61% of Americans Who Don't Own Stocks Say It Doesn't Pay to Invest if You Don't Have a Lot of Money. Here's Why They're Wrong - The Motley Fool
This device is too small
If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
Image source: Getty Images
You shouldn't let limited funds delay your investing career.
Key points
- Many people feel that investing a small amount of money doesn't make sense.
- But the sooner you start investing, the more financial gain you stand to enjoy over time.
Inflation has been putting a strain on consumers for well over a year now. And as a result, many people have had to dip into their savings accounts and cut out expenses just to stay afloat and avoid debt.
As such, many people who would otherwise want to invest may be holding off due to a lack of funds. And if you're in a situation where you need all of your money for essentials, then that makes sense.
But even if you only have a small amount of money on hand to invest with, it pays to open a brokerage account or IRA and put that money to work -- even though most people may not agree with that sentiment. In a recent Wells Fargo survey, 61% of respondents said they think investing isn't worth it if you don't have a lot of money. But here's why they're very, very wrong.
Bonus Offer: Score up to $600 when you open this brokerage account
Discover: Best online stock brokers for beginners
A small investment could go a long way
Let's say you're pretty strapped for cash and can really only carve out $100 to invest in your IRA or brokerage account. You might think, "Why bother? It's not like that $100 investment is going to make me a millionaire."
You're probably right in that regard. Even if your portfolio does extremely well, it's unlikely that a mere $100 investment will grow into $1 million in your lifetime. But could that $100 grow into a lot more money over time? You bet it could.
The S&P 500 index, which consists of the stock market's 500 largest publicly traded companies, delivered an average yearly return of almost 12% between 1957 and 2021. Even if we want to be a bit more conservative and apply a 10% average annual return to your investment portfolio, if you invest $500 over 50 years, you'll grow it into $12,000. That's a really nice gain.
And that's why it pays to start investing as soon as you have spare cash to work with. It doesn't matter if you don't have a whole lot of money. The key is to put the money you do have to work as early as possible so you can take advantage of compounded returns in your IRA or brokerage account.
You may not even be limited in the stocks you're able to buy
If you only have $100 to invest, you might assume that a lot of the more expensive stocks out there are off the table. After all, if a given company is trading for $500 a share and you're limited to $100, you clearly can't swing a full share.
But you don't have to buy a full share. Most brokerage accounts these days allow you to purchase shares of stock on a fractional basis. So in this case, you'd simply take your $100 and buy one-fifth of a share of the company you want to own. It's that simple.
You may not have a lot of money to invest right now, and that's okay. But don't assume that a small investment won't go a long way. Quite the contrary -- you may be shocked (in a good way) at just how much wealth you're able to accumulate by investing a modest amount of money.
Our best stock brokers for 2022
We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers for 2022.
Comments
Post a Comment