When you're on a tight budget, investing often feels like something only wealthy people can afford to do. If you have just a few dollars left over every month, you might think it's out of reach for someone in your shoes.
This is particularly true among young people. A 2016 Stash survey reported that 41 percent of millennials feel that they don't have enough money to invest in the stock market — and 70 percent feel they need at least $100 to get started. That mentality can be a costly mistake. If you don't invest, you greatly risk underfunding your retirement savings.
The thinking that you have to be wealthy to invest is false. There are ways you can get started in investing without having tons of cash on hand. Below, find out more about some low-cost ways to enter the stock market. (See also: You Can Start Investing With a Lot Less Money Than You Think)
Many traditional brokers have high minimum investments. For example, Vanguard has a $1,000 minimum if you want to open a Roth IRA and $3,000 for some other accounts. When you have just a few dollars to invest, opening an account with a traditional broker can be impractical, if not impossible.
Plus, they can be confusing. They throw a lot of jargon at you — mutual funds, index funds, exchange-traded funds (ETFs) — and it can be overwhelming to a new investor. However, investing doesn't have to be overwhelming or expensive. Here's how you can get started. (See also: Investments Worth Making With $50 or Less)
If your budget is tight and finding even $50 a month to invest is impossible for you, spare change investment apps like Acorns might be a smart option.
With Acorns, you connect your credit and debit cards to your account. Any purchase you make — including routine things like groceries or gas — is rounded up to the next dollar amount and the extra change is invested. For example, if you bought lunch and it cost $6.50, the app would round it up to $7, depositing the extra 50 cents into your investment fund.
Once your change totals $5, the app invests that money into a portfolio of your choice. Acorns offers five versions based on your comfort with risk, and costs between $1 and $3 per month to use. (See also: Everyone's Using Spare Change Apps — Are They Really Worth It?)
If you have some extra money in your budget, you can go a step further than just investing your spare change. Micro-investing — where you invest small amounts — can help you build a portfolio. Robinhood is a no-fee micro-investing app you can use to buy stocks and ETFs. All you need to get started is enough money to buy one share. Depending on the company or ETF you choose, that could be as little as $25. (See also: With Micro-Investing, Your Smartphone Pays YOU)
As your income grows and your financial situation improves, investing spare change and micro-investing might not be as effective as it should be. Your investments with those apps might only add up to $15 to $20 per month. That's a good start, but you'll get better results by investing larger amounts.
You can set up a recurring transfer with sites like Betterment to take your investments to the next level. Betterment is a robo-adviser service, which can be helpful if you don't know much about the stock market and you want guidance on what kind of stocks and funds to choose. Betterment charges a .25 percent annual fee for accounts under $100,000. (See also: 9 Questions You Should Ask Before Hiring a Robo-Adviser)
That recurring $100 per month transfer can pay off in the long run. If you are 25 and make a one-time $100 investment, that $100 would turn into $2,172 by the time you're 65 (assuming an annual return of 8 percent).
Continue to contribute month after month, and you can see even more significant returns. If you set up recurring $100 contributions and stuck to that schedule until you were 65, you would have invested $48,000 of your own money. But, thanks to the stock market, your balance would grow to a whopping $337,909. (See also: 7 Reasons Millennials Should Stop Being Afraid of the Stock Market)
If you're not ready to enter the stock market, there's another way to invest: Setting up a certificate of deposit (CD). With a CD, you essentially loan money to a bank, and they pay interest to you on the loan. The returns are higher than that of a regular savings account, however, they still won't be nearly as high as if you'd invested in the markets. You also can't touch that money for a set period of time; usually 12 months or more. (See also: The Best Ways to Invest $50, $500, or $5,000)
If your employer offers a 401(k) plan, you can start investing right away; there's no minimum to open an account. You can set up regular deductions from your paycheck, so the money is invested automatically every single month. You likely won't even notice it.
You can start investing small amounts, if that's all you can afford at first. For example, you can set your 401(k) contributions to as little as $25 each pay period. Over time, compound interest can turn those small investments into big returns.
As you earn more money, you can increase your monthly contributions. Your employer may even offer a company match on those contributions, which is free money you should never turn down. (See also: 8 Critical 401(k) Questions You Need to Ask Your Employer)
You really can't afford to avoid the stock market if you plan on having a stable retirement. Without the muscle of annual returns, you run the very real risk of coming up short.
If you're already stretched thin and can't find any extra money to invest, focus on boosting your income and using that extra cash to get started. You can consider asking for a raise, taking on a side gig, or selling some hot-ticket items around the house. (See also: 4 Best Ways to Invest Your First $1,000)