How do you invest in stocks for beginners with little money? 1. Look into trading apps like Acorns to invest your spare change to grow an account. 2. Trade options credit spreads and build up your account over time. 3. Buy naked calls or puts when you’ve understood support and resistance levels and learned to trade options. 4. Practice trading stocks in a simulated account until you are comfortable trading with real money. 5. Save more money until you can get started trading. It takes money to make money.
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How to Invest in the Stock Market With Little Money
- Here’s how to invest in the stock market with little money:
- Use an app like Acorns or Stasha
- Buy ETFs and hold long-term
- Trade Options (but only after lots of practice in a simulator)
- Buy mutual funds in an IRA
Do you know how to invest in stocks for beginners with little money? It’s easy to talk yourself out of investing when you don’t think you have enough money to invest.
However, even a few dollars can go far. From trading apps that allow investments as low as $5 to ETFs and DRIPS, your opportunities to get started are endless.
Similarly, you can invest directly in stocks, even the higher-priced ones, through purchasing options. In our blog “How to invest in stocks for beginners with little money,” we’ll show you how you can start with as little as $5. Sounds pretty great if you ask me!
First things first, let’s debunk some common myths about investing! As a result, you’ll better understand how to invest in stocks for beginners with little money.
Myth: Only the rich use brokerage accounts.
Reality: This is ridiculous and, unfortunately, one of the most common myths among non-investors.
Brokers
The truth is that many online brokerages let you open an account and start investing with as little as \$500. When I first started, I opened an investment account with HSBC for nothing. And I know there are others out there that are similar. Webull is our favorite zero-fee broker.
Here are some questions to ask when deciding which brokerage/bank to open an account with:
- What is the minimum initial investment required to open an account?
- Will this be waived in exchange for regular monthly deposits?
- Will I be charged a monthly inactivity fee?
- Is there a minimum monthly deposit so I won’t be charged a fee?
Myth: You need to be rich to buy a diversified portfolio.
Reality: Once again, ridiculous – apologies if I sound harsh.
You can spend as little as $100. Still not convinced? Ask yourself,“ How much interest are you receiving in your “high paying savings accounts”? I’d suffice to say only a few cents. The reality is that a diversified fund typically gives a higher payout.
This is especially true if you’re in it for the long haul. Hence, the need to know how to invest in stocks for beginners with little money.
Myth: Investing is risky.
Reality: Not investing is risky.
How to Invest in the Stock Market With Little Money With ETF's
Furthermore, many firms offer ETFs (Exchange Traded Funds), allowing you to invest in various investments with little money and minimal risk. If you didn’t know, ETFs work alongside an index like the S&P 500.
So, by purchasing ETF shares, you’ll get a portion of the entire indexes portfolio. Because some stocks may do better than others, you’re relatively okay with an ETF. This is because they balance each other out. Which means you diversify your risk.
Diversifying protects you as you learn how to invest in stocks for beginners with little money.
Myth: I’m stuck with penny stocks because I lack money.
Reality: Wrong.
I hate giving unsolicited advice, but as a new investor, I want to avoid the highly volatile penny stocks. Yes, I said it: stay away. They’re highly volatile, and you need to be lightning-fast to get in and out. You’ll lose your shirt if you don’t know what you’re doing.
As a new investor starting, I suggest starting with the higher-cap and/or blue-chip stocks. They are predictable. Their charts are nice and less volatile than penny stocks.
You can easily trade them with options. I won’t get into the nitty-gritty details here, but we have an in-depth options trading course with lots of free material you can check out here.
How to Invest in the Stock Market With Little Money With Options
Options are a great way to learn how to invest in stocks for beginners with little money
Myth: I need a lot of money to buy stocks
Reality: Nonsense
Take DRIPS (Dividend Reinvestment Plans) for example. They make it possible to invest in a company. How? With DRIPS, you invest the dividends you receive from the company back into the company. Essentially, you purchase more shares with the profits you make from the stock.
Let’s not forget mutual funds. They’re a great and affordable way to learn how to invest in stocks for beginners with little money. Many have extremely low minimum investment requirements, if any. In my personal opinion, they’re a great long-term investment.
Some companies, such as Vanguard, allow you to invest in some ETFs or exchange-traded funds for the cost of one share. Fidelity now offers several no-minimum investment funds as well.
Myth: I need a broker
Reality: You have overwhelming choices, even without a broker.
For example, your employer’s IRA plan. This is where your employer gives away free money! I’m serious. They match your monthly contributions. So, maximize your contributions. To make this easier, set up a monthly automatic deposit so you don’t see or have the chance to spend the money. Don’t miss this golden opportunity.
Benefits
- Habit. With most things in life, getting started is sometimes the hardest part. You think you barely can even spare $100 a month, let alone $5. For one thing, I challenge you to re-think your thoughts. What can you trim? What about your daily $ 5.00-afternoon energy drink? It is this type of thinking that prevents people from investing. Trust me, you have the money to invest.
- Snowball Effect. Investing is akin to the Snowball Effect. For example, as the snowball rolls down a snow-covered hillside, it picks up more snow. It gains more and more mass and surface area, picking up even more snow and momentum as it rolls along. If you start with just $5 or $10 and contribute regularly, you get into the habit of investing regularly. Down the road, you will likely want to invest more and more, and your money will continue to grow and grow – just like the snowball.
- You Open Your Mind. A fringe benefit of starting with stocks is that you will be curious about investing in other securities. This will open you up to a whole new world of opportunities.
- Creative Thinking. Because you only have a small amount of money to invest, it forces you to think outside the box. Investing in DRIPs or ETFs is a great example of profitable investments for little upfront capital.
How Much Should a Beginner Invest in Stocks?
- Here’s how much a beginner should invest in stocks:
- Minimum of $500 – $1,000 to slowly grow an account
- Swing traders ideally want between $5,000-$10,000
- Options traders should have at least \$2,500
- Day traders need a minimum of $5,000 or $25,000 to avoid the PDT rule
Artificial Intelligence
In a nutshell, Robo Advisors uses automated intelligence to provide digital financial advice based on mathematical rules or algorithms. Because of this, no prior investment experience is required, and set-up is easy.
Here are a few of my favorites:
Wealthfront. It is certainly great for first-time investors. Despite a $500 minimum to get started, their fees are reasonable at 0.25%.
M1 Finance: If you don’t have $500, look no further than M1 Finance. For just $100, you can choose from one of their pre-made diversified portfolios or make your own. What’s more, they charge no commissions or management fees. So, you can trade both stocks and ETFs for free. That’s right, FREE!
Betterment. You might want to consider Betterment if you don’t have $100. Just because the opening minimum is less doesn’t mean you must skimp on quality. It’s great for beginners, just like M1, and the platform is super simple, as you can see in the image below.
Acorns. It is an investing app that invests your spare change. Every purchase you make sweeps your spare change into an investment portfolio. It’s pretty ingenious if you ask me. Because of this, I wrote a review on Acorns; check it out here if you want to know more.
Downsides
Unfortunately, there are also downsides to investing with little money.
- Time. You will need to wait longer than usual for investment returns. It would help if you planned for the long term.
- Monthly account fees and deposits. Again, shop around to find a broker that fits your needs.
How to Invest in the Stock Market With Little Money Summary
Everyone should invest; if you haven’t yet, that’s OK. The sooner you begin, the quicker your money will grow. You have a lot of options at your fingertips. With many online and app-based platforms, many ways to start investing exist. Check out the free materials and courses we have available.
Frequently Asked Questions
Star by taking a free course that gets you pointed in the right direction. Then open a brokerage account and practice trading.
If you can only put in $1, look into fractional shares. That's how to invest in the stock market with little money.
If you have a Roth IRA or a 401K, putting in $100 at a time can build up over time.
It can take time to start making money. You need to make sure your trading plan is in place and viable.
