What a great feeling to find an extra $20 hidden in your pocket! Your newfound cash could easily land you a few cups of coffee or lunch for the day.
But what if you put that $20 to work instead? Anyone can start their path towards investments with only a few dollars. Keep reading to find out how to invest 20 dollars.
Is it worth investing 20 dollars?
If you think you need a lot of money to start investing, think again. That $20 bill in your back pocket might not seem like much, but it’s enough to get you started on your investment journey.
And you can grow your money with every dollar that you can invest along the way. While taking that first step can be tough, there are plenty of ways to get on track and build your financial future with a few dollars.
Start an emergency fund
An emergency fund can provide you with a cushion when the unexpected happens. Whether your car breaks down or you lose your job, an emergency fund can prevent you from taking on unnecessary debt.
A good rule of thumb is to always have at least three to six months’ worth of your expenses saved in the form of an emergency fund. However, sometimes, the most challenging part of setting up an emergency fund is getting started.
Even though $20 does not seem like much, it still puts you closer to building a reserve than $0 ever would. Invest a few dollars each time you get paid and you’ll be on your way to building up a decent emergency fund in no time.
Put it towards your 401(k)
Invest 20 dollars in your employer-sponsored 401(k) plan. Not only will you set aside money for your future, but your retirement account will grow with each deposit as well.
And if your employer matches part of your 401(k) contributions, that’s even more reason to invest your $20. When you deposit the maximum amount your employer has agreed to match, you will end up doubling your money at no extra cost to you.
Open an independent investment account (IRA)
When you open an individual retirement account, you will have the opportunity to set aside money for retirement. Known as an IRA, these brokerage accounts provide access to various investments. In 2022, you can contribute up to $6,000 towards an IRA, but that number increases to $7,000 if you are 50 years old or older.
Individuals can choose to open a traditional IRA or Roth IRA account. The difference between the two accounts has to do with the point at which you will pay tax on the money in the account.
With a traditional IRA, you will get a tax break when you contribute to the account, but you will have to pay taxes when you take the money out. For a Roth IRA, you will use after-tax dollars to contribute to your account, but you will not pay taxes when you take the money out.
Create a brokerage account
A brokerage account provides people with access to a variety of investments, such as stocks, bonds, mutual funds and exchange-traded funds. You’ll work with a live broker who gives investment advice and places trades on behalf of their clients as well.
You can buy and sell investments at any point in time, but be mindful of the fees you will be charged for each transaction you make. Keep in mind that you will have to pay tax on any interest or dividends you accrue, as well as any gains, should you choose to sell an investment.
Invest in fractional shares
In the past, you were out of luck if you did not have enough money to buy a share of stock. But nowadays, you can find brokerages that will let you buy fractional shares. So, investing $20 in stocks is possible even if you don’t have enough money to buy a share.
Explore exchange-traded funds (ETFs)
If you don’t like putting all of your eggs in one basket, investing in an exchange-traded fund, or ETF, might be best for you. An ETF is a fund that holds several securities, such as shares, bonds and commodities.
The fund could target investments in a specific industry or hold securities in multiple sectors. Either way, an ETF offers a pool of securities, so it typically costs less to participate than it would to buy each investment individually.
With gains and losses from its diverse basket of securities, ETFs are usually considered to be lower-risk investments.
Research REITs
Real estate investment trusts, or REITs, own, operate or finance income-producing real estate. This can include apartment buildings, warehouses and shopping centers. Investors can purchase shares in real estate portfolios through an REIT as well.
The money that is received will be pooled together to purchase properties or buy mortgages. REITs usually trade on public exchanges, and they typically produce higher returns than other investments.
Consider a robo-advisor
A robo-advisor is a digital platform that automatically invests funds on your behalf. Users simply complete an online survey regarding their financial goals, preferred level of risk and investment preferences.
Based on the answers that you provide, the robo-advisor will make use of automated algorithms as a way of offering advice and helping you make investments. If you are new to investing, a robo-advisor may be a good fit.
Check out cryptocurrency
Cryptocurrency is a digital or virtual currency that is exchanged via an encrypted network. Unlike coins and bills, cryptocurrency is a digital asset, and banks neither issue nor oversee this currency.
Cryptocurrency relies on blockchains, which keep a tamper-resistant record of transactions and ownership across multiple computers within the network. Cryptocurrency may be popular among investors, but it is not a widely accepted means of exchange.
Investments into cryptocurrencies can be risky. In fact, more than 12,000 different cryptocurrencies are being traded today.
Invest in your education
Sharpening your skills is one of the best ways to invest. If you have a little extra money to spare, consider putting it towards an online course or certification. Invest in your education to land a job that pays you even more than before.
You can also consider opening an education savings account. Not only will what you earn be tax-deferred, but some withdrawals for qualified education expenses are tax-free as well.
Invest 20 dollars toward your future
Don’t expect instant wealth when you invest 20 dollars. Just remember that everyone has to start their investment journey somewhere.
Investing a small amount of money can help you establish good financial habits. Invest $20 every week, month or whenever you have extra cash. From there, you can watch your money go to work for you.
FAQs
Where can I invest a small amount of money?
There are plenty of ways to invest a small amount of money. You can start an emergency fund, open a brokerage account, buy fractional shares or invest in your education with only 20 dollars.
Can I invest $20 in the stock market?
If $20 isn’t enough money for you to buy one share, you can still invest in the stock market when you purchase fractional shares.
Where should a beginner invest?
If you are new to investing money, choose an option that you are comfortable with. If you prefer a low-risk investment, consider opening a savings account or contributing to your retirement account. But if you are looking for more growth and you don’t mind taking on a little risk, you could invest by buying fractional shares of stock or using a robo-advisor.
Anna Yen Anna Yen, CFA, has nearly 2 decades of experience in financial markets, primarily with JPMorgan and UBS. Currently, she manages digital assets and her goal at FamilyFI is to empower families with financial literacy. She’s worked in 5 countries and visited 57.
As someone deeply immersed in the world of finance with nearly two decades of experience, particularly with prestigious institutions like JPMorgan and UBS, I can attest to the importance of even small investments in shaping a secure financial future. My expertise, reflected in my Chartered Financial Analyst (CFA) designation, underscores my ability to navigate the intricacies of investment strategies.
Now, let's delve into the concepts presented in the article:
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Emergency Fund:
- Importance: An emergency fund is crucial to handle unexpected expenses and prevent unnecessary debt.
- Recommendation: Start with as little as $20, gradually building up to three to six months' worth of expenses.
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401(k) Contribution:
- Importance: Contributing to an employer-sponsored 401(k) plan is an effective way to save for retirement, with the added benefit of potential employer matches.
- Recommendation: Invest your $20 in your 401(k) to secure both present and future financial stability.
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Individual Retirement Account (IRA):
- Types: Traditional and Roth IRAs offer different tax implications.
- Contribution Limits (2022): Up to $6,000 annually, $7,000 for individuals aged 50 or older.
- Recommendation: Consider opening an IRA and choose between traditional and Roth based on your tax preferences.
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Brokerage Account:
- Purpose: Provides access to various investments like stocks, bonds, mutual funds, and ETFs.
- Consideration: Be mindful of transaction fees and tax implications.
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Fractional Shares:
- Accessibility: Allows investment in stocks with as little as $20, overcoming the need for a full share.
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Exchange-Traded Funds (ETFs):
- Definition: A fund holding multiple securities (stocks, bonds, commodities).
- Benefit: Offers diversification at a lower cost compared to individual investments.
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Real Estate Investment Trusts (REITs):
- Purpose: Own, operate, or finance income-producing real estate.
- Return: Typically produces higher returns than other investments.
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Robo-Advisor:
- Definition: Digital platform automating investment based on user preferences.
- Recommendation: Suitable for those new to investing, offering automated advice and investment decisions.
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Cryptocurrency:
- Definition: Digital or virtual currency exchanged via encrypted networks.
- Risk: Cryptocurrency investments are volatile and involve significant risk.
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Education Investment:
- Importance: Investing in education, either through courses or certifications, can lead to higher-paying jobs.
- Consideration: Opening an education savings account for tax advantages.
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Long-Term Perspective:
- Advice: Emphasizes that small investments, like $20, contribute to establishing good financial habits over time.
- Consistency: Regularly investing small amounts can lead to long-term financial growth.
In conclusion, the article provides a comprehensive guide for individuals with as little as $20 to embark on their investment journey, offering diverse options tailored to different risk appetites and financial goals.
