How To Invest Small Amounts of Money

More often that not, people think that you need to be wealthy or at least financially well-off to make investments. This is not the case, even if you have just $20 of spare cash, you can invest that amount and watch it grow, albeit slowly.

The following are some ways to invest small amounts of money:

  • Open a savings account. The beauty of opening a savings account is that you do not have to start big. Visit your local banks and do not hesitate to walk up to the New Accounts section to ask the minimum amount required to open an account. Also ask about maintaining balances, interest rates and monthly service fees for accounts that fall below their maintaining balance. Open an account with the bank that offers the best options.
  • Buy stocks under Dividend Reinvestment Plans (DRPs) and Direct Stock Purchase Plans (DSPs). DRPs and DSPs allow small investors to purchase stocks directly from companies or their agents. The dividends earned from your stocks will be used to reinvest into more shares of that stock. Once in on the plan, you will be allowed to purchase stocks in fractional amounts.

Many companies already offer DRPs and DSPs in the United States. McDonald's, Nike, and Kellog's are several that do. If you want to join the DRP or DSP of any company, you have to call its investor relations agents. The government has banned companies from advertising their DRPs and DSPs so you have to call the company and personally inquire about such plans. With as little as $25, you can be a stockholder of a company.

  • Invest in Index Funds. For as little as $250 you can buy an index fund and get a return of about 10% per year. The best way to get into an index fund is to invest using your Individual Retirement Accounts (IRA). After your initial investment, you can invest as much as you want and as frequently as you like. You will not incur any additional costs, nor will you pay commissions to brokers since you purchase index funds from mutual fund companies.

You can buy index finds through mutual funds and exchange-traded funds (ETFs). Enroll in the automatic investment program of a mutual fund so you can avoid high minimum investments that usually characterize mutual funds. If you only have a small amount of money to invest, then do not consider ETFs since this will require that you open a brokerage account where you have to pay commissions each time you buy and sell.

  • Open a discount brokerage account. You can open one for as little as $500. This will allow you to purchase stocks of individual companies that you like. You can also invest in Standard & Poor's Depositary Receipts, more popularly known as Spiders. This is stock-like investment that you can buy and sell any time of the day. Spiders are an alternative to Index Funds.

Most investors do not invest in Spiders for a long time. Once you find a single stock that you like, sell your Spiders and purchase that stock.


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