The earlier you start investing, the better your financial future will be. That’s because when you’re younger, time is on your side. Your money has decades to grow before you’ll need to tap into it for retirement. The flip side is that when you’re young, you might still be finding a career, dealing with student loans, and establishing yourself in the world. You probably won’t have a lot of spare cash! So how do you get started investing with little money? 

Let’s explore some key steps toward investing with little money: how to know you’re ready to start investing, the different types of accounts you can get, good investments for long-term growth, investing mistakes to avoid, and more!

💡 Over time, as your income grows, you can expand on these strategies and dedicate more funds to your investing goals. Getting an early start will build your resources and also build the knowledge that you will need to invest profitably later on!

1. Build a Good Financial Foundation

Before you start thinking about investing, you should prepare by accomplishing a few other financial steps first. It can be a mistake to start investing before you’re ready, especially if your budget is stretched thin.

Save an Adequate Emergency Fund

Whether it’s a broken-down car, a health scare, or an unexpected layoff, emergencies can happen at any time. Work on saving 3-6 months’ worth of expenses in an easily accessible savings account before you invest in the market. This way, you won’t have to worry about selling off your precious stocks to pay the bills.

Pay Off Any High-Interest Debt

If you’re carrying any high-interest debt (e.g. credit cards or personal loans), pay that off first. Otherwise, you’ll just be hemorrhaging money in compounding interest payments and they’ll drown out any gains you make in the market! If you only have low-interest debt (e.g. student loans, mortgage payments), it’s fine to start investing as long as it doesn’t throw off your repayment plan.

📘 Learn about some of the best strategies to get out of debt: How to Get Out of Debt in 5 Steps

2. Outline Your Investment Goals

Is there a specific reason you want to invest? This will help determine what type of investing is best for you right now. 

For instance:

  • Do you want to start saving for retirement?
  • Do you want to earn your company’s 401(k) match?
  • Do you have shorter-term savings/investment goals (e.g. a house down payment in 10 years)?
  • Do you want to learn about the stock market or have everything automated for you?

Your answers to these questions will help you with the rest of the steps on the list!

3. Pick a Type of Investment Account

As you prepare to start investing, there are a few main types of accounts you can choose from. Let’s go over your options! 

401(k) or 403(b)

These are both types of employer-sponsored retirement accounts. If your job offers one with an employer match, this is one of the best ways to start investing with little money. A 401(k) match is an extra employment benefit that rewards you for investing. For instance, if your employer matches 100% of your contributions up to 3% of your salary, this instantly doubles any money you invest up to that limit. However, you can’t withdraw money from a traditional 401(k) before age 59 without a steep penalty.


This stands for “Individual Retirement Account,” and it’s separate from an employer so you’ll manage it yourself. You can open a traditional (pre-tax) IRA, or a Roth (post-tax) IRA. Roth IRAs may be best when you’re investing with little money because your current income tax rate might be on the lower side and you can withdraw contributions penalty-free if you need to. An IRA is a great starting option if your employer doesn’t offer a 401(k) or have a match benefit.

📘 Learn more about tax-advantaged retirement accounts, including all the sub-types of 401(k)s and IRAs and the differences between Roth and traditional retirement accounts.

☝️ If you’re opening an IRA, you can choose from all the popular brokerages like Fidelity, Vanguard, Charles Schwab, and others. If you’re opening an employer-sponsored account, this choice will already be made for you!

Taxable brokerage account

If you have short-term investing goals, you might want to open a taxable account instead of a retirement account. Unlike retirement accounts, these accounts don’t have any rules about how old you have to be to make withdrawals. However, they have no tax advantages. You’ll have to pay capital gains taxes on any profits you make. 

4. Study Your Investment Options

No matter what account type you choose, your next step will be choosing which investments to buy within the account. Think of your account as the vehicle and your investments as the passengers. 

You’ll be able to choose from a variety of asset types, including:

  • Stocks (also called equities)
  • Bonds
  • REITs (shares of real estate investment trusts)
  • Mutual funds & index funds
  • ETFs (exchange-traded funds)

Each of these has advantages and disadvantages.

☝️ Choosing a mix of index funds and ETFs is the easiest and safest way to start investing.

Funds are large collections of stocks, so when you buy a share of an index fund or ETF, you’re effectively buying tiny pieces of all the stocks inside. That means even when you’re investing with little money, you can build a well-diversified portfolio with broad exposure to the stock market. For instance, you could buy a technology ETF that includes pieces of all the big tech companies. Or, you could even buy a total-market index fund that tracks the entire U.S. stock market.

Investing in individual stocks is much riskier. An individual company can go bankrupt and cause your stock to go to zero, whereas an index fund protects you from individual company failures since it includes a diversified mix of many companies.

💡 Personally, I like to do a mix. I invest most of my retirement account into index funds, but I also have a “fun” account where I choose individual stocks. Even though it’s riskier, it can be a good, hands-on way to learn about the markets and get a sense of which sectors of the economy are thriving or poised for growth. Check out this article for some more ideas about how to invest in 2021.

If you’d prefer to just set it and forget it when it comes to investing, a robo-advisor account might be a good fit for you. Robo-advisors automatically manage your accounts, investing in collections of stocks and funds based on your goals and risk tolerance (which they’ll assess when you set up the account). 

5. Watch Out for Scams and Hype Stocks 

Hoping to use stocks to get rich quick? I’m sorry I have to temper your expectations. If someone promises you that you can strike it rich in no time by investing with little money, they’re probably trying to sell you something or shilling a stock that they own. Always do your own research on investments and be wary of investment scam red flags. Watch out for financial services MLMs trying to recruit or sell to you as well.

Picking stocks shouldn’t feel like going to the casino. Gamble your whole account on “the next hot stock that’s guaranteed to 10x this week” and you’ll probably end up losing money—and getting stressed out in the process. There are too many stories of people putting their life savings into risky stocks and going broke. If it sounds too good to be true it’s probably not true.

😮 Here’s an eye-opening statistic: even 90% of investment professionals can’t beat the market. We’re all statistically unlikely to be part of the 10% who can outperform an index fund!

6. Think Long-Term

Instead of trying to chase instant wealth, think of investing as a long-term process. Slow and steady really does win this race. The average annual return of the S&P 500 Index is around 10% per year from the 1920s-2019. If the market delivers similar returns in the future, this means each dollar you invest today could double in 10 years, quadruple in 20, octuple in 30, and so on. 

Everything we know about the history of investing indicates that the key to success is simply to consistently invest however much money you can afford into well-diversified funds, then stay the course through the ups and downs of the market. It might not make you a millionaire overnight, but with hard work and a little patience, you’ll get there! 

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