The Best Ways to Invest with Little Money

Some people believe you need a lot of money to start investing. But you don’t. The art of investing is building a diversified portfolio that grows over time. The best part is, you can begin investing in your future with only a hundred dollars or even less.

How Much Money Do I Need to Start Investing?

The actual amount needed to start investing depends mostly on your financial situation and investment goals. The so-called “right amount” to start investing with will be different if you have lots of money sitting in a bank account earning little to no interest versus someone who has very little saved.

Your investing goals will also be different depending on where you’re at in life. Your investing strategies at 20 years of age will be different than when you’re in your 30s, 40s, or 50s.

Regardless of your age, it doesn’t matter if you have $100 a month to invest or $2,500, the right amount is what you’re comfortable with. And when it comes to investing, the sooner you start the better. This is especially true for those who do not have a lot of money.

What Are Different Investments I Can Invest In?

Knowing what to invest in can be very overwhelming. There are literally thousands of different investments you can choose from. Below are four ways to start investing with little money.

Stocks

When it comes to investing the first thing people think of is stocks. A single stock represents a fractional ownership of a publicly traded company. The more shares you buy, the larger your ownership stake.

The New York Stock Exchange (NYSE) is the world’s largest exchange with more than 2,500 companies listed. The NASDAQ is the second largest exchange in the world with more than 3,750 companies listed. There are more than 1,640 stocks listed on the Toronto Stock Exchange.

Different stock markets are known for listing certain types of stocks. The NASDAQ is geared toward the tech industry while the NYSE is home to many of the world’s oldest, most well-established blue-chip stocks. The TSX is known for the number of financial, commodity, and energy stocks.

Dividend Stocks

One type of stock that long-term investors love to add to their portfolio are dividend stocks. A dividend is a payment a company makes to shareholders on a monthly or quarterly basis. The payout depends on how much money a company makes.

The dividend yield is the dividend price expressed as a percentage of the share price. If a stock is trading at $10.00 and the company pays an annual dividend of $1.00 per share ($0.25 per quarter) the dividend yield is 10%.

Companies that pay the most reliable dividends tend to be big, well-established companies with predictable profits like Johnson & Johnson, Walmart, Coca-Cola, or Procter & Gamble. Because of their in-demand products and services, these companies tend to do well when times are good and bad.

You can choose to either take the dividend in cash or reinvest it back into the company for additional shares. It may be tempting to take the money up front, but compounding can add up.

For example, if you invested $100 in Procter & Gamble at the start of 2003, and you cashed out your dividends, that investment would be worth around $335, with the company’s shares having increased 235%. Now, had you reinvested those dividends, 20years later, that initial investment would be worth $578, for a total return of 478%.

ETFs

What if you want to invest in a large number of stocks but don’t have the money to do so? Exchange Traded Funds, or ETFs, allow investors to invest in a basket of securities from virtually every conceivable asset class: traditional investments, defensive stocks, cyclical stocks, mining stocks, banking stocks, etc. There are even ETFs that track an entire stock market index. If you can’t afford to buy all 500 stocks in the S&P 500, you can buy an ETF that tracks the S&P 500.

If you like technology stocks but can’t afford to buy individual shares of Meta Platforms (formerly Facebook), Apple, Amazon, Netflix, or Google (FAANG) you can find at an ETF that includes the FAANG stocks. One unit of that particular ETF will give you exposure to those stocks and be priced far less than if you wanted to pick up even just one of each of those stocks.

On top of that, because the ETF includes a large number of stocks it isn’t as volatile as owning one individual stock. If one stock in the ETF has a bad day, it won’t weigh down on the price of the ETF like it would on the individual stock. This reduces volatility and enhances long-term returns.

TFSAs

The Tax Free Savings Account (TFSA) is a way for Canadians to invest their money in a tax-free account. If you invest money in a regular stock market account you are taxed on any gains the stock makes.

With a TFSA you do not pay any tax on interest income, stock market gains, or dividends. Every year the amount of money you can invest in the TFSA grows. The annual TFSA dollar contribution limit is indexed to inflation and rounded to the nearest $500. When TFSAs were first launched in 2009, the maximum amount you could contribute annually was $5,000. Because of rising inflation, the annual contribution limit for TFSAs in 2023 rose to $6,500.

If you open a TFSA in 2023, and were over the age of 18 in 2009, you can deposit a total of $88,000. Any unused TFSA contribution room rolls forward from one year to the next.

You can use the money is a TFSA account to invest in cash, mutual funds, securities on approved stock exchanges, guaranteed investment certificates, and bonds, etc.

Sharp Asset Management for Your Retirement Planning

If you live in Toronto or the Greater Toronto Area and want to start investing but don’t have a lot of money, the investment counsellors at Sharp Asset Management can give you the expert advice you need.

Sharp Asset Management Inc. is an independent Portfolio Management firm that is 100% owner operated. We stand out because of our holistic, customized approach of balancing our client’s investment goals and risk tolerance.

In addition to diligently monitoring our clients’ investments, clients have direct access to a dedicated asset manager that provides them with personalized service, including extensive quarterly reporting. This also allows us to respond more quickly to changing client needs and market conditions.

To learn more about investing with Sharp Asset Management, contact us today.