How to Start Investing with $100
Starting to invest with just $100 may seem small, but it’s actually a great way to get your foot in the door and begin growing your wealth. Here’s a step-by-step guide on how to start investing with $100:
1. Set Financial Goals
Before you start investing, it's important to define your goals. What do you want to achieve?
Short-term goals: Saving for a vacation, emergency fund, or a gadget.
Long-term goals: Retirement, buying a home, or building wealth.
Knowing your goals will help you determine your investment strategy, whether you’re looking for quick returns or long-term growth.
2. Understand Risk Tolerance
Every investment comes with some level of risk. Understanding your risk tolerance (how much risk you’re willing to take) is key:
Low risk: Savings accounts, government bonds.
Moderate risk: ETFs, index funds.
High risk: Individual stocks, cryptocurrency.
If you’re starting with just $100, a moderate-risk option might give you the best mix of potential growth and safety.
3. Pay Off High-Interest Debt First
Before investing, it’s usually smart to pay off any high-interest debt (like credit card debt). This is because the interest you’re paying on debt might be higher than the returns you’ll make from investing. For example, if you have a 20% interest rate on credit card debt, it's better to pay that off before investing since most investments won't consistently give you a 20% return.
4. Choose the Right Investment Platform
There are many platforms where you can start investing with $100 or less. Some popular options include:
Robo-advisors: These platforms automate investing for you based on your risk tolerance and goals. Examples include:
Betterment
Wealthfront
Ellevest
Brokerage accounts: Many online brokers allow you to start investing with $100. Look for platforms with no or low fees. Popular options include:
Robinhood
Fidelity
Charles Schwab
Many platforms also offer fractional shares, allowing you to invest in big companies like Amazon or Apple, even if you don’t have enough money to buy a full share.
5. Pick Your Investment
Here are some options for what to invest in with your $100:
a. Exchange-Traded Funds (ETFs)
ETFs are collections of stocks or bonds that are traded on the stock market. They provide diversification, which means you’re spreading your $100 across many different companies instead of just one.
Benefits: Low cost, diversified, relatively low risk.
Examples: S&P 500 ETFs, total stock market ETFs.
b. Index Funds
Index funds are similar to ETFs, as they track a particular index (like the S&P 500), but are usually managed by a fund manager.
Benefits: Low fees, diversified, good for long-term growth.
Examples: Vanguard 500 Index Fund, Fidelity Zero Total Market Index Fund.
c. Stocks
If you want more control, you can buy individual stocks. With $100, you can purchase fractional shares of companies. This allows you to own a piece of high-priced stocks like Google, Tesla, or Microsoft.
Benefits: High potential returns if you pick the right stocks.
Risks: Higher volatility compared to ETFs and index funds.
d. Cryptocurrency
If you're willing to take on more risk, you can invest in cryptocurrencies like Bitcoin, Ethereum, or smaller coins. Many platforms like Coinbase or Binance allow you to start with as little as $10.
Benefits: High potential growth.
Risks: Highly volatile and risky.
e. High-Yield Savings Accounts or CDs
If you prefer a very low-risk investment, you can place your money in a high-yield savings account or a certificate of deposit (CD). While the returns are low, these options are safe and keep your money liquid.
6. Diversify Your Investments
Even with $100, it’s wise to diversify your investments. For example, you could put $50 into an ETF, $25 into a high-growth stock, and $25 into a savings account. This reduces the risk of losing all your money if one investment performs poorly.
7. Start Small and Keep Adding
Starting with $100 is great, but the key to growing your investments is consistency. Try to invest a little bit more every month, even if it’s just $20 or $50. Over time, your money will grow through compound interest (earning returns on your returns).
Example:
If you invest $100 and contribute $50 a month at an average annual return of 7%, you’ll have about $13,000 after 10 years.
8. Use Dollar-Cost Averaging
Dollar-cost averaging is a strategy where you invest a fixed amount regularly, regardless of the market’s ups and downs. This reduces the risk of investing all your money when the market is at a high and helps smooth out your returns over time.
9. Monitor and Adjust
Keep an eye on your investments, but don’t get too obsessed with daily changes. If your investments are aligned with your long-term goals, it’s usually best to stay patient and ride out any market volatility. You may also need to rebalance your portfolio periodically to maintain your desired level of risk.
10. Stay Informed and Keep Learning
The investment world is constantly changing. As you invest, continue learning about different types of investments and strategies. Reading financial news, books, and blogs can help you make informed decisions.
Final Thoughts:
Starting with $100 may seem small, but it’s a powerful first step towards financial independence. Whether you invest in stocks, ETFs, or even cryptocurrency, the key is to be consistent, stay informed, and let your money work for you over time.