Investing with a small amount

With historically low-interest rates, you lose money by saving. As prices rise (inflation) you can buy less and less with the amount in your account. You can do better! Did you know that nowadays it is possible to  invest small amounts: it does not matter if you have$50, $100 or $1000  ... investing is always possible!

Is it worth to invest with a small amount?

Many people decide not to invest with a small amount, because they believe this is not interesting. Nothing could be further from the truth! If ever there was a good time to start investing, it is today. Even with small amounts you can build up a large amount in the long term. This works through the so-called snowball effect.

When it snows one snowflake has little effect. However, all snowflakes together can form a snowball and as soon as it starts rolling it can create an avalanche! It is the same with investing. Of course, the $10 or 50 a month is not going to make any difference on its own. However, by constantly investing a small amount, your invested capital increases automatically.

In addition, you benefit from return on returns. When you reinvest the money, you earn from your investment, and your money grows even faster. You will not only receive a return on the amount you initially invested, but also on the return you reinvest. That pays off in the long run! Let us see how much money you have left when you invest a small amount for 30 years with a return of 7%:

  • $10 per month turns into $11,761
  • $25 per month turns into $29,402
  • $50 per month turns into $58,747
  • $75 per month turns into $87,293

How can you invest with small amounts?

Consequently, it can definitely be worth trading with small amounts! But what is the best way to invest with a small amount? Nowadays, you have different possibilities. In this section of the article, we will review the best ways to do so:

Active speculation on the markets

When you have some extra money, you can choose to speculate actively in the price developments of CFD shares. By using a modern broker, you can speculate on both rising and falling market prices. This way, you can achieve good results under all market conditions.

In this way investing you can use a lever. You can then take a larger investment position with a small amount. This makes it possible to produce good results even with a small amount. However, it is riskier to trade with a high leverage.

Do you want to try this course of action? Then you can use a free demo at Plus500. Use the button below to speculate directly on the markets with small amounts:

Sign up Plus500

small amount trading Plus500

Follow an index fund

If you still want to reach a good level of diversification with a small amount, you can choose to follow an index fund or ETF. An index fund tracks a basket of shares. For example, some funds follow the shares listed in the Dow Jones, while others follow technology stocks.

It is wise to look for funds with low monthly costs. By doing so you increase the change of obtaining a positive return. Research closely what the fund invests in. In general, a fund that invests in a wide selection of shares can yield the most stable return.

A good party to invest with an index fund is eToro. At eToro you do not pay any commissions when you buy and sell funds. Use the button below to open a free account with eToro:

Sign up eToro

Buy your own shares

You can also choose to buy some shares monthly. With a small amount of money it can be hard to diversify your investments. The transaction costs for buying shares can also quickly add up. If you trade with an amount of $50, you may only be able to buy one or two shares each month.

You must choose a broker with whom you can buy shares without commissions. When you pay at least $2 in fees on each transaction, it becomes exceedingly difficult to make a good return with a small amount.

A good party to buy shares with a small budget is eToro. At eToro you do not pay commissions on any shares. This allows you to achieve a positive result even with one single share. Use the button below to open a free account directly with eToro:

Sign up eToro

Invest your change

Nowadays, applications that can help you with investing small amounts exist. These apps round up every expense you make. When you go to lunch for $12.50, $0.50 is automatically invested in a fund. However, it is important to investigate carefully whether the application you use offers attractive conditions for investments with small amounts.

A popular and well-known option for investing your change is Peaks. With this provider you can start investing your change immediately. Use the button below to visit the website of Peaks:

Sign up Peaks

Track signal providers

You can also choose to follow a so-called signal provider. A signal provider is a person or a robot that recommends investments. When you follow the provider, you automatically open their investments within your account. As with an investment fund, you can also follow a signal provider with smaller amounts.

Of course, it is important to examine the signal provider carefully before you start following it in the wild. Investigate whether the provider has been working for some time and check if the provider is handling the risks properly. A good party to invest with signal providers is eToro. At eToro, traders can share their signals with all members. Use the button below to open a free account directly:

eToro sign up

small amounts trading following

Lending money

There are also platforms where you can lend money to other parties. These platforms are called online peer-to-peer (P2P) platforms. You can borrow money from as little as $25 on many of these platforms. However, there is a risk that you will lose your money if the party to which you lend the money goes bankrupt. Lending money to parties is certainly not without risk and might therefore not be the best option for the investor on a budget.

Paying off debts

We cannot finish this section without pressing you to pay off your debts first. There are plenty of examples of people starting to invest with a small amount while they still have a credit card debt open. You often pay a high-interest rate on loans.

When you pay 15% interest on an annual debt, it is always wiser to pay off that debt first. Thus, you immediately achieve a return of 15%. In any case, never borrow money to invest. With investing, there is always a chance that you will lose a large part of your investment and at some point you will have to repay your borrowed money. When that happens you lose twice!

What should you look for when you invest with a small amount?

The biggest return killer for people who invest with a small amount are the cost. It is unwise to invest with a bank or an expensive broker. When you pay a minimum amount of transaction costs over each trade, it is almost impossible to achieve a good return. Therefore, take a moment to select a cheap party.

It is also important to remember that your ability to diversify is more limited with a small amount of money. You will need to be more creative to minimize the risks of your investments. By using some of the different options in this article, you can still diversify. A fund can also help you spread your risks.

How do you get the best results?

It is important to have a realistic view of the return you will achieve. Experts often count on an annual return of 6 to 8 percent. This may not be exciting, but in the long run you can still build up great wealth. This is possible because you also get a return on your new investment. When you start with unrealistic expectations, you often take too big a risk and lose the full amount of your investment.

It is wise to invest periodically.  By doing so, you avoid investing a substantial amount immediately and then sitting on a loss for years. By constantly investing a small amount, you invest at both favourable and less favourable times. This gives you a nice, stable return in the long run.

It is also advisable not to watch your performance too much. Research has shown that people who keep a close eye on their portfolio often achieve worse investment results. This is because, out of panic, they are more likely to close positions. The stock markets regularly go up and down, but in the long run the general direction is up. It is therefore a shame to close positions out of panic.

investing with small amounts

Automatic investing

You can automate your small amount of investments. You can do this by, for example, depositing a fixed amount into your investment account each month. That way you do not have to look at your investments anymore and you will still get a good result!

Important in trading: a strategy

It is important to invest according to a strategy. Starting investors often fail because they do not have system or do not follow their system. Therefore, decide beforehand what you are going to do and why you are going to do it. By testing your strategy with a small amount of money, you can easily discover if the strategy will work for larger amounts and this allows you to slowly build up an income from investing.

When choosing a strategy, you can choose to focus on news items  or on chart analysis. A profit warning  can for example be a good indication that the company is doing badly. The demand for the share drops, which can cause the price to collapse considerably. If this is the case you can decide to short sell a certain share.

More and more people are also using graph analysis. Within each chart, you can recognize fixed, recurring patterns. By studying these patterns, you can automatically buy at important levels by using orders. When you make sure that with each investment you take a higher profit than the amount you risk, it can hardly go wrong.

When do you change from investing a small amount to a large amount?

By investing with a small amount,  you learn what it is like to invest with real money. The principle of investing is the same with a large amount, but keep in mind that it probably feels different. Therefore, it is wise to start with a small amount. When you are completely comfortable with that amount, you can slowly build up the amount you invest with. 

Useful links: start trading directly!

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