How to invest with $5, $50 or $100

It is true that if you have lots of cash, you'll have lots of options on where to put it. But if you are just getting started you may have more choices than you might think.
It is true that if you have lots of cash, you'll have lots of options on where to put it. But if you are just getting started you may have more choices than you might think.

Investing isn't just for the rich.

It is true that if you have lots of cash, you'll have lots of options on where to put it. But if you are just getting started and have just a minimal amount of money to work with -- anywhere from $5 to $1,000 -- you may have more choices than you might think.

A few things to consider:

SHOULD YOU BE INVESTING AT ALL?

It's important to ask yourself first, should you be investing at this point in your life? There may be other things that take precedent, said Nick Holeman, a certified financial planner at Betterment.

He suggests making sure first that you've paid off any high-interest debts, which he considers anything over 5 per cent. A moderate portfolio can earn you roughly 6 to 9 per cent, but that comes with a lot of ups and downs along the way. Paying off high-rate interest debt is a guaranteed way to improve your financial well-being.

SET YOUR INTENTION

If you are in a position to invest freely, determine why you are doing it.

There's no wrong answer. Maybe you want to speed up your savings for a house or perhaps you just want to try your hand at the stock market. It's important to be honest with yourself because it will help you set a timeline and risk threshold, said Ted Beck, CEO of the National Endowment for Financial Education.

He also suggests thinking about how much time you are willing to spend on homework. Some investments, a single stock, for example, require more research and upkeep than something like a mutual fund.

WHO TO INVEST WITH

In most cases you are going to need a vehicle through which to make your investments.

While you used to need a large chunk of cash to even open an account or work with a financial adviser, times have changed. Now there are many people vying for your business.

Traditional firms such as Fidelity, Charles Schwab and Vanguard have some lower-priced investment options these days for new investors. There are also many online firms targeting the lower-dollar amount crowd such as Betterment, Wealthfront, Stash and Acorn operating out of the US. Betterment doesn't take investments from non-US residents.

Betterment doesn't have a minimum balance requirement and Wealthfront has a $500 minimum deposit. But both firms, known as robo-advisers, help determine what investments work best for you and manage them at a low cost. Currently, New Zealand doesn't have any robo-advisers operating, but a new law change this year will make it possible.

There are also apps like Stash and Acorn, which allow you to invest and manage small amounts of money from your smartphone with similar support. There are perks to each: Stash charges a subscription fee of $1 a month with no commission or trading fees (and new investors get their first three months free.) Acorn sets itself apart by investing your spare change, rounding up your purchases to make a series of micro-investments over time. So that $3.25 latte on your debit card becomes a $4 expense with 75 cents headed to an investment account.

The important thing is to find a service you feel comfortable with, offers the investments you want and at a low cost.

WHAT TO INVEST IN

Stocks, bonds, mutual funds: it's really up to you.

You have options at every price point, but experts will generally warn you away from starting with an individual stock as it eats up most of your small investment and leaves you with a lack of diversification.

There are ways around that. Some firms will allow fractional share purchases, so you can create a more diversified portfolio. Or you can consider a Direct Stock Purchase Plan, known as DSPP, which allows you to buy a stock directly from a company or transfer agent, thereby avoiding commissions. Not all companies offer them.

Don't forget low-cost index funds, which track market benchmarks such as the S&P 500, or other mutual funds that offer mixes of investments. Exchange traded funds, or ETFs, are also popular. They trade like a stock but represent a basket of assets and often come with lower fees than a mutual fund.

Whatever you choose, Holeman, of Betterment, suggests starting out slow. It can be gut-wrenching to watch the normal ups and downs for an investment, so try investing conservatively for a bit to get used to the process.

And remember your biggest gains at this point come from regular contributions. The investment gains are just the icing on the cake.

- AP

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