Most people wait to start investing until they have a significant amount of money saved up. This made sense a few years ago for two reasons:
- Mutual fund companies had high account minimums (some were as high as $3,000).
- Brokerage firms charged high fees, which ate up the returns of small accounts.
But now there are high-quality, zero-fee investment providers that let you get started for $50 (or even less, in some cases).
If you’re wondering how to invest $50 in the stock market (or whatever little money you have, for that matter), this article can help.
Should You Start Investing?
Before you start investing in the stock market, you want to make sure that doing so makes financial sense.
The number one reason why you shouldn’t start investing is high-interest debt. If you have high-interest debt like credit card balances, you should hold off on buying stocks.
First, understand that the stock market has returned an average of about 7% per year after inflation. So if you have debt at a higher interest rate than 7%, getting out of debt as fast as possible is your best investment. It’s also a guaranteed rate of return, which is something the stock market can’t provide.
Does Investing With Little Money Matter?
Next is the fact that a little money plus a lot of time results in a lot of money.
To illustrate this point, here’s what $50 a month at a 7% returns compounds to:
When you start early, even as a teenager, you have the tremendous advantage of compound interest on your side. This is how you can build generational wealth, even if you don’t make a lot of income.
What Type of Investment Account Should You Open?
There are two primary types of investment accounts.
- Taxable accounts.
- Retirement accounts.
In a taxable account, any income earned is, as the name suggests, subject to taxes. That includes dividends and gains if you were to sell. Examples of taxable accounts include standard brokerage accounts, like the ones you’d get by signing up with Robinhood.
With retirement accounts, such as IRAs and 401(k)s, taxes may be deferred (so you owe less today) or paid upfront so your investments can be sold tax-free during retirement.
The difference between these account types is huge!
Let’s say you invested $50 per month for 40 years (between the ages of 25 and 65). If you placed those funds in a taxable account, you might end up with a figure around $50,000. If you placed them in a traditional retirement account, that figure might be closer to $75,000.
Your actual returns would vary depending on many factors, including your investment choices and the overall economic environment. However, these figures (as illustrated in the chart below) show the impact of fees and taxes on the value of your portfolio over time.
Taxes eat away at your gains, so it’s important that you pick the right investment account.
If your employer offers a 401(k) with an employer match, this is a great place to start. You won’t come close to matching the returns your employer’s 401(k) match will provide.
If you don’t have access to a 401(k) with an employer match, I’d recommend a Roth IRA, which allows you to contribute after-tax money today and then withdraw that money tax-free starting at the age of 59.5 years.
Here’s a guide that explains more about the differences between traditional and Roth IRAs.
Different Ways to Invest in Stocks
You might be thinking that you want to take your $50 and invest it in a company like Amazon, Facebook or Tesla. But if maximizing your returns is your goal (which it should be), that may not be in your best interest.
Few investors, including professionals, are able to pick individual stocks and beat the market. They might get lucky once or twice, but study after study has shown that few succeed in the long run.
Of course, it’s hard not to try and pick the next big stock market winner. After all, this is what gets a lot of people interested in investing. I’m in this camp myself.
If that’s the case for you, I suggest limiting the amount you invest in individual stocks to no more than 10% of your total investments. You can check out our guide to investing in stocks to learn more about individual stock investing, including where it fits within your overall financial plan.
The approach that research shows has enabled individual inventors to outperform market averages — and even most investment professionals — is low-cost index fund investing.
An index fund is a mutual fund that holds a collection of stocks. For example, an S&P 500 index fund holds stock in all the companies that make up the S&P 500 (which includes the 500 largest companies in the U.S.).
There are a number of advantages to investing in index funds, especially for those wondering how to invest $50 in the stock market:
- Low fees. Index funds charge very low fees.
- Tax efficient. Because they don’t trade a lot of stocks, index funds incur minimal taxes.
- Low maintenance. You get a totally hands-off investment.
Related reading: How to invest for retirement In your 20s, 30s and 40s.
Where to Invest as Little as $50
The one downside to getting started with as little as $50 is that you’re limited to certain investment providers.
Many investment firms still have minimum deposits that start at $1,000.
Also, you need a brokerage that allows you to invest in fractional shares. Many of today’s most popular stocks go for hundreds or thousands of dollars per share, so going with a brokerage that allows you to purchase fractional shares gives you significantly more options.
Investing With Little Money FAQ
There are two guaranteed ways to get a quick return. First, if your employer has a 401(k) match, start contributing up to that match. That’s free money you don’t want to miss out on. You can also take advantage of a handful of free stock promotions, which can immediately increase your return.
Yes! Little amounts of money, even just $50 a month, can grow to large sums given enough time. Also, there are tax benefits to investing with little money. If you qualify, there’s a retirement savings contribution credit (up to 50% of your contributions).
Micro-investing apps often have monthly fees can overtake your returns. Depending on the size of your account, you may be better off just investing on your own and not paying the monthly fee. Still, these apps do offer some benefits. See our list of best micro-investing apps, and learn more in our complete guide to micro-investing.
See our list of best stock market books for beginners.
Yes, many new platforms allow you to start with just $10. Read our guide on how to invest in real estate with little money to learn more.
What to Do After You Invest
Once you’ve made your first investment, you may be wondering what to do next.
First, you want to set up an automatic deposit into your investment account. Ideally, set up a recurring transfer from your checking account to your investment account for the day after your paycheck hits. This will help you make sure you actually move money over on a consistent basis.
Next, challenge yourself to increase the amount you’re investing. If you increase the amount you invest by $10 each month, you’ll be up to $170 per month after just a year.
After that, it’s a matter of being patient.
Investing is a long-term game. Those who win are those who are patient. This isn’t gambling, and you’re not going to find the next Google or Amazon. Your goal is steady, consistent gains that compound over time. That may sound boring, but it’s the best way to get rich.
You also may want to use an app that tracks your investments. If you do, just don’t get too concerned when your portfolio value drops. Down markets are inevitable. Be patient. The last thing you want to do is sell when your investments have bottomed out.
And keep in mind that any given dip is just one brief moment in time. Remember the financial crash of 2008, when investors lost billions upon billions of dollars seemingly overnight?
Well, here’s how that dip looks a little over a decade later, on a chart showing the ups and downs of the S&P 500:
So stick with it and have faith, even when things are looking ugly. That trend line is sure to take a sharp turn down at some point sooner or later, and that’s just fine — you’re in this for the long haul.
Bogle’s best invention ever was the three-fund portfolio. It couldn’t get more simple than that. It performs very well also.
Couldn’t agree more. Has stood the test of time, and the improvements we have today are very marginal.