Money at 30: 11 Tools You Can Use to Start Investing With Little Money
If there’s one thing that Millennials have heard over and over again in regards to finance, it’s that they really need to be investing. Unfortunately many may believe that their current situation precludes them from jumping into the market. After all, investing requires thousands of dollars and no brokerage will even look at you if you show up with under five figures, right?
That may have been the case once upon a very long time ago but today’s investing landscape is completely different. In fact there are now several options that will allow you to start your investing journey with only $5 — not $5,000. So if you’ve been looking to grow your money but don’t know where to begin, here are a few ways to start investing with little money.
Over the past few years, several FinTech companies have made it their mission to get Millennials and others to start investing. To do this, they’ve taken a few different approaches, ranging from “round ups” to fee-free trades to earning stocks as rewards. Not only do many of these platforms allow you to start investing with only a few dollars but also offer educational tools so that you can better understand investment concepts.
As I mentioned, these apps do take on different forms and happen to come with their own pros and cons. Here’s an overview of some of the top newbie investment apps and what they’re all about:
These days there’s no shortage of so-called “round up” apps on the market but, to my knowledge, Acorns was one of the first. By round ups, I mean that the app assesses your transactions, rounds them up to the nearest dollar, and sets the change aside to then invest when you surpass $5. This money is then invested in a collection of ETFs that are selected to account for your risk tolerance. While it’s great that Acorns allows you to start investing with just $5, the downside is that they currently charge a fee of $1 a month. Therefore, if you do decide to try the app, keep an eye on those fees and make sure they don’t eat away at your gains.
Given the choice between Acorns and Robinhood, I actually prefer the latter. That’s partially because Robinhood is free to use (the app doesn’t charge any commissions for trades) but also because it allows for greater choice. On Robinhood, you can purchase numerous stocks and ETFs as well as cryptocurrencies and even stock options. The only problem here is that, depending on the stock you want to purchase, you might need to save up more than just a few dollars as the app doesn’t support fractional shares.
SoFi Invest (Active)
Like Robinhood, SoFi Invest’s Active Investing option also allows you to make commission-free trades. Moreover the company has been rolling out their own specialized ETFs — including some that offer waived expense ratio fees. This is a fairly new offer that still seems to be finding its footing and, as a result, doesn’t have as many features as Robinhood or others. Nevertheless it could be one to watch.
If it is fractional shares you’re after, Stash could be an option for you. The app allows users to invest with as little as $5 in fractional shares from top companies as well as ETFs. While Stash doesn’t charge any commission or trade fees, they do have a $1 a month fee for balances under $5,000 (it becomes a .25% fee after that). I’d also be remiss if I didn’t mention Stash’s unique debit card offering that enables users to earn Stock-Back rewards at the retailers they shop at.
This one technically isn’t an investment app but it could result in some free stock. Somewhat similar to Stash’s “Stock-Back” rewards, Bumped allows users to select from one retailer in each of 13 categories to earn fractional shares of stock in when they shop at their establishments. Personally I now have more than $50 worth of stock with a portfolio that features Starbucks, Domino’s, AT&T, and more. So while it might not teach you to invest or let you buy stocks directly, it’s still a pretty neat app that deserves mention.
Speaking of FinTech, in addition to the micro-investment apps that have grown in popularity, another breed of firms have created what are known as roboadvisors. These platforms are designed to manage investor portfolios and do a lot of the heavy lifting for them. For example common roboadvisor features include automated rebalancing, tax-loss harvesting, and more. Plus, roboadvisors are often built to take their cues from what users say their financial goals are, while also considering factors like risk tolerance.
Another reason why roboadvisors have been a hot topic is that they too tend to offer low minimum initial deposit threseholds, making them accessible to newcomers. They also have fairly reasonable fees (typically ranging from .25% to .5%), although it should be noted you’ll also need to consider the expense ratios of your portfolio in addition to these management fees. With that, let’s take a quick look at a few roboadvisor options.
Perhaps the best-known roboadvisors out there is Betterment. It just so happens that they are also among the oldest on the market. Beyond that, Betterment makes a compelling case for itself by offering a $0 minimum deposit to get started and bearing a .25% advisory fee. Meanwhile, as you start to grow your account, there’s also a Premium service tier that includes greater access to a human advisor and more.
Although they cater to female investors, Ellevest’s platform is open to all. Like Betterment, this platform’s basic tier also has no minimum balance requirement and they charge a .25% advisory. However their Premium tier starts at balances half that of Betterment, allowing those with $50,000 or more invested to choose that option.
It seems that .25% seems to be a popular fee amount for roboadvisors as Welathfront matches Betterment and Ellevest in this regard. One thing that’s different about the platform, however, is that they do have an initial account balance minimum: $500. That’s still fairly low all things considered and so the choice will likely come down to your personal preference.
SoFi Invest (Automated)
That’s right — in addition to their fee-free trade Active investing option, SoFi also offers an Automated roboadvisor platform. The perk here is that SoFi currently charges no advisory fee for the offering, while the downside is that the option does have a short track record. On top of that, some customers were recently upset about a swap SoFi made in accounts that may have had tax implications for some. With that, it’s up to you to decide if the promise of “free” is worth the slight risk.
Discount Brokerage Firms
Last but not least, while they may not be as shiny or revolutionary as FinTech apps or roboadvisors, there’s nothing wrong with some good old fashioned discount brokerage firms. In fact, compared to some options, these “real” brokerage accounts may be able to save investors money on fees. Of course these types of accounts also allow traders plenty of room to grow and can accommodate them long after they may have outgrown some other options.
To be fair, certain brokerage firms may require higher deposit minimums for buying into funds — however you can typically open an account and start setting aside money before actually moving it into a mutual or index fund. In terms of discount brokerage firms, here are a couple of well-regarded options:
This is actually where my wife and I opened up an account just a few weeks ago. Funny enough, as I mentioned regarding the account minimum, it turns out we didn’t transfer quite enough to buy into the index fund we wanted, but have been able to hold our money in an account as we grow it. As for that index fund, we have our eyes on the Vanguard 500 Index Fund Admiral Shares, which has a current expense ratio of just 0.04%. Of course you can also purchase stocks and ETFs, although commission fees will apply (it looks like buying another share of Disney would cost $7 on my Vanguard account compared to $0 I paid to purchase my shares on Robinhood). All in all, I’ve read online good things about Vanguard and look forward to investing in their index fund ASAP.
Another talked about discount brokerage with a good reputation is Fidelity. For some accounts Fidelity does require an initial deposit of at least $2,500. That said, recently the firm has actually taken aim at Vanguard by offering some index funds with $0 minimums and 0% expense ratios (for the record, bringing things full circle, this fee war isn’t just between the two brokers but is likely the result of Robinhood and other options pushing prices lower). Ultimately, with fees likely to fluctuate over time anyway, what’s important is choosing a brokerage you can work with for many years to come.
Despite what you may think, you don’t need to have thousands of dollars on hand to get started with investing. Thanks to apps, roboadvisors, and a bit of a price war between discount brokerage firms, there are plenty of options for taking your first steps and learning the ropes. As always, you’ll want to be sure that you’re only investing money you can afford to lose but, besides that one requirement, there’s no reason why you can’t start investing today.
Also published on Medium.