Access to career coaching and financial planning resources
Special Offers: Get up to $1,000 in stock when you fund a new Active Invest account with at least $25 within 30 days of opening the account. Learn more here.
Vanguard
Vanguard is a highly respected broker known for its low-cost index funds and ETFs. It’s an excellent choice for beginners focused on long-term, low-cost investing. However, the platform is a little less intuitive for active traders.
Key Features:
Industry-leading low fees on mutual funds and ETFs
Focus on long-term, passive investment strategies
Extensive educational resources and retirement planning tools
Special Offers: There are no special offers at this time. Visit Vanguard to learn more about investment accounts for new investors here.
Investment Options for Small Investors
For small investors, it’s important to strike a balance between potential returns and risk - making sure your investments align with your financial goals and risk tolerance.
As a result, the types of investments you choose will determine how your money grows and how much risk you're exposed to.
Thankfully, there are several options that cater to small-scale investors and allow you to diversify your portfolio without needing a large amount of capital.
Here are the most popular:
Exchange-Traded Funds (ETFs)
An ETF is a collection of assets, such as stocks or bonds, that trade on an exchange like a stock. They are a popular choice for small investors because they offer diversification at a low cost.
You can buy a small share of an ETF, which means you're investing in multiple assets with just one purchase.
This diversification helps spread risk, making ETFs a smart choice for those starting with a modest amount.
Index Funds
Similar to ETFs, index funds are mutual funds designed to track the performance of a specific market index, like the S&P 500.
They spread your investment across many different companies, reducing the impact of any single company's performance on your portfolio.
Index funds normally have low fees, making them accessible for small investors, and are often considered one of the safest ways to invest.
Fractional Shares
Fractional shares allow you to buy less than a full share of a stock, making it possible to invest in high-priced stocks with a small amount of money.
For example, if you want to invest in a company like Amazon but can't afford a full share, you can buy a fraction of a share for as little as a few dollars.
This option is particularly appealing for small investors who want to own a piece of expensive companies.
Robo-Advisors
Robo-advisors are automated platforms that create and manage a diversified portfolio for you based on your financial goals and risk tolerance.
They usually require a low minimum investment and charge lower fees than traditional financial advisors, making them an excellent choice for small investors who want a hands-off approach.
Robo-advisors typically invest in ETFs, making them a good option for those looking for diversification with a small amount of money.
Dividend Reinvestment Plans (DRIPs)
DRIPs allow you to reinvest dividends earned from stocks directly back into more shares of the same company, often without paying any commission.
This approach can help small investors gradually increase their holdings and take advantage of compound growth.
Many companies offer DRIPs with the option to buy fractional shares, making them accessible for those investing small amounts.
Savings Bonds
While not as exciting as stocks or ETFs, savings bonds are a low-risk option that can be purchased with small amounts of money.
Bonds offer guaranteed returns over time, making them a safe choice for those looking to preserve capital while earning modest interest.
U.S. government bonds, like Series I Savings Bonds, are a popular choice due to their safety and inflation protection.
Remember, it's important that you diversify your portfolio in order to manage risk effectively. Spread investments across different asset classes such as stocks, bonds, and ETFs to reduce the impact of any single investment's performance on your overall portfolio.
Strategies for Growing Your Investments Over Time
Growing your investments takes patience, discipline, and a well-thought-out strategy.
Understanding how to maximize your returns while managing risk is essential to achieving your financial goals, regardless if you’re starting with $50 or $5,000.
So, once you've made the leap into investing, the next step is to ensure your money works hard for you over the long term.
Here are the strategies you need to use in order to grow your investments over time:
Strategy #1: Understand the Power of Compound Interest
One of the most powerful tools in growing your investments is compound interest.
When you earn interest on both your original investment and the interest it accumulates, your money can grow exponentially over time.
For small investors, starting early and reinvesting earnings can significantly amplify your returns. So, the earlier you start, the more time your money has to compound - which can make a big difference in the long run.
Strategy #2: Make Regular Contributions
Consistency is key when it comes to growing your investments, and regular contributions, even if they are small, can have a substantial impact over time.
Set up automatic transfers from your everyday banking account to your investment account to ensure that you’re continually building your portfolio without having to think about it.
This approach, often referred to as dollar-cost averaging, helps mitigate risk by spreading your investments over time, reducing the impact of market volatility.
Strategy #3: Diversify Your Portfolio
Diversification means spreading your investments across different asset classes, such as stocks, bonds, and real estate, as well as different sectors and geographic regions.
By not putting all your eggs in one basket, you reduce the risk of a single investment negatively impacting your entire portfolio.
Over time, you can adjust your asset allocation based on your financial goals, risk tolerance, and market conditions.
Strategy #4: Re-balance Your Portfolio
As the value of your investments changes, your portfolio may drift from its original asset allocation. This is when you’ll need to re-balance it.
Re-balancing involves periodically adjusting your portfolio to maintain your desired level of risk and return. For example, if one asset class has grown significantly, it may now represent a larger portion of your portfolio than you initially intended, increasing your risk.
By re-balancing your portfolio, you can sell off some of the over-represented assets and reinvest in underrepresented ones, keeping your portfolio aligned with your goals.
Strategy #5: Stay Informed and Adjust Strategies as Needed
The investment landscape is continually evolving, and staying informed is crucial for long-term success.
Keeping up with financial news, trends, and new investment opportunities can help you make informed decisions about your portfolio.
Additionally, as your financial situation or goals change, you may need to adjust your investment strategy. For example, as you approach retirement, you may want to shift towards more conservative investments to preserve capital.
Strategy #6: Avoid Common Pitfalls
Growing your investments requires avoiding common pitfalls that can derail your progress.
Emotional investing, such as panic selling during market downturns or chasing high returns in speculative assets, can lead to significant losses.
Instead, focus on a long-term strategy, stay disciplined, and avoid making investment decisions based on short-term market movements.
Also, remember to be mindful of fees and taxes, which can eat into your returns over time. Choose low-cost investment options and be tax-efficient with your investments to help maximize your portfolio growth.
Remember, the key to successful investing is not necessarily the amount you start with but how consistently and strategically you grow your investments over time.
Stay focused on your goals, adjust your strategies as needed, and let time do the rest.
Key Takeaways and Final Thoughts to Start Investing with a Small Amount
After exploring the journey of starting to invest with a small amount, it's clear that the most important step is to simply begin.
As we wrap up our conversation, let’s recap the key takeaways and final thoughts to inspire you on your investing journey.
Key Takeaways
Why Start Investing Now? Time is your most valuable asset. The sooner you start, the more time your money has to grow through compound interest.
Overcome the Fear of Investing. It’s natural to feel apprehensive, but educating yourself and starting small can help ease your fears. Remember, the worst investment is the one you never make.
How Much Do You Need to Start Investing? You don’t need a fortune to start. Many platforms allow you to begin with as little as $5, and those small investments can add up over time. Just remember that your initial investment should be an amount you’re comfortable with. Consider your financial goals, budget, and risk tolerance to find the right balance.
Where to Invest? Research is key. Look for a broker that offers low fees, educational resources, and tools that suit your investment style.
Investment Options for Small Investors. ETFs, index funds, and fractional shares are great options for those starting small. These allow you to diversify even with a limited amount of money.
Strategies for Growing Your Investments Over Time. Regularly contribute to your investments, reinvest dividends, and consider dollar-cost averaging to build wealth steadily.
Final Thoughts
Investing is a powerful tool for building wealth and securing your financial future.
The good news is that you don’t need a lot of money to get started. The bad news is the (real) challenge lies in taking that first step.
If you understand your options, choose the right amount to start with, and find a broker that fits your needs, you’ll put yourself on the path to building wealth and a secure financial future.
Just remember that investing is a long-term commitment, and don't panic when the market has its ups and downs (because it will).
Market volatility is a natural part of investing, and markets will recover over time. In fact, market history has shown that long-term investments yield positive returns despite short-term dips.
So stay calm, keep your goals in sight, make thoughtful, well-researched choices and maintain a long-term perspective.
If you do this, you will grow your wealth and build a secure financial foundation for the future.
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