Investing for beginners with little money may appear to be difficult, but it’s not hard to make your money work for you. It’s all about taking the cash that you have now and investing in things that make sense for you.
Let’s be realistic, you’re not going to get rich by investing $25 a month, but investing small amounts can be beneficial since it’ll build healthy financial habits. The idea is that you’ll know the basics, so when you have more money to invest, you can make the right decisions.
Here are 10 ways to start investing for beginners with little money.
Buy a book on personal finance
Before you start thinking about putting your money in the markets, it would be wise to invest in one of the best personal finance books for Canadians. There are a ton of great Canadian experts including Preet Banerjee, Melissa Leong, and Andrew Hallam who can give you the foundation that you need to start saving.
When it comes to your money, you’ll want to learn how to budget and save first. From there, you can come up with an investment plan and focus on your short, medium, and long-term financial goals. Without a book, you’d be winging it and that rarely works in your favour.
Take advantage of work benefits that you may have
One of the first places you want to consider investing is through your employer. Check with your human resources department to see if they offer any kind of retirement savings plan or stock purchase plan.
If you’re fortunate to have access to a pension, you’ll be in good shape. It doesn’t matter if it’s a defined benefit or defined contribution pension, the money your employer puts in is free money. Stock plans can also be lucrative since employers will usually allow you to buy stock at a discounted price or they’ll match your purchases. Always try to max out these benefits since it’ll be more money for you.
Open a high interest savings account
You could argue that the easiest way to start investing for beginners with little money is to apply for one of the best high interest savings accounts in Canada. Traditional banks don’t usually pay anything for deposits, but digital banks will. Admittedly, interest rates are quite low these days, but you can still get something reasonable with EQ Bank.
Think of your high interest savings account as short term savings. It’s the perfect place to park your money if you know you’re going to make a purchase in the next 5 years. It’s also a great place to keep your money while you figure out what your goals are.
Sign up for a robo advisor
The easiest way to invest in the stock market these days is to use a robo advisor such as Justwealth, Wealthsimple, or Quest Wealth. Robo advisors will build you a portfolio using exchange traded funds (ETFs). Since ETF have a low management expense ratio (MER), and robo advisors charge minimal fees, you can get a diversified portfolio at a reasonable cost.
The main benefit of robo advisors is the fact that it requires no maintenance on your end. All you need to do is deposit your money and the robo will take care of everything for you. The portfolios are automated so rebalancing is done automatically at no cost to you. This is an excellent way to get market exposure without having deep pockets.
Dollar cost average
Investing with little money can be easy if you dollar cost average. This strategy is where you would invest a set amount of money every week, month, quarter, etc. regardless of what the price is. For example, you could deposit $25 in your robo advisor on the first of every month. When prices are low, you end up buying more units, when prices are high, you buy less.
By doing this, there are no emotions in your decision making. You’re not worried about any potential price changes, you’re just sticking to your plan. Hopefully, over time, you’ll increase the amount you’re investing every month.
Use an app
For those who are just terrible at saving, there are a few budgeting apps that will automatically round up your purchases and save your money for you. KOHO is one of the most popular options since it’s a prepaid credit card that earns you cash back on every purchase. You can choose your roundups to the nearest $1, $5, or $10, so you can be aggressive with your savings.
Automate your savings
One method to make savings easy is to automate things. The idea here is to set up automatic transfers that will go from your chequing account to a high interest savings account or to your robo advisor. You could easily set things to transfer once a week or month.
Ideally, you want to time these transfers to happen right after you get paid. By doing this, the money’s gone before you even realize it. You’re essentially paying yourself first. After a few months, you’ll likely get used to the “reduced income” which would allow you to increase the amount you’re putting aside automatically for your savings.
Invest in mutual funds
I’m not a huge fan of mutual funds since they have a high MER compared to robo advisors, but if it gets you to start investing, I’m all for it. The benefit of mutual funds is that they’re available at every financial institution, so opening an RRSP or TFSA with your home bank will likely be a quick process. You can then easily transfer funds directly to your mutual funds or set up automatic purchases. Mutual funds are okay for beginners, but the fees really are high.
Use found money
Having money to invest will always be an issue for some people which is why you should consider using found money. What I mean by that is if you get a tax refund or cash gifts for any reason, use that money to invest. Quite often it’s tempting to use any money you receive for personal reasons such as a vacation or new gadgets, but using it to invest will be more beneficial in the long run.
Consider real estate
Okay, investing in real estate with little money might be a bit complicated, but hear me out. If you happen to live in an area where the price of renting is somewhat similar to monthly mortgage payments, it may make sense to become a homeowner. That said, I recognize that this may not be possible in most urban areas in Canada.