Best ways to invest small amounts of money

You don't have to be a millionaire to begin investing money. If you have very little money and want to begin, there are ways that you can start immediately. When you start with the best ways to invest small amounts of money, it doesn't mean that you have to settle for a small return. It won't be long until that little money grows into something substantial.

Types

Invest in a variety of things. You can choose bank accounts, mutual funds, stocks and bonds if you have a little money to invest. It's best to use methods that allow you to diversify as much as possible. This takes some of the risk out of investing.

Benefits

Save some every month. Many times, there are ways to invest small amounts of money that involve putting away some every month. If you have a 401-k plan or stock purchase at work you can invest a small amount every payday into the account. You need to see if you qualify to put money in it and then sign up. If your company offers this benefit, take advantage of it.

Considerations

Start at the bank. See how much is necessary to start a bank account. Minors usually don't need to have a lot of money and don't have minimum fees. If you're not a minor, there are ways to avoid fees by doing a monthly systematic investment from your current account. If you have a single lump sum, and don't intend to invest more, be aware that fees from the financial institution might eat your savings account.

Features

Buy direct. There are companies that offer Direct Purchase Plans (DPPs) and Direct Reinvestment Plans (DRIPs). You can often invest small amounts directly with the company. Since the law prohibits companies from offering the plan directly on their websites, you can go to their site and click on "investor information." This takes you to a different site that tells where to find information on the DPP or offers it there.

Size

Use bonds. Since regular bond often cost more than a few dollars, you might want to use savings bonds. These can be found at local financial institutions or check out the resource at the bottom of the page. There is some opportunity to get high-risk bonds through a brokerage account. These bonds are junk bonds and are deeply discounted. That means they sell for a lot less than the face value. These are high-risk instruments, so be aware that you could lose everything.

Prevention/Solution

Find mutual funds. Look into mutual funds that are funds of funds. That means they are made of shares of a variety of different funds. This gives broad diversification. While some funds offer a single purchase for as little as £162, others discount that investment to a lot less if you invest small amounts of money every month. See the resource area for some fund minimums.

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