How to Invest Small Amounts of Money

Often, people will avoid investing because they believe that you need a large amount of money to begin investing. This is an unfortunate misconception.   Great fortunes can be built investing small amounts of money at a time.

Dollar cost averaging is a strategy created to do just this. The key to dollar cost averaging is investing small amounts of money continuously over a regular period of time.With consistent investment your money will grow.

This method of investing money is easy and not too scary for a novice investor. Money market funds, mutual funds and exchange traded funds (ETFs) are great ways to invest your money.

The strategy is simple; make a regular investment into your chosen security on a regular schedule, always investing the same amount of money. When the fund’s price is high you will accumulate fewer shares, when the fund’s price is low you will accumulate more shares.

As the price fluctuates, no matter what happens, you are constantly picking up shares. As the fund’s value fluctuates you will always be growing your holding.  So no matter what happens in the market, the number of shares you have continues to increase.

Using dollar cost averaging will help turn those small amounts of money into a large sum one day. Don’t allow the fact that you can only invest a small amount of money stop you from reaching your financial dreams. 

Money Market funds will provide you with a pretty steady rate and grow your money, though not in a way that will always outpace inflation.

Mutual Funds combine baskets of different stocks, allowing you to diversify that small investment with very little trouble. These are actively managed, and typically include fees, but they offer relative safety. 

ETFs are similar to mutual funds but while mutual funds trade at the next closing price, they trade during the trading day.  They are often indexes and not usually actively managed and therefore they typically don’t have as many fees. Because they are not actively managed they tend to stay very consistent with the index they are tracking.

While having only a small amount of money may make investing seem scary or impossible, there are investing strategies that can make your dreams a reality.  Using dollar cost averaging, even small amount of money, invested consistently, can result in a significant portfolio of investments.  Consistency is key, and investing into a fund of some sort will keep you diversified and protect your money.