It's worth it to start investing right away even if you only have tiny amounts available. The power of compound interest will make even the smallest amounts grow over time. Starting small also gets you into the habit of thinking about investing for the long term. There are also many investment options available that don't require large minimum deposits to get you started.
1. Retirement Plans
Retirement plans, such as a 401(k), IRA, or others are one of the best ways to invest a small amount of money regularly. If your plan is through your employer, the funds come out of your paycheck and go directly into the investment account without any work on your part. You can also open an IRA account on your own and set up regular withdrawal from your checking account through most banks.
Many of these accounts offer tax advantages, including taxes deferred until withdrawal or taxes paid up front, and the invested money grows tax-free. Take the time to choose the most appropriate retirement plan.
2. College Savings Plans
Those with children will want to consider long-term investments for their college education. Bi-weekly or monthly, these programs can pull out a set amount of money from your checking or savings account. The funds are in portfolios. You can choose the type of investments those funds are placed into, including how aggressively the funds will grow.
If investing for a young child, investing as little as $50 a month can help pay for college. What's more, parents, grandparents, friends of the family or anyone else can also contribute to the plan. The minimums to start vary by state but the average is $25 to $50. In many states there is no minimum at all.
3. Dividend Reinvestment Plans (DRIPs)
This is one of the best small investments because it allows everyday people to purchase stock in a company for as little as one share at a time. In addition, the plan allows individuals to purchase stock directly from the company, instead of working through the stock market.
The name comes from the benefit of allowing shareholders to reinvest their dividends back into the company to purchase additional shares. Invest a small amount of money monthly and gradually. Dividend reinvestment plans are available for more than 1000 companies, including some of today's largest and most influential (and stable) companies.
4. Direct Investment Plans
Those who wish to utilize the benefits of a dividend reinvestment plan, but want more flexibility in the companies they invest in, will want to consider the benefits of a direct investment plan. Here, you purchase one share at a time (or more if you would like to) on a monthly basis.
In order to do this, you will need to become a member of an investment organization, such as the National Association of Investors Corporation. They do charge a fee for providing this service, but the diversification they offer can really enable you to be more flexible, even in a tough economy, and make this a top option for the small investor.
5. U.S. Savings Bonds
Many people overlook these ideal investments. While the interest may be lower than other options, they are a good choice if you have only a small amount of money to invest and you want to keep it secure. Here, you can invest as little as $25 to start and purchase bonds as frequently as you would like to, in $25 increments.
There are no fees connected with buying U.S. savings bonds and you won't need to pay tax on the interest while you hold them. To learn more about this particular investment, visit the U.S. Treasury.
6. Mutual Funds
Mutual funds can be another of the smartest small investments if you find the right ones. While many funds require large sums of money to start an account, you can find several quality mutual funds with low initial minimums. After you open a mutual fund account through an investment company, you can add more money to it regularly and these often can be in small increments as low as $25.
While there are fees on this type of investment, they are still highly affordable, especially when you take into account the avoidance of costly stock brokerage fees.