How to Start Investing (Without a Lot of Money)

Investing can seem like a daunting task, especially when you have no experience. It’s important to realize that investing doesn’t have to be complicated and there are many ways to get started.

In this article, we’ll look at how to start investing, what you need to consider, and why it’s critical to start as soon as possible.

Why You Need to Start Investing Now

If you’re young, you may feel like investing isn’t something you need to do yet. But the truth is, your younger years are by far the best time to invest. If you’re saving for retirement or some other long-term goal, the sooner you start, the longer your money will have to grow and compound.

Let’s take a look at an example. We’ll look at two fictional people, John and Sarah. John starts investing $6,000 per year ($500 per month) when he’s 40 years old, and his investments produce an average return of 7% per year until he is 65 years old. During those 25 years, John will have contributed $150,00 and at 65, John’s investment portfolio will be worth $405,035.

Sarah decided not to wait until she was 40. Instead, she started saving the same $6,000 per year at the age of 30. If she saves and invests for 35 years, she will have contributed $210,000, and at the age of 65, she’ll have an investment portfolio of $900,527 (assuming the same 7% annual return). She will have contributed $60,000 more than John by starting earlier, but will have almost $500,000 more at age 65!

Let’s look at another scenario. Sarah starts saving $6,000 per year at 30 years old and she does this for 25 years and then stops contributing new money when she’s 55. At this point, she will have contributed the same $150,000 as John, but she did it from the age of 30-55 instead of 40-65. By allowing her money to continue to grow for 10 years between the ages of 55-65, Sarah will have $813,983 when she is 65 years old. That’s more than double what John has! Even though they both saved and invested the same amount of money, Sarah ends up with twice as much because she started earlier and her investments had more time for compound growth.

As you can see, investing earlier makes a huge difference. With that in mind, there’s no time like the present to start investing. Regardless of your age and personal situation, starting to save and invest immediately will give you the best chance for long-term success.

Different Types of Investments

If you’ve decided that you want to start investing, the next step is to consider your investment options. While there are many different ways to invest, let’s look at a few of the options new investors might want to consider.

1. Stocks

When you purchase a stock, you’re buying an ownership interest in a single company. The stock market is one of the most common ways to invest, and it also offers excellent long-term potential for significant growth. Of course, your success with investing in stocks will depend on the specific companies that you choose to invest in, but stocks offer more upside than just about any other type of investment.

Today, it’s easier than ever to invest in stocks. With online brokerages like Public.com and Webull, you can buy and sell stocks with commission-free trades from the convenience of your phone or computer. You can even purchase fractional shares, which means you can purchase part of any stock with as little as a few dollars.

Related: How to Get Free Stocks

2. ETFs

Exchange-Traded Funds (ETFs) can be purchased on a stock exchange, but instead of providing you with an ownership interest in a single company, an ETF tracks a specific index or sector. For example, there are many ETFs that track the performance of the S&P 500.

When you buy an ETF, you’re investing in a portfolio of companies rather than a single company. Some ETFs offer greater diversification than others.

See our list of the best ETFs for long-term growth.

3. Robo Advisors

A robo advisor will handle the details of your investments for you based on your preferences, tolerance for risk, and long-term goals. When you create your account, you’ll be asked a series of questions so the robo advisor can understand your preferences and make the best decisions for you.

When you’re using a robo advisor, your priority is adding money to the account. The robo advisor will make the investment decisions for you.

Although robo advisors do charge a fee for managing your money, those fees are typically much smaller than what you would pay for an active financial advisor to manage your portfolio.

4. Real Estate

Real estate has proven to be an outstanding long-term investment. There are many ways to invest in real estate, but there’s a huge difference between those options. Investors who want to take a hands-on approach might choose to buy rental properties in their local area and grow a portfolio of income-producing assets that generate cash flow each month. This is a solid way to grow your net worth, but it does require a lot of effort, and not everyone wants to be a landlord.

Another option is to invest in real estate passively, so you won’t be responsible for maintaining properties or dealing with tenants. Platforms like Fundrise and Groundfloor make it simple for anyone to invest in real estate. With Fundrise, you’ll be investing in a portfolio of commercial properties. You’ll earn quarterly dividends from the cash flow generated by the properties, and you’ll also make money when properties are sold for a profit.

Groundfloor allows you to invest in individual properties. It’s a peer-to-peer lending platform where developers can get capital to invest in flipping houses. You’ll be able to earn 6-12% interest by loaning your money to someone to renovate a house or build a new one. One of the best things about Groundfloor is that you can start with as little as $10.

Short Term vs. Long-Term

Your investment strategy should be impacted by your specific investment goals. Are you investing money that you’ll need within the next few years, or are you investing for the long-term (for example, saving for retirement)?

Long-term investments have the benefit of time. Not only do they have time to grow and compound, but they have the time to overcome any short-term dips or drops in value. If you’re saving and investing for retirement and that’s 20 years into the future, what the stock market does next week or next month isn’t a big concern.

When you’re considering the length of time you’re going to have this money invested, you should also consider the liquidity of any investments you’re evaluating. Stocks and ETFs are highly liquid, which means the investment can be sold and converted to cash within a few days. If you want or need the money, you can liquidate all or part of the investment.

Not all investments offer the same level of liquidity. Real estate is an excellent investment, but it’s not liquid. Most real estate investments will keep your money tied up for several years or longer. That’s fine if you know that you won’t need the money in the near future, but it’s not ok if you might need the money on short notice.

Related: Liquid Net Worth

Active vs. Passive

You should also consider the amount of involvement you want to have in the investment. Do you want to monitor the investment on a regular basis and make changes as needed (active investing)? Or do you want to invest passively so you won’t have to do anything once the investment has been made?

Let’s take a look at some of the investment options mentioned in this article and consider how they fit into the active vs. passive debate.

Active Investments:

• Stock trading with Public.com or Webull (unless you’re taking a long-term buy-and-hold approach).
• Cryptocurrency trading with Public.com or Webull.
• Real estate investing with Groundfloor (these are short-term investments).

Passive Investments:

• Long-term ETFs through Public.com, M1 Finance, or Webull.
• Long-term buy-and-hold stocks through Public.com, M1 Finance, or Webull.
• The use of a robo investor like Betterment or a managed platform like Titan.
• Real estate investing through Fundrise.

Passive investing is easier. All you need to do is focus on adding more money to your investments and review your portfolio a few times per year.

Those who choose active investing are usually trying to earn higher returns. Sometimes it works, sometimes it doesn’t.

Open an Account

Once you’ve considered the different investment options as well as the approach that’s ideal for you, it’s time to make a decision and get started. To help with your decision-making, here are some details about each platform and the scenarios when each would be ideal.

• Public.com – Ideal for new investors because the app is user-friendly and the social aspect allows you to learn from other investors. Public.com is a solid option for both active and passive investing, as well as short-term or long-term.
• Webull – Ideal for those who want to trade cryptocurrency, stocks, or ETFs. Could be suitable for long-term or short-term investing.
• M1 Finance – Ideal for long-term, passive investors who want to purchase stocks or ETFs.
• Titan – Ideal for a totally passive approach (let the professionals pick the investments for you). Also, best for those with a long-term approach.
• Fundrise – Ideal for passive, long-term investments when liquidity is not a concern. Fundrise is also ideal for those who want to invest outside of the stock market.
• Groundfloor – Ideal for short-term, active investors.

Contribute Regularly

Although you don’t need a lot of money to get started, your goals should include adding new money to your investments on a regular basis. Add investments as a line item in your budget and set aside money each month.

Earlier in the article, we looked at the impact of investing earlier and contributing consistently. You don’t need to invest a lot all at once, but you do need to be willing to contribute on a regular basis. If you’re setting aside money and investing every month, you’ll be well on your way to success.