I was talking about investments with one of my friends last week and he mentioned something that made me think. He wasn’t at all interested in investments and told me that investing was only for people with lots of income. In other words; you need lots of money to start investing.
Nothing can be further than the truth. Unfortunately, our education system is not conducive to teach us how to start investing (neither it is designed to help us balance a budget!). This is why thousands of people are left with the very same question:
I have little money to invest, how do I start?
This is the question I’ll try to answer today. At least, I’ll give you a good starting point.
First Things First; You Need an Investment Plan
Before you look into your wallet to see how much you can invest, you need know how to do it. Therefore, the first step to investing doesn’t require any money. The more you read about investment strategies, the more you will understand what could work for you. To be honest, there is no one-fits-all investment strategy and there are several theories that work.
Mine is dividend growth investing. What I like about dividend investing is that it requires less time than most investing philosophies as you focus on a limited set of metrics as well as the fact that it has been one of the most efficient ways to earn money from the stock market.
Your investment plan should include the following points:
Investment purpose – Why do you want to invest? (multiple reasons could lead to multiple accounts)
Investment horizon – How long do you intend to have your money invested?
Investment budget – How much do you want to invest regularly?
Time available to manage your portfolio – How much time to you want to invest managing your portfolio?
Risk Tolerance – How much money are you willing to lose on paper during market turmoil?
Expected Returns – Don’t think you will make 10-20% return annually, be realistic with your approach.
If you are looking for more support in order to create your investment plan, you can subscribe to my newsletter. I have created a 10 email series explaining how to setup your portfolio step by step. Jump to the end of this page to subscribe.
Start Investing with Little Money – Low Cost Brokers
It doesn’t really matter with how much money you start dividend investing with. What truly matters is what you do with it. One thing that could eat up a good part of your return when you start with little money is your brokerage fees. If you are American, you will be happy to know that there are some ways you can invest at little to no cost. I’ve found 3 low cost brokers that you can check out (these are not affiliate link, simply three very good places to start investing):
Robinhood – offering no fee trades
Loyal3 – offering selective stock lists & new IPOs without fees
Interactive Brokers – charging as low as $0.005 per share
As you can see, you don’t need much to start investing. With virtually no cost, you can start your investment journey with as little as $100 (please see minimum requirements for each broker mentioned in this article).
If you can invest $100 per month, you can start a very interesting portfolio in no time. But the real power of dividend investing lies in compounding revenues. This is how your $100 can become a lot more.
How Little Money Can Become Big Money – the Power of Dividend Investing
Just to give you an idea of how much you can make by investing little money each month, I’ve created this small chart for you. I consider a regular investment of a small amount of money per month for 30 years at different returns:
As you can see, for as little a car payment, you can build a solid nest egg. The idea is to start as young as you can in order to benefit from a 30, 35, 40 years compounding period. In all these calculations, the return always equals more than the amount invested. At 7% and over, we are talking about more than three times what you invest. This is what we call the power of compounding.
By selecting companies paying dividends between 3 and 4%, you only need a capital appreciation of 3-4% and you can certainly achieve a 7-8% investment return over 30 years.
If you are looking at ideas of stocks to start your dividend growth portfolio, you can take a look at my Top 10 dividend growth stocks report. It is definitely a great starting point!