Investing might seem like a game reserved for the rich, but you don’t need thousands of dollars to get started.
In fact, you can begin investing with as little as $100!
With the right mindset, strategy, and tools, your small amount can grow significantly over time.
This guide will walk you through how to invest your first $100, and by the end, you’ll understand how to make that $100 work for you.
How to Invest With Just $100 [A Complete Beginner’s Guide]
Step 1: Set Your Investment Goals
Before you dive into the world of investing, take a moment to clarify your goals.
What do you want to achieve by investing your $100?
Are you looking to grow this money for long-term wealth, or do you have short-term financial goals, like buying something specific?
Common investment goals include:
- Building long-term wealth (retirement, buying a house)
- Creating an emergency fund
- Saving for a big purchase (vacation, new car)
Knowing your goals will help you choose the best investment strategies.
If you’re investing for the long term, you might consider higher-risk, higher-reward investments.
If you’re investing for short-term goals, you’ll want to minimize risk.
Actionable Steps:
- Write it Down: Document your financial goals. Be specific about the amount you need and the timeline for achieving it.
- Categorize Your Goals: Separate your goals into short-term (0-3 years), medium-term (3-10 years), and long-term (10+ years).
- Prioritize: Determine which goals are most important to you and focus on those first.
Step 2: Pay Off High-Interest Debt
Investing at the wrong point in your financial journey is one of the biggest mistakes I see clients make.
Before you start investing, it’s super important to evaluate your current financial situation, especially when it comes to high-interest debt.
If you have credit card debt or personal loans with high interest rates (typically 10% or more), it’s wise to pay those off BEFORE you start investing.
The reason is simple: any investment returns you make are likely to be lower than the interest rates on your debt, which means you’re losing money overall.
For example, if you invest and earn 8% but are paying 15% on a credit card, you’re still losing 7% in net value. Clear your debt first, then invest for growth.
Actionable Steps:
- Make a List of Your Debts: Identify all your debts, their interest rates, and monthly payments.
- Create a Debt Payoff Strategy: Use methods like the snowball (paying off the smallest debts first) or avalanche (tackling the highest-interest debts first) methods to tackle your debt systematically.
- Consider Additional Payments: If you receive extra cash (like a bonus), consider applying it directly to your debt.
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Step 3: Understand Different Types of Investments
Investing isn’t just about buying stocks. It involves various asset classes, each with its own risk and return profile.
Types of Investments:
1) Stocks: Buying shares of individual companies. Stocks can offer high returns but come with higher risk.
Research the company’s financial health and market position before investing.
2) Bonds: A fixed-income investment where you lend money to an entity (government or corporation) in exchange for interest payments and the return of the bond’s face value at maturity.
Bonds are generally safer than stocks, but take much longer to pay out.
3) Exchange-Traded Funds (ETFs): Funds that hold a diversified portfolio of stocks or bonds. ETFs provide instant diversification and lower risk.
4) Index Funds: A type of mutual fund or ETF designed to follow a specific index, such as the S&P 500. These funds have low fees and offer broad market exposure.
5) Robo-Advisors: Automated investment platforms that create and manage a diversified portfolio for you based on your risk tolerance and investment goals.
They’re perfect for those who prefer a hands-off approach.
6) Real Estate Investment Trusts (REITs): Companies that own, operate, or finance income-generating real estate.
REITs allow you to invest in real estate without buying physical property.
These are riskier though, and please, please do your research before investing in these – there are a lot of scams about!
Actionable Steps:
- Research: Spend time understanding the various investment options and their risks. Resources like Investopedia or personal finance blogs can provide valuable insights.
- Choose a Combination: As a beginner, consider starting with low-cost ETFs or index funds for diversification.
Step 4: Choose the Right Investment Platform
With an array of investment platforms available today, selecting the right one is crucial for your investment success.
Factors to Consider:
1) Fees: Look for platforms with low or no trading fees, especially since your starting amount is small.
High fees can eat into your returns. You’ll usually find their fees listed on their ‘fees’ page or their terms and conditions page.
2) Ease of Use: A user-friendly interface is essential, especially if you’re new to investing.
I also recommend getting one that has a mobile app available just in case you need to pull investments at any time and don’t have access to a computer.
3) Investment Options: Make sure the platform offers the types of investments you’re interested in, whether that’s stocks, ETFs, or robo-advisory services.
4) Educational Resources: Ideally, you’ll want to choose a platform that provides educational materials to help you learn as you invest.
Recommended Platforms:
- Brokerage Accounts: Robinhood, Fidelity, and Charles Schwab are popular choices for beginners.
- Robo-Advisors: Betterment, Wealthfront, and M1 Finance are user-friendly options that offer automated portfolio management – but again, I wouldn’t fully trust AI to manage your portfolio, so there is some medium-high risk here.
- Micro-Investing Apps: Acorns and Stash allow you to invest spare change and start with as little as $5. These are typically safe, and if you lose anything, you’re not losing much.
Actionable Steps:
- Sign Up: Once you’ve chosen a platform, create an account and familiarize yourself with its features.
Step 5: Diversify Your Investments
Diversification is a key principle in investing. It involves spreading your investments across different asset classes to minimize risk.
For example, instead of putting your entire $100 into one stock, you could invest in an ETF that holds hundreds of different stocks.
That way, if one stock performs poorly, it won’t have as large of an impact on your overall portfolio.
Actionable Steps:
- Research Diversified Funds: Look for low-cost index funds or ETFs that track a broad market index.
- Allocate Wisely: If you decide to invest in individual stocks, limit your investment in any one company to ensure you’re not overly concentrated in one area.
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Step 6: Start Investing in a Fractional Share
Fractional shares are a new trend so you might not have heard of them until now.
Fractional shares let you purchase a portion of a stock or ETF rather than a full share.
This means you can invest in high-priced stocks like Amazon or Tesla without needing thousands of dollars.
Benefits of Fractional Shares:
1) Accessibility: You can invest in your favorite companies without needing to buy full shares. Big name companies are generally safer investments.
2) Flexibility: You can allocate your $100 across multiple investments, increasing diversification.
Actionable Steps:
- Choose a Platform That Offers Fractional Shares: Look for brokers like Robinhood or Schwab that allow you to buy fractional shares.
- Select Your Investments: Decide which stocks or ETFs you want to invest in and allocate your funds accordingly.
Step 7: Set Up Automatic Investments
Once you’ve made your initial investment, you might want to look into setting up automatic contributions – though I don’t recommend you do this until you’re comfortable with trading smaller amounts!
Benefits of Automation
Automating your investments helps you stay consistent.
By contributing regularly, you take advantage of dollar-cost averaging, which can reduce the impact of market volatility on your overall investment.
How to Set Up Automatic Investments:
1) Decide on an Amount: Determine how much you can afford to invest regularly, even if it’s a modest amount.
2) Set a Schedule: Most platforms allow you to set up automatic investments weekly, monthly, or biweekly.
3) Link Your Bank Account: Connect your bank account to facilitate automatic transfers.
Actionable Steps:
- Use a Brokerage or Robo-Advisor: Look for platforms that support automated investing.
- Review Regularly: Periodically check your automatic investments to ensure they align with your goals.
Step 8: Reinvest Your Dividends
If you invest in dividend-paying stocks or funds, you can increase your returns by reinvesting those dividends.
What Are Dividends?
Dividends are payments made to shareholders from a company’s profits. They’re often paid quarterly and can provide a steady stream of income.
Benefits of Reinvesting Dividends:
- Compounding Growth: By reinvesting dividends, you buy more shares, which can lead to exponential growth over time.
- Increased Investment Potential: The more shares you own, the greater your potential for future dividends.
Actionable Steps:
- Choose Reinvestment Options: Many brokerage platforms offer automatic dividend reinvestment plans (DRIPs) that let you automatically reinvest your dividends.
- Monitor Your Progress: Keep track of how reinvesting dividends contributes to your overall investment growth.
Step 9: Monitor Your Portfolio and Stay Informed
I cannot stress this one enough! After you start investing, it’s super important to keep an eye on your portfolio and stay informed about the market.
Why Monitoring Matters
While I don’t recommend making emotional decisions based on daily market fluctuations (they change all the time!), periodic reviews can help you work out whether your investments are meeting your goals.
Tips for Monitoring:
1) Set a Review Schedule: Consider reviewing your portfolio quarterly or semi-annually.
2) Look for Trends: Watch for consistent underperformers and assess whether they still align with your long-term strategy.
3) Stay Updated: Follow market news and trends to understand what may impact your investments.
Actionable Steps:
- Use Investment Apps: Leverage your brokerage’s tools to track performance and analyze your portfolio.
- Read Market Insights: Subscribe to financial news outlets and investment blogs for valuable updates and advice.
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