Are you looking to grow your wealth? Or just starting out as an investor and want to learn without having to break the bank? Here are 3 investments you can make with just $100 or less!
As a student, having to pay for school fees and living expenses is already taxing enough, hence finding funds to invest is not easy. However, with Micro Investing, students rejoice! We no longer need large funds to invest and can start as small as $1.
Jump ahead:
- Micro Investing
- 1. Using Robo advisors
- Pros of using Robo Advisors
- Cons of using Robo Advisors
- When to choose a Robo-Advisor?
- 2. Personally Investing in funds
- Types of funds you can invest in:
- Platforms to start investing:
- Pros of Personal Investments
- Cons of Personal Investments
- 3. Peer-to-Peer Lending
- P2P Lending Pros
- P2P Lending Cons
- 3 Tips for New Investors
Micro Investing
This concept of investing might be relatively new to you since we are all used to the idea that investments can only be done in big amounts or that it requires large upfront capital.
Now, investments can be done with amounts that fit into your budget while compound interest does its job! You can now invest without having to sacrifice a few social nights out with friends!
Before you make any assumptions, I’d like to put it out there that you should not treat or expect micro-investing to be a get-rich-quick scheme.
You are only investing small amounts of money each time and hence, you will also be collecting returns slowly.
Depending on how much you invest each time as well as taking your goals into consideration, there are various mediums and platforms for you to invest in.
Here, I’ll introduce 3 mediums that you can start investing with capital as low as $50.
1. Using Robo advisors
This method of investing is one where robots do the investing on your behalf based on the risk profile you select. Many companies have started developing their own Robo advisors, hence, you still need to do your research and pick the company that fits your risk appetite best.
Robo advisors differ from company to company as each one may have a different algorithm or method of calculating and determining risks. There are also pros and cons to using Robo advisors which will also be discussed.
I have included some referral links such that when you decide to adopt these Robo-advisors, we’ll both gain some perks! These include beginning capital, or even reduced costs of account management fees!
Some examples of Robo advisors requiring $0 start-up capital you can check out includes:
- Stash Away
- Syfe (Referral Code: SRPTLJJ5R)
- Betterment
- Ellevest
- SoFi
Although they all charge management fees, it is quite minimal, and are usually deducted annually. Depending on the source, it may be charged monthly.
Pros of using Robo Advisors
1. Low Portfolio Management Fees:
Low costs incurred in opening an account means more money for you to invest. As Robo-investors are not actual human beings doing the work for you, naturally, manpower costs are reduced as well as all the expertise fees that come along with consulting a financial advisor.
These robots have pre-programmed algorithms in which they follow to determine risks and correspondingly invest in the funds that suit your risk appetite and returns.
As this can be done in bulk with programs monitored and controlled by the investment companies, costs of managing individual portfolios decrease, and hence, the low management fees charged.
2. Simple and Fuss Free
Robo advisors are getting increasingly popular due to its automated investing. It is a great way for people who are busy with full-time jobs with little time to monitor the markets but want to grow their passive income.
All you need to do is answer a few questions at the beginning for the robot to understand your risk profile, and you’re set! The rest is just injecting your money into the investment account for the robot to reinvest for you.
Your portfolio risk will be managed by the robot and you don’t have to do anything at all! It’s so convenient, and at the same time simple to use.
3. Diversification
Robo-Advisors usually invest your money into funds rather than individual stocks. Not only is this safer, but it also helps to diversify your portfolio. However, there will also be a mix of equities and bonds, although the ratio depends on your risk and the algorithm the robot is following.
This exposes you to various sectors and industries which means that the dollar that you are investing would be split and invested into various industries. Your dollar could be in both the retail and tech sectors, in 2 entirely different company’s stock.
Cons of using Robo Advisors
1. Low Personalisation
Your profile is only assessed through a few general questions usually like “How much risks would you like to take?” and rate yourself from low to high. This system leads to the overgeneralizing of profiles. Hence people with the same risk appetite would likely have similar or even the same portfolios.
2. One-Sided investing
The robot performs its tasks according to the pre-programmed algorithm. Hence, you don’t get any say in what it invests in. You don’t get to choose specific industries (Tech, Retail, Communications, etc) or categories (Equities, Bonds, Funds, etc) that you prefer to invest in.
Another con of one-sided investing is that in a pandemic such as this (COVID-19), the economy falls into a slump. In instances likes these, during the times leading up to the pandemic, the robot would likely have sold off most of the investments you were holding onto.
You might have wanted to hold onto these investments as you’ve deemed that there is potential for it to grow even throughout the pandemic. But using Robo-advisors, you don’t get that choice.
When to choose a Robo-Advisor?
Robo Advisors are usually the go-to for people who are new to investing. This is ultimately because of their low fees and no minimum start-up capital requirement.
You can start with however much money you have and want to set aside. It is recommended that if you have less than $25,000 to invest, Robo-advisors are your go-to apart from actual financial advisors that cost way more.
2. Personally Investing in funds
Funds are started by companies with the objective of pooling money together from various investors. These monies collected are then collectively invested in securities such as stocks, bonds, equities, etc.
The money will be invested in various areas to diversify the portfolio and minimize risk. When you contribute to a fund, you are essentially buying the shares in that particular fund. The shares that you bought represents your ownership in the fund and how much income you will receive after it is generated.
For Example, I invest $100 in ABC Fund. and the current price of each unit is $1. This entitles me to 100 units, also known as “Available Quantity”.
As the price of each unit of the fund increases, to “Indicative Price” = $1.50, then I would now have $150. This is derived from “Available units x Indicative Price”. Hence, my profit would now be $50.
Types of funds you can invest in:
Platforms to start investing:
- FSM One (Referral Code: P0388574)
- Saxo Markets
- Poems by Philips
Pros of Personal Investments
1. Professionally Managed
These funds are professionally managed by fund managers who are trained and have expertise in doing investments.
They scour financial statements and prospectus’ of companies, analyze company performance and data, predict and forecast market trends, before deciding on which stocks or bonds to invest in.
These people do the research for you and monitor the performance and hedge against risks for you. All you need to do is select which fund to place your money in. Of course, in return, they get a cut from your earnings in the form of management fees.
2. Cost-Effective
Funds are a great start for new investors as you are not “placing all your eggs in the same basket”. You place your money in a variety of stocks rather than in just one stock.
It is also cost-effective as you can start investing in funds with the help of Regular Savings Plans (RSP) with capital as low as $50. Most funds require a minimum RSP of $100 but there are still many out there that you can start off with just $50.
3. Diversified Holdings
Similar to Robo Advisors, fund managers typically ensure that the funds invest in a range of companies and industries. This practice helps to lower risks and the losses incurred if one company in that fund fails.
Cons of Personal Investments
Choices & Decisions
There is no one to spoon-feed you and tell you which fund you should invest in. You have to do your own research prior to putting your money in. There are no guarantees of returns on your investments and there is also a large number of funds out in the market.
There are various types of funds to look at with regard to the result you are looking for.
Is your aim capital appreciation or dividend income?
Not every fund offers a dividend income, and even when you are looking for dividend income, do you want to be paid monthly or annually?
There are many concerns and choices after you look at the variety offered in the market. Be sure to do thorough research and not dive right in after finding a fund with promising returns.
Remember, there are no guaranteed returns in the market. Most, if not all information provided is solely based on historical data.
3. Peer-to-Peer Lending
Peer to peer lending is as it suggests. You are essentially lending your money to Small-Medium Enterprises or Individuals who need the money. In return, you receive your principal amount with interest on top of it.
There are a few platforms offering services like these which require minimal investments:
All of these require minimal investments starting from $20. On the contrary, some of them charge relatively high fees depending on the platform. These platforms are usually able to charge higher fees due to the lower default rates and more thorough screening of borrowers.
P2P Lending Pros
1. Ability to split capital
In P2P lending, even though a minimum investment of $100 is required as an initial deposit, you are allowed to lend as little as $20 per loan. Hence, with you $100, you are able adopt 5 different loans, each with different risks, returns and default rates according to the borrower.
2. Diversification & choice
By splitting your capital into different loans, you are able to diversify your portfolio due to the different risks you are adopting. This helps to ensure that your risks are well balanced out.
On certain platforms, you get to opt in or out of their auto invest scheme. This is available on platforms such as Funding Societies, where you can choose to set your investment preference (risk appetite) and let the system auto allocate investments on your behalf.
This is similar to Robo Advisors in a way, and it also acts as an easy form of passive income.
P2P Lending Cons
1. No Guarantees, High Credit Risk
Similarly, like all investments, your returns are never guaranteed. With P2P Lending, you are exposed to high credit risks. It would be good if you are able to research on a borrower’s credit ratings first before making the decision to loan them the money.
There should be a reason as to why these borrowers turn to platforms like these to borrow money rather than directly from the bank. Not all are negative. It is just a possibility that their credit rating is too low, which does not allow them to obtain a bank loan.
On the other hand, it can also be because bank interest rates are much higher than interest rates from these platforms. Hence, borrowers seek loans from 3rd party platforms like these rather than banks.
Be sure to do your own research before making any loans to prevent high probabilities of borrowers defaulting.
2. Lack of Insurance / Government Protection / Legislative Issues
Depending on your country’s legislation, P2P lending may have very strict regulations or in some jurisdictions, might not even be allowed. In cases like these, you will need to do thorough research to ensure that the company you are opening an account with strictly complies with the investment regulations.
Most importantly, you want to protect yourself and not get into any trouble with the law.
Even so, some or most governments do not provide insurance or any protection to lenders in the event that a borrower decides to default. Hence, these are some risks that you would need to ensure you are able to stomach before investing in P2P lending.
3 Tips for New Investors
1. Rule of Thumb
“Invest only the amount you are willing and able to lose”.
Once the money is invested, consider it gone. This should give you a clearer picture of how to determine the amount that you want to invest.
If you’re a student with some spare cash to invest, a good amount to start with would be about $100-$250. This amount can start you off and help you to better understand how investing works.
Until you’re more familiar with the concept of investing and its properties, you can always add on additional capital into your current investment account. It is a good way to start rather than just letting your money earn the low interest rates in the bank.
2. Understand & Research before investing
Investing in something you don’t understand is taboo! Always do your market research and understand more about the fund you are looking at before putting your money in.
If you’re unsure of where to start, here are some points to take note of:
- Identify your aim (Dividend Income or Capital Appreciation)
- Not every fund offers dividend income so look for those if this is your aim.
- Look at the fund’s factsheet and prospectus. READ THROUGH CAREFULLY. (Helps to understand the fund’s objective, historical performance, strategies, etc.)
- Look at the Top 10 holdings of the particular fund, to help you understand better where the money is invested in.
A good practice to note: If you’re able to explain to yourself what this fund invests in, top industries, after your research, you can consider it as a POTENTIAL investment.
3. Importance of diversification
Diversifying your portfolio is the tip every investor will tell you. This is because managing your portfolio risk is very important. You wouldn’t want 1 failed stock to wipe all your portfolio gains.
Don’t focus on only investing in a certain category. Balance out your portfolio by investing in Equities, Bonds, Stocks, Funds. Don’t heavily emphasise one category just because you see higher returns from that category in a particular month.
Think of the Pareto Principle (80/20) when you’re planning your portfolio. This means that if you’re not a big risk taker, maybe you can plan for a portfolio of 80% less risky investments, and 20% more risky investments. Vice versa, for investors who have larger risk appetites.
As for your less risky investments, these can comprise of treasury bonds, index funds, etc while the more risky investments could contain growth stocks or preferred stocks of various companies.
Deciding to invest and put your money to work definitely takes a lot of courage! If you’re looking for ways on how to curb the anxiety and take that big leap, read this!
The concept of investing takes a while to get used to, but eventually you’ll get the hang of it along the way. We are all bound to stumble upon a few losses along the way before we get the hang of how to invest and earn consistently.
Don’t give up when you bump into obstacles and feel frustrated. If you want to know more about how to keep yourself motivated to invest for the long run, check out this article!
I would like to extend an invitation to all of you to connect with me on any social media platform linked in this blog! Let’s learn and exchange tips & ideas from each other. I love connecting and meeting new people!
All the best in your investing journey and let me know in the comments what you would like to continue seeing on this blog! Alternatively, subscribe to my newsletter here to stay updated on new posts each week!