Four Ways Of Investing Small Amounts Of Money
Investing small amounts of money is still more than worth it -- thanks to the miracle of compounding interest. In fact, the earlier you start investing, the less money you need to invest to end up with the same result at retirement. But finding wealth-management vehicles for smaller amounts of money can be a challenge. Here are a few options for those seeking to get started.
1. Mutual Funds
If you have more than a thousand dollars to invest, a mutual fund is usually your safest bet. A mutual fund lets you invest in a portion of an already balanced portfolio, making money based on how well this portfolio does. Most mutual funds outpace or match the S&P 500, thereby providing a safe investment without requiring that you do your own research. The best mutual funds are invested in through retirement accounts, as this allows you to avoid paying taxes on the amount invested (up to a yearly cap).
DRIPs let you invest directly into a specific company over time. Known as a Dividend Reinvestment Plan, DRIPs can be invested in with as little as $20. This is an excellent option for many employees who are looking to invest directly into the company at which they work -- or simply invest in a few good companies that they deem safe. As with all investments, diversification is a good idea.
3. Micro Loans
A new type of investing, micro loans let you lend out money through the Internet. Generally, you lend a small amount to many people: you invest $20 at a time. The people who are borrowing will then pay back interest to those who have invested their money, thereby allowing them to make a profit. There are also charitable micro loans targeted towards developing countries.
4. Crowd Purchasing
In addition to lending money as a group, there are also ways to buy stock as a group. Crowd purchasing is a new option that lets you go in with others to essentially buy large stocks a portion at a time. This can be very valuable if you want to invest in very large stocks -- such as Google -- that have a price approaching $1,000.
While there are other options -- such as penny stocks -- they can be riskier. A wealth management professional can help guide you to options that will keep you diversified and at a sensible level of risk.