How to Invest With Little Money: 9 Way for Beginners

To some, investing with little money can seem like a waste of time. But, that couldn't be further from the truth. Starting small is actually extremely beneficial, for three main reasons:

Consistency. No matter how much money you have to invest, the simple habit of putting money aside each month is a key one to build.There's less to lose. If you're a beginner investor, you're bound to make mistakes. Starting small means those mistakes will cost you less while still teaching you extremely valuable lessons.Compound interest. The longer you keep your cash invested (even if it's not much), the more times it can multiply itself.

In the end, learning how to invest with a small amount of money will save you money in the short term and make you a better investor in the long term.

That said, don't start investing just yet!

5 Things to Do Before You Start Investing

Although investing is a great and exciting way to grow your wealth, there are a handful of things you should do before investing a single dime.

1. Calculate your net worth

This is super easy to do. Grab a piece of paper or load up a fresh spreadsheet and list out two things:

Your assets (e.g. cash, savings, investments, car, home equity, etc.); and Your liabilities (e.g. credit card debt, mortgage, car loan, etc.).

Once you've done that, add up the total value of all of your assets, and then subtract that number by the total value of all your liabilities.

Congrats! You've just calculated your net worth, which gives you a nice overview of your financial situation. It also gives you a good starting point for your investing journey.

2. Pay off high interest debt

If after calculating your net worth you notice that you have a lot of high-interest debt on the liabilities side of things, paying those debts off should be your top priority before you start investing.

Why? Well, think about it this way:

Paying off a piece of debt with a 10% annual interest rate essentially gives you a guaranteed 10% return on your money. While it's not impossible to match or beat that sort of rate through investing, it's definitely not guaranteed.

So, if you have any debts with interest rates above 5%, it's a good idea to put your extra cash flow into paying those off before you start investing.

3. Build an emergency fund to $1,000

By building a $1,000 emergency fund, you'll be able to cover things like car repairs and other small emergencies without having to take on debt or dip into your investments early.

Keep in mind:$1,000 won't cover a lot. Most experts recommend having a fund that can cover 3-6 months worth of expenses in case of job loss and other larger emergencies.

For that reason, once you hit $1,000, you should continue to add money to your fund while you invest. For example, if you have $500 extra each month, you could invest $250 while putting $250 into your emergency fund. That way, you'll be taking advantage of the power of compound interest while preparing for emergencies at the same time.

4. Check if your employer offers 401(k) matching

If they do, max it out! 401(k) matching is essentially free money.

Here's an example of how it works:

Let's say your company offers a 100% match on your 401(k) deposits, up to 5% of your salary. That would mean if you make $50,000/year, you could deposit $2,500 into your 401(k) and your employer would match it with their own $2,500.

Of course, the rules will be different at every company. Your employer might only match 50% of your deposits, or you might not have 401(k) matching at all. Be sure to check with your employer or HR manager to be sure.

As a bonus, contributing to a 401(k) also lowers your taxable income for the year, so it's a pretty sweet thing to take advantage of.

5. Determine your strategy and goals

First off, realize that investing isn't a get rich quick scheme. Any investments that promise fast and massive returns are almost guaranteed to result in the opposite.

As George Soros once said, "If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."

Be in it for the long haul and stay consistent and you'll guarantee yourself a nice financial future, even if you only have a little money to invest.

Take Ronald Read's story as an example. As a janitor, he wasn't receiving a huge paycheck, but by the time he passed away he had amassed over $8 million. His strategy? Saving as much money as he could and investing with a long-term mindset in companies he believed in.

Before you start investing, consider why you're investing in the first place. Think about your goals. Once you know what you want to achieve, it'll be easier to figure out which investments below suit you best.

9 Easy Ways to Invest With Little Money

1. Open a high-yield savings account

A savings account isn't exactly an investment, but if you're just getting started, simply building the habit of putting a part of your paycheck away each month is the first big step you need to take.

Once you're comfortable with consistently saving your money, investing it will be a natural next step.

Putting your money into a savings account doesn't have to be completely fruitless either. Be sure to look around for a high-yield savings account with no monthly fees in order to max out your returns.

If your brick and mortar bank doesn't provide any low-fee high-yield savings accounts, check out online banks like Ally. They have lower operating costs and can therefore offer higher returns on their accounts.

2. Invest in learning a new skill

Investing in yourself is probably the greatest investment you can make, especially if you only have a little bit of cash to spare.

To give you an example of why, let's say you have $50 to invest. If you put that money in the stock market with an average annual return rate of 8%, in 10 years you'll have around $107.95. Nice job, you more than doubled your money!

But, don't get too excited just yet...

Let's imagine instead of putting that $50 into stocks, you used it to buy a course on Udemy to learn local SEO. Then, you took the skills you gained from that course, pitched businesses in your area to help them improve their SEO, and charged $250 for your services. This would require much more time and effort than the stock investing route, but the income potential here is much higher.

Also, even if you don't have enough money for a Udemy course, Skillshare subscription, or other paid training program, the internet is filled with free educational resources. For example, if you're interested in learning how to code, Codecademy offers free training and is a great place to start.

Whichever route you decide on, learning a monetizable skill is an investment that will serve you for the rest of your life.

3. Invest in a business idea

If you already have a skill you think you could monetize, use it! Take the little money you have and invest it into starting a business.

For example, if you enjoy cars and you know how to make them look good, you could start a simple mobile detailing business. Just take the skills you already have, invest in some additional supplies, and get started selling your services to family and friends.

As another example, if you have an eye for vintage electronics, high-end fashion, baseball cards, or something else, take a small amount of money to the thrift store or a garage sale and invest in inventory. Flip it for a profit, then rinse and repeat.

Or hey, if you're more of a crafty type, invest in some supplies and make something that you can sell on Etsy. There are so many possibilities!

4. Get a robo-advisor to invest for you

If you're a beginner investor and you're looking for an easy, hands off way to start investing, a robo-advisor is a great low cost option.

To get started, all you have to do is sign up for the service of your choosing, answer a few questions related to your financial situation and goals, set up a funding method for your account, and then let the robot do it's thing!

Based on your goals, the robo-advisor will automatically invest your money into a personalized and diversified portfolio, typically consisting of low-cost ETFs.

Here are some popular robo-advisors you can look into to learn more:

BettermentWealthfrontWealthsimpleAcorns

Some robo-advisors, like Acorns and Wealthsimple, will even help you build your portfolio through spare change investments. They'll monitor your transactions, round-up your purchases, and then invest the extra automatically (e.g. $1.25 -> $2.00 = $0.75 invested). This is a really neat way to start investing with literal cents!

5. Build your own stock portfolio commission-free

If you'd rather be more involved in building your portfolio, no problem! These days, opening up a brokerage account and trading stocks is extremely easy and affordable.

For example, with Robinhood, you can start trading stocks commission-free with as little as $1. And with the ability to buy fractional shares of stock, you can invest in almost any company you want -- even if you don't have enough money for a full share. This makes it much easier to diversify your portfolio.

Heads up! While building a portfolio manually is more exciting than having a robo-advisor do it for you, it also leaves more room for error. Be sure to do your homework before deciding on where to invest your hard-earned money!

6. Buy a slice of real-estate

Investing in real estate would typically take thousands -- if not hundreds of thousands -- of dollars, so why is it being included on a list of ways to invest with little money?

Well, nowadays, there's this cool thing called real estate crowdfunding.

See, when a company or individual finds an opportunity to invest in real estate, but they don't have enough money to fund the project themselves, they turn to other investors. Those investors pool their money together to fund the project, and then they get a share of the profits generated by the property.

While this still might seem out of reach to small investors, the internet has made things very accessible. For example, on Fundrise (one of the most popular platforms for real estate crowdfunding), you can get started with as little as $500.

7. Own a piece of fine art

Masterworks -- similar to Fundrise with real-estate -- utilizes crowdfunding to make it possible for anyone to invest in art from a variety of famous artists like Andy Warhol, Banksy, Kaws, and many more.

Here's how it works:

After the Masterworks team researches and purchases a piece of art that they believe has the best chance of appreciating in price, they securitize it and break it down into individual shares for investors to purchase. These shares can either be held onto until a sale of the painting (which investors must vote on), or they can be sold early to other investors on Masterworks' secondary market.

Keep in mind, Masterworks started in 2017, so it's still pretty new. So far, they've only actually sold one piece, Banksy's "Mona Lisa", for an annualized return of 32%. That's an impressive return, but their overall track record is limited.

Still, it's a unique opportunity, and you can get started with no minimum deposit, so it could be an interesting way to diversify your portfolio if you have an eye for art!

8. Purchase a bit of cryptocurrency

Of all the ways to invest with little money, purchasing cryptocurrency may be the most tempting. Hearing that a $100 investment in Bitcoin in 2010 would be worth around $48 million today is enough to get anyone's imagination running wild.

But, don't get too carried away. Bitcoin was -- and still is -- an extremely volatile investment, and it's not 2010 anymore. There's no way to predict what the future of the crypto market will look like.

And, as we mentioned above, getting into an investment with the sole idea of "getting rich quick" is never a good idea.

That said, if you believe in the underlying technology of Bitcoin and other cryptocurrencies, and you're willing to learn more about them before you invest, they can definitely be a worthy addition to any portfolio.

You can start investing in crypto with very little money as well.

For example, on Coinbase (one of the largest and most popular crypto exchanges), you can start buying cryptocurrencies like Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and more, with as little as $2 to start.

Coinbase also has a "learn and earn" section where you can discover and earn different cryptos while learning about how they work. It's essentially free money, and it'll expand your knowledge of the market.

If you already have a Robinhood account, you can use that to purchase crypto as well.

9. Lend some money on Reddit

The r/borrow subreddit is a peer to peer lending forum that Redditors use to secure short term loans or lend out money for profit.

From an investors standpoint, it's a unique opportunity, but there is a fair bit of risk involved. Loans are unsecured, and even though there are rules in place to prevent scammers, they're not foolproof.

Still, if you're willing to take on the risk, the returns you'll find here can be quite impressive. For example, a small $25 loan on the subreddit might net you $30 within a day or two. That's a quick 20% return on your money (assuming the borrower doesn't default).

Final Thoughts:Just Start!

Now that you have some ideas on how to start investing (even with a small amount of cash), don't over complicate things. Get started and learn as you go!

Once you experience the feeling of having your money earn more money for you, you'll be hooked on the idea and it'll get easier and easier to hit your investment goals.

If you're feeling overwhelmed, start with options 1-5 above. They're extremely simple and probably the best choice for beginner investors. Good luck!