Many people think that if they don’t have a lot of money, then why bother investing? That’s the wrong way to think! There are great options for investing at any level – even investing small amounts. This is especially true with a recent change with the most popular robo-investing platform. So let’s explore the question: What is the best way to invest small amounts of money?
Investing small amounts of money
What is considered a “small amount of money”?
For some people that might mean $10 per week. For others it might mean $125 each week.
Regardless of the amount, “just do it”.
The investments don’t need to be weekly – monthly will work too. But they should be made on a regular and consistent basis. Everyone should understand the magic math behind consistent investing.
While the amount you invest does matter, what matters even more is doing it. You need to take action. Far too many people don’t invest because they think they don’t have enough money. You can get started with as little as $5 per week. Starting with small amounts can make a huge impact on your future wealth.
How much of an impact? Consider these potential scenarios*:
|Weekly Investment Amount||Total Investment Balance in 30 years|
*These scenarios assume a 9% average annual return, which is lower than the historical average of the S&P 500 stock index.
Here is an easy to use investments return calculator if you want to plug in a custom amount to see what your potential return could be.
Can you afford investing even small amounts?
Yes, almost everyone can.
If you were to skip coffee at Starbucks twice a week, that’s easily $10. Even carry-out options anymore seem to cost at least $25. Cooking an additional meal at home instead of carry-out can save $25 easily.
$125/week though? Who can afford that?
Apparently the average American family can. Why? Because the average car payment recently clocked in at $503 monthly. Someone who believes it is fine to always have a car payment is wasting a million dollars over just thirty years of their life.
My intent here isn’t to convince you to invest though. Hopefully you understand the tremendous benefit of investing. What are your options to invest small amounts of money?
Robo-Investing to the rescue
It’s probably not a surprise to you that I recommend robo-investing solutions. The “robo” solutions are not only low-cost, but they’re easy to use. They also make investing on auto-pilot very easy.
When you need to remember to take a manual action every week (or even monthly), the chance of it happening drop over time. But with an automated platform the action will be performed consistently every single time.
5 Investing options to invest small amounts of money
With Betterment there are no up-front investment fees like many other platforms – just the low platform fee. So whether you invest $5, $10, $50, or more – it’s always the same low percentage cost.
Of course Betterment also let’s you easily set up automatic transfers from a bank account of your choice. Instead of remembering to invest, you can tell them to invest your set amount for you. Talk about easy! Set it and forget it!
Note: Investment management is an available feature for my Financial Life Planning clients. If determined appropriate as part of your financial planning process, I can leverage the Betterment platform for your investment needs. Reach out to talk about how you can benefit from a financial life plan.
Acorns is a much smaller platform but an interesting option. What’s neat about it is that it helps find the small amounts of money for you. It does this by rounding-up when you make purchases. You link a bank or credit card and make purchases like normal. When you purchase something that costs $1.81 Acorns can make the charge $2.00 and put the 19 cents into an investment account for you.
While this sounds neat, and might be a good option for certain people, I don’t love this option.
First, the amounts are just too small. Their customers need to really use their cards a lot to build up any decent investment amount. There is an option for higher investment amounts, but at that point they lose their differentiating factor.
Second, the cost is higher. Once you hit a certain amount they drop down to the .25% level, but for people just getting started, the fees can really add up. The cost as of writing this is $1/month. Doesn’t sound like much, right? When for someone investing $10/week that works out to a cost of 2.5%! Doesn’t seem like a great way to invest small amounts of money.
For more advanced investors, there are features I like about Motif. I like that they let you pick your own investments. For many people just getting started, this is a draw-back. It’s often better to let the professionals pick the funds and allocations for your portfolio.
There are two downsides to Motif though – specifically for someone who wants to invest small amounts of money.
Motif has an investment minimum of $250. You can open an account with less but they won’t make investments for you until your cash balance reaches this threshold.
Motif charges when you invest. There is a charge of $9.95 when you move your cash into the investments of your choice. Even if you are investing $100 each month, that’s a huge hit. Investors at that level would be looking at a 10% cost on that investment.
Correct, this isn’t a robo-investing option. But there are some people who prefer to handle everything about their investments themselves. There is nothing at all wrong with that for someone who has the time, discipline and knowledge. I did it for years before I realized an automated solution would work better for me.
With the DIY options you need to be careful. Many brokerages charge per-trade. So if you buy 10 stocks, you could get hit with substantial fees – as much as $80 with some brokers!
Many brokerage companies have super-low or no-cost fund options. I know that Fidelity has a big list of ETFs that they’ll let customers purchase without any trade fees. The only caveat is that the fund needs to be held a certain period of time (often a year or less). That shouldn’t be an issue for us though – because we know that long-term investing is better anyway, right?
Use A Professional Investment Manager
A financial life planner like myself understands that an investment portfolio is just one small component of a complete plan. That said, it is a part. Because of that, I help clients – if desired – develop and manage an investment portfolio that meets their specific goals.
As a fiduciary advisor looking out for the best interest of my clients, I’ll determine which managed option is best and present it along with reasoning. In some cases that might be Betterment – and that’s fine! There are many cases though where an alternate option would be better. Let me do the work to figure this out for you. Reach out to talk about how you can benefit from a comprehensive financial life plan.
What’s the best way to invest small amounts of money?
For investors without an unbiased advisor on their side, Betterment might be the best option. Different people have different investment preferences though – hence listing out a couple of the more popular options.
Choose one of the above to try out. Or feel free to do research and pick a different solution.
The most important thing is to get started. If you need information and validation of that point, check out these other posts on the topic:
Is there a different platform that you use which I didn’t list? If so, mention it in the comments. Or if you’ve used one of the options above, please share your personal thoughts and experience.