How to Get Started Investing When You Don’t Have Much Money

Investing is not just for the rich. Here are four ways to get started on Wall Street with as little as $50.

Playing in the stock market can be expensive. If you want to open a brokerage account at Charles Schwab, you’ll need $1,000. Over at Fidelity, the minimum investment is $2,500. And at Vanguard, you’d better be ready to invest $3,000 for most of their account options.

The hefty minimums required by many firms can make it seem as though holding investments is the preserve of the rich. However, don’t discount your ability to buy and sell mutual funds, stocks and bonds even if you don’t have deep pockets.

Here’s how to get into the investment game at a fraction of the normal cost required by the big firms.

Sign up for an automatic investment plan

Some brokerage firms are happy to open accounts with a small initial investment, as long as you agree to make regular, automatic payments. This is how I invest through American Funds. Most accounts have a $250 minimum for the initial investment, and then you can set up automatic payments as small as $50 a month.

Other companies that, as of this writing, offer automatic investment plans with low or no opening minimums include USAA, Heartland Funds and Monetta Mutual Funds. There are certainly others. If you have a company you’d recommend, share it in the comments below.

The biggest downside of this investment strategy is that small balances could be subject to extra fees not assessed of bigger customers. However, even if you’re able to swing a big initial deposit, an automatic investment plan can be a smart choice. It puts your savings on autopilot and helps ensure you’ll be putting money away month after month or quarter after quarter.

Look to online firms that welcome small-time investors

An automatic investment plan may be your best bet for buying mutual funds with a small deposit, but stocks are another story. They are much easier to buy with whatever little money you find left in your checking account at the end of the month.

There are two ways to buy stocks when you don’t have much cash, and we’ll start by talking about the most familiar one: online brokerages.

These companies are the ones with the Super Bowl ads and the promise that even Bob from Boise is just clicks away from becoming a winning day trader. The best-known companies in this category are E*Trade, ShareBuilder 401k and TD Ameritrade.

While some online brokerages have minimum deposits to open an account, those that do typically keep them low. Others, such as ShareBuilder 401k, have no upfront minimum requirements. Once you open your account, these companies make money by charging a commission for every trade.

Those commissions are the reason that while online brokerages make stock trading accessible, they also make it expensive. Paying $10 for a trade may not seem like much, but if you’ve only got $100 to play with, you’re starting off down 10 percent on Day One — not a good place to be.

If you want to try an online brokerage, Barron’s published a list of their top picks for 2016. You can also look at the firms on our Best Online Broker page. Or, if you want to skip the fees, keep reading for a cheaper way to buy stocks.

Buy stocks directly from a company

You may think the only way to buy stocks is to go through a brokerage, but direct purchase plans are an easy way to get your shares straight from the source. These plans are how big companies sell stocks directly to investors.

Some companies may allow one-time purchases of stock, while others offer plans similar to automatic investment plans. Either way, the minimums are generally low, as little as $250 for a one-time purchase or $50 for an automatic investment plan.

While there may be set-up fees and purchase fees, the cost of buying directly from a company is usually much less than what you’d pay if you buy through a brokerage. Intrigued? Computershare has a long list of companies offering direct purchase plans.

Put your money in exchange-traded funds

Another option for those of us without much startup dough is an exchange-traded fund, known as an ETF. They can be difficult to explain, but the important thing for you to know is that they offer the diversification of a mutual fund with the convenience of a stock.

If you didn’t follow, let’s start with mutual funds. A mutual fund doesn’t contain just a single security; it’s a collection, known on Wall Street as a portfolio. It might contain stocks, bonds, money market funds and any number of other kinds of securities. The advantage of a mutual fund is diversity. Rather than owning one stock or bond, you own a small slice of dozens, even hundreds. That way, if one company goes south, you’re not wiped out.

The problem with mutual funds is that because they include a number of different stocks and securities, they can be more expensive to manage and purchase. That’s why brokerage firms often have such high minimums.

Stocks, by contrast, are generally easier to buy than mutual funds. You can purchase a single stock any day you want with the minimum price being as low as that day’s trading price plus any commission or broker fees. However, stocks can be volatile. You’re investing in a single company, and your fortunes are tied to theirs.

This is where ETFs are so handy. They contain a number of securities, like a mutual fund, but they trade on the exchanges like stocks. You can check out The Street’s top picks for ETFs, and then you should be able to buy them through one of the online brokerages listed above.

Investments aren’t only for the rich. Rather than blowing your tax refund on a new TV, use one of these avenues to see if you can take a tiny bit of cash and turn it into a substantial nest egg.

Share your experiences with personal investing in the comments section below or on our Facebook page.

Christina Majeski contributed to this post.

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