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Leveraging small investments: Strategies for limited budgets

How the elite grow their fortunes: A guide to billionaire investment strategies
Nemanja Curcic

There’s a common misconception that investing is limited to those with loads of experience and, more importantly, loads of money to spare. Well, what if we told you that you can start investing with as little as 100$? In fact, there are various ways you can use your spare cash and turn your change into a significant sum of money. Today’s article will help you find out more about how to use a limited budget to start investing and potentially earn noticeable returns. 

What type of investor are you

Despite the modest starting sum, you need to visualize an investment goal, which will dictate your strategy and approach.

Are you in for the long run and ready to wait several years for the investment to pay off? Or is your goal to make a quick, proactive profit from this principal investment? The answer will put you on one of two different paths, namely active or passive investing.

Also, there’s risk tolerance to take into consideration.

Investing has no guaranteed outcome. Never invest what you cannot afford to lose.

Your investment is always at risk of not turning profitable in the end. That said, certain assets and methods carry more risk while some have an almost negligible chance of net loss. As higher risk comes with greater rewards, it falls on you to gauge how much risk you would be comfortable with.

Once you come up with answers to these, you can employ some of these low-budget investing strategies:

1. Buy fractional shares

Smart and patient stock trading is often said to be the best approach to accruing wealth,  especially in the long term. However, buying stocks, especially in blue-chip companies, requires a significant starting budget, as a single share can reach prices up to several hundred dollars. 

However, with fractional investing, you can buy a portion of a stock, which is less than a single share. As its name suggests, the option allows you to purchase for the dollar amount, rather than the other way around.

Just make sure your brokerage platform supports buying fractional shares.

2. Invest in ETFs

Another option is to purchase exchange-traded funds (ETFs), which track the performance of a stock market or an asset class.

These assets tend to be cheaper than actively managed funds because they are intended to be held over time as they track the performance of the market benchmark. Additionally, since active management isn’t necessary, the trading fees associated with these cost-effective investments are lower. 

Since the market tends to grow in value over time, the related risk is lower than with individual stocks. However, the obvious downside is that there is less potential return, and investors have little choice but to track the market even when it’s in a recession.

3. Reinvest your earnings

Investing even a couple of dollars every month can make a difference over years and decades, eventually making a formidable amount of money. Therefore, if you can afford the time and money to reinvest the profits, you can compound your earnings and exponentially increase the returns.

4. Mitigate risk

No investment has a guaranteed outcome. Never invest what you cannot afford to lose.

That said, some assets carry a higher degree of risk than others. On the other hand, the higher the risk, the greater the potential returns from your investment.

Therefore, it is wise to diversify your portfolio with a range of different assets and sectors. This is also doable with limited budgets, as mentioned already with fractional shares. If possible, include various assets with different investment periods and levels of risk to reach an average that you are comfortable with.

Here’s a brief and simple list to help you navigate the risks and timetables of potential investments:

AssetInvestment type and spanRisk 
StocksActive, long- and short- termMedium-high
Index funds and ETFsLong-term growthLow-medium
REITsLong-term, passive incomeMedium
BondsLong-term, fixed-incomeLow
CryptocurrencyAlternative, usually short-termVery high
Table 1: Types of assets with risk and investment style

5. Use a robo-advisor

Robo-advisors offer an automated approach to investing in which the algorithm decides where your investment should go. Using your financial data and inputs, they create a personalized passive investment strategy and do the manual work, like updating your portfolio and committing trade deals themselves.

Depending on the robo-advisor, the minimum investment can go from a couple of dollars to a couple hundred dollars. 

The bottom line: You can start investing with a small amount of money

Investing with limited budgets is not only possible but even recommended for beginners and those who intend to learn the ropes. 

However, it is important to remember that there is no one-size-fits-all recipe and that you should adapt and accommodate to the evolving market and your own changing needs. 

You will need to stay informed, do your own research, and practice patience on this journey. However, it is a journey anyone can start, regardless of humble beginnings and limited budgets.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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