How Investing a Little Each Paycheck Goes a Long Way

June 2, 2022, 8:01 AM

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You don’t have to have a ton of disposable income to start investing — just investing a little bit each paycheck can go a long way thanks to compounding interest.

“The single best thing you can do with your money is to build an investing habit, and start that habit immediately,” said Andrew Sather, co-host of “The Investing for Beginners Podcast.” “It doesn’t matter if you don’t feel like you have much to invest — even $20 or $30 a month can compound to great sums over time.”

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This is advice that Sather has taken himself. “A great example is the first stock I ever purchased back in 2012: I bought a single share of Microsoft at about $27.50,” he said. “I reinvested my dividends from the company, which turned a single share into 1.1925 shares, now worth over $300.” Read the following tips on how to get started investing.

Getting Started

Figure out how much you can dedicate from each paycheck to invest — as Sather said, this can be as little as $20 or $30 a month, so this can be just $10 to $15 per paycheck.

Consider Fractional Investments

That may not be enough to purchase a full stock, so you can either set money aside until you can buy the stock or ETF of your choosing, or you can make a fractional investment. Apps like Robinhood and some brokerages allow you to purchase small parts of a share, which makes them more affordable for you. For example, it currently costs over $2,200 to buy a single share of Amazon (AMZN), but 0.1 shares of Amazon is only $220.

Read More: 6 Alternative Investments To Consider for Diversification in 2022

Invest Your Spare Change

Another way to get into the investing game without needing a ton of money is to use an app that automatically invests your spare change, such as Acorns or Stash. They round up purchases you make with your credit or debit cards to the nearest dollar and then automatically invest that amount for you. For example, if you bought groceries for $95.50, the app would round up the purchase to $96, investing the additional $0.50.

Do Your Research

There are several other ways to start investing with just a little bit of money, including using the dollar-cost average strategy to invest in mutual funds or ETFs, investing in stablecoins, lending your money for high interest via peer-to-peer lending platforms and investing in crowdfunds or REITs. The best way to make the most of your (small) investments is to do some research to figure out what is right for you.

“Investing isn’t just a question of putting aside money as early as possible and the compounding interest of your portfolio, but rather about the compounding interests of your investment knowledge,” said Stig Brodersen, co-host of the “We Study Billionaires” podcast. “Start reading books as soon as possible, and learn from the people with the best track records like Warren Buffett.”

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Brenda Zhang contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: How Investing a Little Each Paycheck Goes a Long Way