Navigation

How to Invest in the Stock Market With Little Money

invest in the stock market

As I’ve shared before in my stock broker confessional, I had the pleasure of helping people from various walks of life and investing situations while they were trying to invest in the stock market. I got to see the full range of individuals from those just who were learning to invest to some who were sitting on very expansive and lucrative investment portfolios. It was those who we’re wanting to invest in the stock market with little money I enjoyed helping most as they largely were just starting out in terms of growing their wealth. The challenge they often faced though was the belief they couldn’t afford to get started investing.

To be fair, I would be dealing with not all the pertinent information, as I could only go off of what they told me, but I found it difficult to believe that such a big block of professional individuals could not afford to be investing in stocks at some level. I think some of it might go back to lack of investment education, or an unwillingness to make changes, but I’m sure that is not always the case.

As this is a part of my how to invest in stocks series, please feel free to check out some of the other posts in that series as each one builds on previous articles:

 

You Can Invest in the Stock Market With Little money

 

A common misconception among many is that they need to have thousands upon thousands of dollars to invest in the stock market. While more is certainly better, big bucks is not a pre-requirement to investing. Opening an online brokerage account is often the best way to get started investing, especially if you do not have access to a 401k through your employer.

If you’re looking for an online broker, you can check out my online brokerage page to find brokerages that I either personally use or have extensive experience with. Assuming you’re going the route of using an online brokerage, many have minimal requirements, or none at all, in terms of balance to open an account with.

Many start out with a minimum opening balance of as little as $250, like with Motif Investing, which is not bad at all. While investing in mutual funds is usually not the best option, as many involve a minimum to get started, you can start investing in stocks with little money. Granted it may not be many shares to start with, but at the very least it allows you to invest in the stock market and not sit on the sidelines.

Automation Can Be Your Best Friend

 

One of the most common excuses I heard from those saying they could not afford to invest in the stock market was that they commonly forgot to deposit money into their account. I understand that, life is busy and it’s easy to forget things, especially if it’s not a priority. This is where automation can be such a huge asset to those just starting out and those who have been investing for years alike.

Many online brokerages will allow you to set up an electronic transfer between your account with them and your bank account. You can either transfer money in individual situations, or set up a regular transfer. Using this feature allows you to build a pile of cash that you can invest in the stock market. Unless you’re transferring a large amount over, try to avoid buying stocks with each transfer as it’ll only cause you to spend more money in fees and commission.

 

Looking for money saving tips and ways to grow your wealth? Then sign up for my free monthly newsletter.

 

A Quantifiable Goal Can Be Your Best Friend

 

A common issue I saw with those saying they could not afford to invest in the stock market was they had no ownership of it. They had no skin in the game and thus did not see the need to begin investing. Regardless of what it is in life, if you don’t truly want it, it’s going to be difficult to work towards. Investing in the stock market is no different. Saving for retirement can be such a nebulous thing to those three to four decades away that they can easily put investing in the back of their mind and lose sight of time.

This is why I find it so helpful to have something to work towards to help incentivize myself to push me to reach whatever goal I have. I did this three years ago when Mrs. Frugal Rules and I wanted to go on a cruise for our tenth anniversary. We wanted to spare no expense and thus needed to save like crazy for it. It may sound silly, but I put a picture of the ship we’d be on at my desk. Whenever I wanted to give up or not work to get a bigger bonus I’d look at the picture and I’d be motivated to start working for it again because I wanted it. If you’re struggling with wanting to invest in the stock market because a lack of funds, look for ways to not only motivate yourself but push yourself to find ways to find the cash to invest.

Don’t Give Into the Excuse of Lack of Funds

 

I purposely left this issue to the end of the post. Too many times to count, I would ask individuals why they were not investing in the stock market and was told they felt they had little money to get started. I’ll cede the point that there are some who find themselves in that case and I do not bemoan that by any means. That said, many were professionals, making a very decent salary but choosing (I am largely guessing here) to not make investing in the stock market a priority. Worse yet, they were using the belief that they had no money to spare as an excuse to not invest in the stock market.

Ultimately, I think it comes down generally to a lack of priorities and not thinking about the future and instead only thinking of the present. If you’re in this situation, I ask you to look at your spending habits and look for ways to cut your expenses. I’ll spare the list, as it has been rehashed here many times before, but look for ways you can trim the fat from your spending and put that money to work for you as opposed to being enslaved to it.

It may seem like a small amount, but finding something as simple as even $40-50 per month to invest in the stock market will do you wonders in the long run. If you’re wanting or needing help to locate those areas to trim, my favorite tracking tool is Personal Capital. Not only is Personal Capital free, but it also allows you to track your expenses, offers a free portfolio review and so much more in order to stay on top of your finances.

Whatever your situation is, please take action to get started today as you don’t want to look back years from now wishing you would’ve started earlier.

 

What excuse have you used to not invest in the stock market before? At what income level is not investing a justifiable excuse?

 

Photo courtesy of: SeniorLiving.org

If you enjoyed this post, please consider subscribing to the RSS feed.
The following two tabs change content below.
I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. I'm also a freelance writer, and would love to help out if you have the need. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

Latest posts by John Schmoll (see all)

58 Comments

  • FI Pilgrim says:

    Great article John, I agree that there’s never “too little” to get started with. And for some folks who like to speculate too much, learning how NOT to invest in the stock market is a better lesson to learn when you only have a little to lose!
    FI Pilgrim recently posted…Build A Better Budget Part 3 – Tracking MethodsMy Profile

    • John says:

      Thanks! You bring up a great point that if speculation is your forte then not investing can be a good lesson to learn if you’re starting with little.

  • I like your tip about having a small amount automatically transferred from your bank account to your brokerage account. I already have a small amount transferred each month from my checking to savings, so what’s my excuse for not having a small amount transferred to my investment account? There really isn’t any, though I am guilty of not taking action and actually setting up this transfer.
    DC @ Young Adult Money recently posted…When Did Your Parents Cut You Off?My Profile

    • John says:

      That’s exactly how you should view it DC! It’s just like transferring money over to your savings account each month. I like to view it as a bill and just let it do its magic.

  • Troy says:

    I always thought you needed at least $5000 to open an account (at least that’s how much you need at my brokerage).

    • John says:

      That’s a common misconception Troy. Many brokerages, if they do have minimums, are as little as $500 or $1000. Of course, if you plan on utilizing margin then you need $2,000, but many brokerages you can get started with very little.

  • Matt Becker says:

    You can get started at Vanguard with one of their target retirement funds for just $1,000. And there are no commissions to speak of. Most people can save up $1,000, even if it takes some time. Then, like you said, you can automate whatever regular amount you can afford to contribute and you’re on your way. And again, without commissions you don’t have to worry about firs putting money into cash and then later moving it into your actual investments. You can invest right way without dealing with any kind of extra hassle, extra cost or drag on your returns.
    Matt Becker recently posted…Taking the Scenic RouteMy Profile

    • John says:

      That’s exactly what I’m talking about Matt! Starting with something like that with Vanguard can be a great way to get started and even sticking with them is advisable as they’re hard to beat in a lot of areas.

  • AverageJoe says:

    I like the process of investing automatically because it becomes a bill. If you try to trust yourself to save money every month, you never will. If it’s automatic, you’ll make sure the money is always there to invest when the “bill” arrives.
    AverageJoe recently posted…It Appears My Magic Stock Picking Machine Might Be BrokenMy Profile

    • John says:

      Right on Joe! It’s funny how we try and trust ourselves and it generally doesn’t work out. Having that bill mentality is a great way to go.

  • Mr. 1500 says:

    I think that there is only one excuse for not investing. That excuse is if you have enough money to retire without ever earning another dollar from a job. So, if you have attained financial freedom, you may buy Corvettes or travel to Fiji with extra money. Otherwise, save until it hurts.
    Mr. 1500 recently posted…SpongeSister SpendyPantsMy Profile

  • Great post! Investing in stocks could really be great for you and making excuses not to do it is your loss.
    Mark Ross | Think Rich. Be Free. recently posted…15 Ways On How To Save Money For TeenagersMy Profile

  • You make some great points here, John. Everyone needs to start somewhere. Small amounts do eventually grow into large amounts. Anyone can get rich … slowly. The key is to get started.

    Automatic transfers into your investment account are a terrific idea. Soon after setting up automatic transfers, the money isn’t even missed. You become used to the new ‘normal’. In effect, you have begun to ‘normalize’ a disciplined investment approach that is key to wealth building.
    Froogalist @ froogalism.com recently posted…Best Times To Buy Stuff On Sale Throughout The YearMy Profile

    • John says:

      Thanks! I agree, it may not seem like much in the beginning but we all need to start somewhere.

      That’s my exact thought with the automation. You don’t feel it really and can begin to start that discipline of investing for the long haul.

  • Hey John, another great post as usual. I really like the automatic investment options. I think one of the best out there is Betterment. Anyway, thanks for the great read!
    Joshua Rodriguez recently posted…Welcome To The NEW CNA Finance!My Profile

  • No Waste says:

    As long as the approach is tempered for risk and well-balanced, everyone should be investing in the market..

    But getting to that well-adjusted point can be very difficult, given human nature.
    No Waste recently posted…I Don’t Trust You, Mega CorpMy Profile

    • John says:

      I could not agree more – on both accounts. It’s vital to be in the market and it can be difficult to get to that point and balance it well.

  • I think everyone should invest as soon as possible too. Pay the consumer debt off first though. Even $100/month is a good start. It will build up a good habit.
    midlifefinance recently posted…Saving Money On Back To School (For College Student)My Profile

  • Hmm, if someone isn’t investing because they think they don’t have enough money then that sounds like there is a lack of education. Here’s the thing though, if they are that unaware or misinformed, it would be wise for them to learn a bit more about the basics of investing in the stock market before they actually get started. In other words, if someone thought they had to have $10k minimum and then found out they could get started with much less, they should take the time to learn what they’re actually doing rather than blindly picking something.
    Mr. Utopia @ Personal Finance Utopia recently posted…Getting an MBA is a Waste Unless You Do ThisMy Profile

    • John says:

      That’s a very valid point and one I’ve covered in previous posts. :) That said, you’d be surprised at how often the lack of knowledge is used as an excuse to not start investing. A lot of people allow that to hold them back when they really don’t need to.

  • Having small funds is no excuse nowadays. I know not too long ago it was very prohibitive to invest small amounts due to the high commissions and account fees. Now with the discount brokerages which offer low commission costs and usually no account fees plus most offer commission free ETF and mutual fund purchases. Granted there’s usually limited options on those ETF/MF’s but I haven’t seen one that doesn’t have your broad based index funds. That’s enough to get your feet wet.

    It really all comes down to your mindset and making it a priority. If you want to be in better financial shape in the future you have to do something about it today. That is until the next Powerball jackpot gets up to $250+ million, I guess that’s always an option.
    JC @ Passive-Income-Pursuit recently posted…Recent Option TransactionsMy Profile

    • John says:

      I could not agree more JC. The online brokerage space really has made it much easier for the everyday retail investor to get into the market even though they may not have tens of thousands of dollars.

      Great point on the mindset! Many don’t have that mindset and they only harm themselves as a result.

  • Okay John, you caught me. I invest in my 401k, but I often tell myself that I have too little to invest on my own. That is totally not true! I guess it comes down to priorities and I just need to do better.
    Nick @ ayoungpro.com recently posted…Monthly Twitter Tips: Millennial Career AdviceMy Profile

    • John says:

      Ha ha! :) I guess I did catch you. ;) Seriously though, that’s great that you’re investing in your 401k! You could have quite a bit more diversification going for you and help your long term picture by also starting something like a Roth. It really does not take a whole lot and if you go with some vey low fee index funds you could really do a lot of good.

  • My excuses would be lack of knowledge and lack of time. Upon graduating from university several years ago, setting aside money to use for investing was the last thing on my mind.

    Now its constantly on my mind!
    MakintheBacon recently posted…Kid CoutureMy Profile

    • John says:

      Those are very common ones, but kudos to you not allowing that to hold you back. It can take time to get started, but that starting is the key.

  • All of my investing is in my 401k and Roth IRA right now. No time to play with stocks as we are on an EXTREMELY tight budget :)

    But I LOVE the idea of automating transfers to your brokerage account.
    jacob | iHeartBudgets recently posted…Ultimate Budget Series: Part 4 – HousingMy Profile

    • John says:

      To be fair, I really am not talking about playing with stocks, but generally being in the market. Whether that be in index funds, mutual funds, dividend paying stocks I was just meaning generally being in the market. That said, it sounds like you’re on the right path with both your 401k and Roth.

  • Some people may feel a little overwhelmed with some of the minimums with these brokerages, but that is why I chose Betterment. I could get in for little money and it is working well. You can then transfer to another one once you get to the minimum level.
    Grayson @ Debt Roundup recently posted…RetailMeNot Could Buy Your Shopping CartMy Profile

    • John says:

      I totally agree Grayson. That said, the beauty is many brokerages have no minimum at all, a simple internet search should direct you to some that have none. That said, a tool like Betterment can be a great option.

  • after my wedding in 12 days, fiancee and I plan on each starting Roth IRA accounts at Vanguard since it’s a low minimum to start a target retirement fund. We’re both super behind on retirement funding but can at least still do a little bit even while paying off my debt.
    Tara @ Streets Ahead Living recently posted…Working Vacations: Wanderlusting on the CheapMy Profile

  • I like the idea of automated investing and agree with Joe; if automated you make sure that there is money every month and that is that. We use a ‘dam’ like system at the moment where accumulation happens in a savings account and then investments are made. Problem with automation can be that it kills creativity and he highest gains are from creative investments.
    maria@moneyprinciple recently posted…Investor confidence debate: me on videoMy Profile

    • John says:

      He did have a great point and I tend to view it that way as well. That’s a great point about automation possibly killing creativity. Though I don’t know how much you want to be “creative” when investing in the stock market.

  • I think it’s easier to save for an immediate goal like a trip because it’s tangible. What picture could you put up for retirement? An old broke guy panhandling on the street maybe? A case of top Ramen?

    That being said, I don’t really think anyone has an excuse or too little money. Maybe I would hold off until there is a bit of en emergency fund, but not forever. If you are really using every penny you make for essential spending and have nothing left, you need to find a way to make more money or cut expenses. I’ve been reading blogs for a few years now, and if you can’t come up with something, you just aren’t trying hard enough. It comes down to choices vs excuses. It always does.
    Kim@Eyesonthedollar recently posted…How to Afford a Vacation- Time Off and A Place To StayMy Profile

    • John says:

      Lol, yea, I don’t think a case of Top Ramen would be my ideal picture of retirement. That said, you’re right on Kim – it often does come down to choices vs. excuses.

  • I wonder if some of the reluctance comes from people not truly understanding what they’re buying. Stocks can be a pretty nebulous idea for some people to wrap their minds around and it only gets worse when people don’t feel confident in their own abilities to make investment strategies.
    There’s also the risk that comes with the stock market and you hear about people “losing their shirt” in this or that stock. I wonder if people are judging all stocks the same -as risky and untrustworthy places to plan their future retirement with.
    Lindsey @ Sense & Sensibility recently posted…Weekly Update: August 12 – 18My Profile

    • John says:

      I think you’re right, to a certain extent, Lindsey. I think a lot of it goes back to education which I think is intertwined with that reluctance.

  • I think one of the best points you made is that people should ‘get some skin in the game’. I think the fastest way to get an education (about anything) is to have some money on the line. You then can’t help but be a bit more engaged in the process. I did a lot of learning before I first started investing, but my learning curve increased exponentially as soon as I’d made my first investment.
    Nell @ The Million Dollar Diva recently posted…In Defence of Your Daily Coffee, Or Why Quitting Coffee Won’t Make You RichMy Profile

  • My excuse not to invest is I need the cash on other projects so the stock market comes last, but I still invest most of my money. I used to have an automatic payment to buy index funds every month and there was no fee, which was great because if you invest $100 a month and have a $7 fee it is hard to make the money back soon.
    Pauline @ Make Money Your Way recently posted…Are you too busy to make money?My Profile

    • John says:

      I think you’re doing pretty darn good Pauline! :) You’re a very good lesson in what it means to be diversified across many opportunities.

  • I’ve had good luck using Charles Schwab and their low-cost Schwab index funds. You can open each one with a minimum of $100 and they make it really easy to setup automatic investing.

    So you can start with one fund at $100 a month and then work your way up to a few of their different index funds twice a month for whatever amount you want to invest bi-monthly.

    I’ve been really impressed with their customer service, their website and the ease of use in general.
    Brad @ RichmondSavers.com recently posted…How a Family of Four with a $100,000 Yearly Income Pays only $6,400 in Federal Income TaxMy Profile

    • John says:

      Right on Brad! I’ve heard very good things about Schwab and their platform. Going the index fund route is not too shabby at all either – especially with the possibility of no commissions as a result.

  • Great article! Quite a few companies also offer DRIPs (or Direct Stock Purchase Plans) where you buy as little as one share directly from say, a Coca-Cola or Disney and avoid the brokerage fees. The enrolment process isn’t the easiest though. But once you purchase your one share, some will let you invest for as little as $10/month and all the dividends are then automatically reinvested. Just another option.
    Anthony @ Thrifty Dad recently posted…Planning for your DIY renovation, on a budgetMy Profile

    • John says:

      Thanks Anthony! That’s a great option. DRIPs can be great option, especially if starting out and just looking for companies that you know/use.

  • Hoodgrown says:

    Great article. I’m basically living paycheck to paycheck and I too thought that I could never afford to invest. The new company that I work at provided us with shares and an Etrade account and now I’m really interested in doing more investing.

    Since I’m a techie I’m looking at tech stocks and even more than the money, my barrier to entry is more a matter of grasping this whole investment thing. I definitely have a lack of understanding about how the whole thing works.

    • John says:

      Thanks! That’s awesome you have that set up and should hopefully get you started out with investing.

      I can certainly understand having that barrier to entry as many have that. I’d encourage you to check out some of the free education that Etrade offers. So much of that barrier goes back to education and once you get some it becomes much more understandable.

  • Deanna says:

    The thing I don’t like about investing in stocks is that your profits only go up as long as you have the money tied up in playing the market – it seems like your “gains” are really just a fantasy, because you really only make money if you sell at a higher price than you bought. But if you invest in a stock that loses or even tanks, no one will buy, so you’re stuck with a loss. It’s no different than gambling and I don’t gamble. I don’t like throwing money into some big illusory hope that I will make something. I want to see the money come back in a tangible form that I can access easily.

    PLUS, if you are investing in some kind of money market account or a fund where they do the investing for you, you really don’t know if you are investing in companies that are ethical or outsourcing all their work by child labor in China or India, things like that. It’s a conundrum. I wish I knew what to do because I have just now come into a bit of money and I want to figure out how to get the best return on it. Never ever in my life did I think I would see banks giving no interest on the money I let them use by saving there. Interest rates are so low everywhere, I have no faith in the market or anything else. A friend of mine tells me I should buy gold, as that always goes up (over time), but even that’s been low for quite a while now. I’m beginning to feel like the best place for my money is under my mattress.

    • John says:

      Thanks for your comment Deanna. :) In regards to your comparison to gambling, I’d agree, only if you’re stock picking though. If you’re just randomly picking stocks then you’re opening yourself as an investor up to who knows what. That said, if you do your research then you should be able to find something of value. I understand the feeling that any gains are a fantasy, but the question goes back to what is your perspective? Are you investing with a long term mindset? If so, then you should be able to weather any ups and downs.

      That’s a great point about not knowing what the specific company does. Many feel the same way and there are funds available that look to invest in companies that aren’t doing anything nefarious.

      The rate climate, or lack thereof, is definitely a concern. Many are impacted, to put it lightly, by this and leading them to do things they may not normally do. That said, the money under the mattress feeling is generally not one you should listen to as you’re locking in losing money due to inflation. My encouragement of what to do with the money you’ve come in to is to invest it in some low fee index funds so you can be investing with the market as opposed to trying to get wrapped up in individual stocks.

      All that said, thanks so much for your comment Deanna. I’ve spoken to hundreds, if not thousands, of people in the same basic situation you seem to be in and it’s not always an easy issue to figure out.

  • Evelyn says:

    Thank you for your post. Very informative. Question: I have a traditional IRA with my local credit union and would like to roll it over to a ROTH IRA account with OH.. I have already opened an account with OH, but need to fund it. The balance on that account is very minimal ($725). Do you think this is good enough to open the account? I have no clue of what to do and how to get started. Do you have any suggestions? Thank you.

    • John says:

      Thank you Evelyn, glad you found it helpful! That is a great question and I think it’s definitely enough to open an account with, especially as OH does not have a required minimum balance to open an account with. From there, you could look (generally speaking) at a solid index fund which should help get you started. Of course, it’ll be better to add to it either monthly or quarterly but this’ll give you a good start. Also make sure you take taxes into consideration when converting the Traditional over to the Roth. Thanks for stopping by. :)

  • Richard says:

    I thought that having a brokerage account would be too expensive. I also believed that because my major isint business that I would be clueless. But I’m only clueless as a am lazy. However im making changes for a better and a smarter future. With that said I want to say thanks man this article is life changing. Also before I begin as a novice investor any advise, books. I want to be prepared.

    • John says:

      Thanks for your comment and for stopping by Richard. :) That is a common belief that many investors have and it’s simply a myth as there are many brokerages out there that charge nothing to have an account with them. I’ve listed a good number of them on my online brokerages page, which you can check out.

      That said, glad you found this article helpful as my desire is to help investors see that they don’t need loads of money to start investing. Sure, it’s helpful, but not required by any means. If you’re looking for a good book to start with, the one I always recommend to investors is A Random Walk Down Wall St. You can find it on Amazon here – http://www.frugalrules.com/bfa5

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

CommentLuv badge