In 16 Ways to Invest $100 I gave suggestions on how to invest when you have just a few dollars.

In this article I want to take it up a notch, which is to say how can you invest when you have more than a few dollars, but not the thousands that traditional investment vehicles usually require?

Before I started investing, I was under the same misunderstanding that you had to have thousands of dollars to get started.how to invest small amounts of money

I was surprised, shocked really, that I could start investing in the stock market via mutual funds with only $50 per month.

And that’s exactly what I did.  Even though I later found out that the mutual funds were okay at best, the fact that I started investing in myself was huge for me.

And for many, it’s that first step that prevents them from amassing wealth later on.

Investing in yourself doesn’t require thousands, it just takes getting started.

For our purposes here we are going to define small amounts of money as something more than $100, but not more than $1,000. Based on that parameter, here are 15 ways to invest small amounts of money.

1. Paying Off Debt
There are two reasons for leading off with this suggestion. The first is that you shouldn’t be investing small amounts of money if you have debt, especially unsecured debt.

The second is that paying off debt is one of the very best ways to lock in an above average and guaranteed rate of return on your money. This is especially true if the interest charge on a credit card balance is in double digits – there are no places available to the average investor to get double digit returns that are guaranteed.

Let’s say that you have a credit card with a balance of $1,000 with an interest rate of 15.99% per year. By paying that card off, you’ll lock in a nearly 16% rate of return on your money, virtually forever!

2. Your Employer Sponsored Retirement Plan
This is probably the easiest way to invest small amounts of money, or even if you don’t have any money at all. That’s because it’s generally set up as a payroll deduction, so that you can allocate a percentage of your paycheck to go to the retirement plan.

You can designate just about any amount of your paycheck that you choose – as low as 1% to 20% or more, depending on the rules established by the employer plan. In this way, you don’t even need to have a large nest egg to invest. You can just add small amounts to your account with each paycheck, and then begin investing in any types of investments that your available capital (and the employer plan) will permit.

Best of all are the tax benefits! Not only are your contributions tax-deductible, but the income earned on your investments will not be subject to income tax until you retire begin withdrawing money. In addition, if your employer offers a matching contribution, it will be like getting found money.

No matter how much money you have to invest, investing in your employer-sponsored retirement plan should be one of the first steps you take.

3. Your Own Retirement Plan
If you don’t have employer-sponsored retirement plan, you can almost always set up your own retirement plan. All you need to qualify is earned income. The two best plans for most people are either a traditional IRA or a Roth IRA. Much like an employer-sponsored retirement plan, any returns on investment that you earn are tax-deferred until you begin withdrawing the funds in retirement.

Also, contributions to a traditional IRA are generally fully tax-deductible. Roth IRA contributions are not tax-deductible, however withdrawals will be free from taxes as long as you are at least 59 ½ at the time the withdrawals are made, and you have participated in the plan for at least five years.

And though there is no employer matching contribution (since there is no employer), a self-directed traditional or Roth IRA can be held in a brokerage account that offers nearly unlimited investment alternatives.

You can contribute up to $5,500 per year to either a traditional or Roth IRA ($6,500 if you are age 50 or older), which means you can build up a substantial portfolio in just a few years.  Also with the best Roth IRA providers there is very low entry cost.
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