A good many people have invested in the mattress industry — which is to say that they take their hard-earned money, stuff it in a mattress and scrape by on a low budget … afraid to either touch their emergency stash or put it in the market.
Besides making for an uncomfy bedtime, it’s not a sound financial strategy. Why? Because the longer you hold all your money in cash reserves, the less value it retains.
Or maybe you don’t have any such cash tucked away, as you’re scraping by from paycheck to paycheck. If that’s you, take heart. These days, investing on a budget is simpler than ever: You can start with next to nothing thanks to digital options ranging from investment apps to online robo-advisors. Get in the game now, and you could ride the next stock market run-up and/or watch compound interest multiply your money.
How You Can Start Investing on a Budget
Confused where to start? There’s no need to bite off the whole cow (or piggy bank, if you prefer). Start by learning the basics in areas you’re comfortable in and build your knowledge from there. To get you started, consider these lucky 13 tips as investment incentive.
1. Use investment apps.
Acorns, for example, rounds up linked credit and debit card purchases to the nearest dollar and invests the spare change in six different exchange-traded funds, based on your risk tolerance. The investment app charges $1 a month for accounts under $5,000 and 0.25 percent of your assets for accounts over $5,000. “I’ve found that you can ‘find’ money if you set aside a little at a time,” said Jeff Cruttenden, a millennial who co-founded Acorns with his father. “With Acorns, I’ve been able to invest and save more than $1,000 with no real impact to my daily life.”
Read: How to Start Investing With Less Than $500
2. Use online platforms.
For instance, Betterment asks for your age and one of five general investment goals (i.e. “build wealth,” and “safety net”). It then invests the money in a diversified portfolio of 12 exchange-traded funds. It has no minimum investment, and it’s easy to make small, monthly investments via direct deposit. The only potential downside is that since site staffers do all the heavy lifting for you, you’re depending on them to make the more complex investment decisions. Betterment’s fee: 0.15 to 0.35 percent.
3. Free up funds by cutting up high-interest credit cards.
This especially applies for frivolous purchases or shopping sprees. Credit cards can put you on a hamster wheel where making minimum payments barely nibbles at the balance. Pay them off, and the money you’re frittering away can be invested instead.
4. Turn culinary consumption into bread for investing.
Nothing drains a wallet faster than eating out, ordering takeout or living on fancy-chain coffee — yet it’s shocking how many of us on a budget barely notice what we’re spending. Assuming you drink two $5 coffees each weekday and eat four $15 lunches a week when you work (let’s ignore your two-week vacation), try cutting that in half for a year. There: You just found $2,750 to invest. Put it into McDonald’s or Starbucks stock if you like, and reverse that outward cash flow.
5. Use savings accounts and CDs — but only as a temporary parking place.
Saving via a bank can help you build a money pool over time; direct deposit of paychecks can help you avoid the temptation to spend. But as non-liquid assets (meaning they can’t be converted to cash easily), certificates of deposit offer interest rates that barely keep up with inflation. Savings accounts are even worse interest-rate wise, but at least it’s easier to get at your money when you’re ready to invest.
Related: 31 Things to Know About Investing Your Money
6. Check into the employee stock purchase plan at work.
An employee stock purchase plan (ESPP) allows you to purchase stock in your company at a discount, which may hit 15 percent. And in some cases pre-tax dollars can be used, meaning that you’ll spend even less to get more.
7. Use the 401(k) match.
Here’s another strategy to invest on a budget. Don’t forget that retirement accounts are investments, too, and a matching plan at work offers you free money (sometimes $1 for $1) once you pass a certain investment threshold. Did you get that? FREE MONEY. We have to shout this as an Aon Hewitt analysis of more than 3.5 million employees shows that nearly 40 percent of 20-29 year olds and 31 percent of those 30-39 save at levels below the company match threshold.
8. Look at commission-free ETFs.
Exchange-traded funds trade like stocks and attempt to mimic the market by spreading across a broad pool of stocks. Offered by companies such as Charles Schwab and Vanguard, ETFs can track an asset group (such as an index fund) or a given index (such as the Standard & Poor’s 500). That’s crucial when you consider, for example, the gains the S&P has made since the Great Recession ended. “Since there is no cost to trade, ETFs are definitely more beneficial for smaller sized accounts,” said JJ Feldman, portfolio manager for Los Angeles-based Miracle Mile Advisors.
9. Look at investment software.
Programs that manage your portfolio — such as Quicken Premier 2015 and Fund Manager — can help you take charge of your investment life and save you money on hiring an adviser. One potential pitfall, as pointed out by the American Association of Individual Investors, is that you’ll have to make a second investment — time — and prepare yourself for a potentially steep learning curve.
Read: How to Invest in the Share Market
10. Pool your resources via an investing club.
You may not have enough money to buy Apple stock on your own, but a club’s combined resources can make that possible. It’s also a great way to share ideas and learn as a group. But there are a few things to consider before starting a club. First, investment clubs usually do not have to resister with the Securities and Exchange Commission, which could make it harder to monitor fraudulent activity. Second, there’s the risk of feeling shut out. Trades are decided by majority vote, and if you’re constantly in the minority, it’s tempting to fume if an investment underperforms.
11. No matter what your money pool, diversify.
Betterment and Acorns determine a diversity strategy for you. But if you’re working with your own limited resources, avoid any temptation to invest the money all in one place (even if it’s in your company’s discounted stock). “Your portfolio should be diversified among large and small company stocks—domestically as well as in established foreign countries,” says Kenneth Moraif, senior adviser at Money Matters in Plano, Texas.
12. Survey the online brokerage scene.
Online brokerages such as CapitalOneInvesting.com offer automatic investing plans, individual one-time stock trades and a money market account with competitive rates — without a minimum investment threshold. Of course, you won’t have anyone at an online brokerage coaching or teaching you, but so long as you’re online, you can read up on advice from the likes of uber-successful investors, such as Paul Merriman. Speaking of which…
13. Take advantage of the best free face-to-face advice you can find.
Think of this as akin to having a doctor in the family or a best friend who’s a mechanic. Branch out among family and close friends to find a financial expert willing to mentor you“off the clock. Just remember: You shouldn’t stake the familial relationship on it. Even the best investment pros lose money from time to time. If it happens to you, don’t blame Aunt Ethel.
In the end, your low budget represents the greatest argument for investing, period. If you’re short on cash, investment holds the key to bringing more money and real returns into your financial life. It need not be a chicken-and-egg game anymore based on lack of funds; as illustrated above, you can start with pennies these days.
In most cases, the best investment strategy puts you in the game for the long haul. If you’re tempted to take your money out soon, or too soon, there’s a good chance you’ll set yourself up for a loss. Watch your investments carefully, of course, but avoid the temptation to endlessly tweak or trade.
Put another way: Those seeds you’re planting need time to grow in your garden bed. Save the money mattress for sleeping soundly.
This article originally appeared on GOBankingRates.com: 13 Tips for Investing on a Budget
This article by Lou Carlozo first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.
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