Investing on any budget

Investing in your financial future can seem like a daunting task, especially when you’re on a tight budget. You may think that you need a small fortune to even get started, but the reality is that there are a number of ways to start investing with small dollars. Keep in mind that while these investing options can be a more accessible way to enter the market, they’re still subject to the same market risks as traditional investing. But with the right strategies and tools, anyone — even if they’re starting small — can get on a path toward building wealth over time.

Start with what you’ve got: Workplace investing

One of the easiest ways to start investing is through your employer-sponsored workplace retirement plan, if your company offers one. These plans allow you to contribute a portion of your paycheck before taxes are taken out, and some employers even match a percentage of your contributions. It’s like getting free money on top of what you’ve already contributed, which helps make workplace investing a smart way to start. Even if you can only afford to contribute 1% or 2% of your income each month, it’s a start, and that money has the potential to grow over time — see the discussion about “compound interest” below.

Or take a look at Individual Retirement Accounts (IRAs)

Another option to consider is an IRA, some of which allow you to get your foot in the investing door with $0 account minimums. One of the most significant advantages of an IRA over a workplace retirement plan (like a 401(k), 403(b) or 457 plan, for example) is the flexibility an IRA offers in terms of investment options. Unlike many workplace plans, which may have a limited selection of funds, IRAs allow you to invest in a wide range of assets, including stocks, bonds and mutual funds. Like workplace plans, IRAs also offer tax advantages, but they depend on which kind of IRA you chose — for example, a Traditional IRA or a Roth IRA.

Diversify with index funds and ETFs*

If workplace retirement plans or IRAs aren’t an option for you, or if you’ve maxed out your contributions but want to do more, consider investing in index funds or exchange-traded funds (ETFs). These funds track a specific stock market index, like the S&P 500, which gives you broad diversification and can help reduce your risk. For some funds and financial institutions, there is no minimum amount required to begin investing in index funds or ETFs, making them another great option for small-dollar investors.

Explore fractional investing

Another option for small-dollar investors is fractional investing. This investing approach allows you to buy a portion of a share of stock, rather than the whole thing. For example, if you want to invest in a hot tech stock, but the stock price is $1,000, you could use a fractional investing app to buy 1% of a share for $10. This makes it easier to start investing with a diverse portfolio, even without much money.

Consider CDs and bonds for lower-risk options

If you’re not comfortable with the ups and downs of the stock market, or if you’re looking for a more conservative option, consider investing in certificates of deposit (CDs) or bonds. CDs are time deposits offered by banks and credit unions that typically offer a fixed interest rate for a specific term, such as six months to five years.

Bonds are essentially loans you make to a company or government entity, which promises to pay you back with interest over a set period. Both CDs and bonds tend to offer lower returns than stocks, but they also come with lower risk.

Try micro-investing apps

Finally, if you’re still not sure where to start, consider using a micro-investing app. These apps allow you to invest small amounts of money — even spare change — into a diversified portfolio of stocks, bonds or other assets with each purchase you make. Some micro-investing apps even offer debit cards that can automatically round up purchases you make with the card, then invest that little extra — with no action needed from you.

The power of compound interest: Time is on your side

One of the great things about investing — even if you’ve only got a little money to invest with — is the concept of “compound interest.” What it means is that over time, not only can your initial investment earn interest, that interest will earn interest, too. It builds on itself.

And over time, even the small amount of money you invested initially can potentially grow into something much bigger. Think of it like a snowball effect: As a snowball rolls down a hill, it gathers more snow, getting larger and gaining momentum.

Start early and stay consistent

Whichever investing path you choose, the key is to get started — even if you only have a little to invest. It’s not about how much you start with, it’s about getting started in the first place and staying consistent. With patience, a wise investment strategy, and a long-term perspective, what may seem like a small amount of money now could, over time, grow into something much bigger later.