Investing has the potential to improve your life. However, many people believe that until they have thousands of dollars laying around, there is no good location to deposit their money.
The most crucial thing – and the only way to get those greater quantities – is to just get started, regardless of how huge or tiny your initial investment dollars are. This post will teach you six excellent ways to invest a few hundred dollars. You can begin investing your way to long-term financial freedom by investing in one or more of these categories based on your short- and long-term objectives.
The best 6 ways to invest $100 starting today:
You have $100 and want to put it to good use. Here are our top six ideas for what to do with it:
- Establish an emergency fund.
- Make use of a micro-investment app or a Robo-advisor.
- Invest in a mutual fund or exchange-traded fund that tracks the performance of the stock market.
- When purchasing stocks, use fractional shares.
- Place it in your 401(k) (k).
- Create an IRA.
Now let's take a look at each of these in more detail.
1. Establish an emergency fund.
It's reasonable if your initial instinct was to put $100 in stocks, cryptocurrency, or some other investment that could double triple, or even tenfold your money. After all, the stock market has shown to be the most straightforward and accessible means for consumers to accumulate wealth over time. Many cryptocurrencies have skyrocketed in value in recent years.
However, these assets are equally volatile. They can drop in value dramatically with little or no warning and frequently without explanation. That's not a big concern if you can buy and hold, and as long as you have a diverse portfolio of investments where your winners can compensate for a few losses. Time in the market will assist you in accumulating wealth.
But what if you can't simply ride out a crash and have to sell because you need the money? With a little bad luck and timing, your $100 investment could be worth $80, $50, or even less. That is why preserving money is significantly more important than choosing assets that can be quite volatile.
Consider losing your work or suffering an unforeseen sickness or injury that reduced your income for weeks or perhaps months. Having several months' worth of income in cash on hand will help you avoid having life's unforeseen events derail your financial objectives. Savings account interest rates aren't particularly high, but this is about safeguarding your downside rather than capturing huge gains.
2. Make use of a micro-investment app or a Robo-advisor.
Once you've taken care of your financial emergencies, you'll be in a lot better position to begin investing. A Robo-advisor may be just what you're searching for if you prefer a totally automated method that needs as little effort as possible. Robo-advisors employ applications or websites to learn about your financial needs and then devise an investment strategy to fulfill those goals.
They will frequently tailor a portfolio to your needs based on basic facts such as your age, family size, income, and risk tolerance. The specifics of selecting investments, making purchases and sales, and keeping you informed are then handled by Robo-advisors.
You might also use a micro-investing app, which allows investors to invest modest sums over time. A micro-investing software, for example, may allow you to round up your credit card transactions to the nearest dollar and invest the difference, as well as deposit cash when you have extra money (say, $100) to invest.
3. Invest in a mutual fund or exchange-traded fund that tracks the performance of the stock market.
Stocks are most likely the most powerful wealth-building tool available to the common person. However, picking winners can be difficult, and if you're only investing $100 (or less) at a time, it may not be worth the time and effort to buy particular stocks. Stock index funds can help with this.
When you invest in a stock index fund, you are purchasing a piece of each firm in the index. In other words, if you invest $100 in the SPDR S&P 500 ETF Trust (NYSEMKT: SPY), you will own a little fraction of the S&P 500 Index's 500-plus companies. You receive quick diversification and an investment with a long track record of profit for anyone who can keep for a decade or more.
It's also really simple. Simply invest in a stock index mutual fund or a low-cost exchange-traded fund. There are numerous stock indexes to pick from, ranging from popular ones like the S&P 500 Index to more specialized indices.
There are some distinctions between ETFs and mutual funds, such as how shares are purchased and sold, minimum investment requirements, and fees. However, the main idea behind both ETFs and mutual funds is that you can participate in the entire market or just a portion of it with a single transaction.
After you've established a firm foundation in index-tracking funds, you can expand out and investigate other investment possibilities. However, an index fund may be all you ever need to succeed with investing. Are you looking for an index fund that costs more than $100? The following topic also applies to ETFs!
4. When purchasing stocks, use fractional shares.
Index funds make stock investing simple, but picking your own stocks is an excellent method to achieve even higher returns. Until recently, however, the combination of brokerage costs and stock prices kept anyone working with tiny amounts of money on the outside looking in.
That is no longer the case, as most brokers no longer charge commissions, and several big brokerages provide fractional share investment.
So, exactly what is fractional share investing? In brief, instead of placing an order for several shares to be purchased, you tell your broker how much money you wish to invest in a stock, and your broker will invest that amount for you. For example, if you put $100 into a $500 stock, your brokerage account would show that you owned 0.2 shares of that company.
Do you want to invest in index funds? Excellent news! Most brokers that offer fractional stock investing will also allow you to acquire fractional shares of ETFs.
5. Place it in your 401(k).
Funding a 401(k) or another employer-sponsored retirement plan could be an excellent use of your investment resources. This is especially true if you haven't taken full advantage of your employer's matching contributions. What exactly is it? It means that most employers will match some of the money you put in your 401(k).
Here's an illustration: Assume your company will match 50% of your contributions up to 3% of your salary. If you make $50,000 per year, your company will contribute $750 to your 401(k) for the first $1,500 you invest (3% of your salary). That's a 50% return on your $125 monthly investment.
There's one additional reason to invest in your 401(k): fewer taxes. Every dollar you put into your 401(k) is considered a pre-tax contribution, which means you won't have to pay income tax on it in the year you put it in. Even better, until you begin collecting distributions in retirement, your investments will grow tax-free.
Don't have a job, but have a side hustle or contract job? What do you think? You can start a single 401(k) (k). Although you will not receive free money from your company, you can still benefit from pre-tax contributions and tax-free growth.
6. Create an IRA.
Do you have an extra $100 to invest for retirement in addition to your company's 401(k)? Individual retirement accounts (IRAs) are a terrific route to go because they may turn little sums of money into a large nest egg over time.
Assume you save $100 each month in an IRA for 30 years. Based on the historical performance of the S&P 500, the $36,000 you invested would be worth roughly $180,000. That is the power of compounding gains.
Why have an IRA? In a nutshell, taxes. A typical IRA provides similar benefits to a 401(k), such as lowering income taxes by lowering taxable income each year you contribute while also growing your nest egg tax-free until you begin getting distributions in retirement.
A Roth IRA provides the same tax-free growth as a standard IRA. Instead of lowering your taxable income each year, you pay contributions, and dividends in retirement are completely tax-free.
One method to avoid investing $100
Investing in penny stocks is one trap to avoid. Penny stocks are often low-cost shares of smaller or less-traded corporations. While it may appear reasonable that little companies or stocks trading for pennies per share (or even less) have the largest potential return, the reality is that the world of penny stocks is full of bogus companies and pump-and-dump operations (think The Wolf of Wall Street).
In a nutshell, if you're wondering how to invest $100 in penny stocks, the response is "Don't."
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