Think you can't afford to invest? 3 reasons to think again
Investing even a little bit can make a big difference
The coronavirus has caused economic havoc for months, and times are tough for many people. Whether you've experienced a job loss or reduction in hours, or are worried you will in the future, you may not feel you have the cash available to invest right now.
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The reality is, however, that if you have your basic bills covered, an emergency fund saved, and a little bit of extra cash left over, you can start getting your money into the stock market. If you're not sure it's possible, consider these three big reasons you may be able to save something for the future even if your extra money is limited.
1. Fractional shares now make it possible to invest with $5 or less
Traditionally, investing took a reasonable sum of money because brokerages required you to buy a minimum number of shares. Those days are gone. Now, many major brokers allow you to purchase just a fraction of a share using dollar-based investing. You simply specify how much money you have and what stock you want and can purchase as many shares as your cash on hand allows -- even if that's just a part of one share.
Some brokerages do have small minimum-dollar requirements, such as Schwab, which will allow you to buy fractional shares with $5 or more. But others have absolutely no minimum. At Fidelity, your transaction minimum is $0.01 and you can buy as little as 0.001 of a share. If you buy a stock with a $10 trading price, you could literally invest with just a penny.
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Not only can you invest with almost nothing if you have fractional shares, but your budget also doesn't limit what stocks you can buy. If you want to purchase a share of Chipotle Mexican Grill (NYSE:CMG) because you love their tacos, you aren't limited by the fact the stock currently trades around $1,053 per share. You could use your $5 to buy 0.004 of a share and get a little piece of the company for less than the price of a burrito.
2. Many brokers have now waived commissions
Up until recently, buying or selling stocks has always meant paying a commission. While prices varied depending on the online broker, this usually meant incurring fees around $4 to $10, both for the purchase of stock and for the sale of it.
When paying commissions, investing with very little money made no sense. If you had just $5 to invest, you wouldn't have been able to afford the fees to buy a stock.
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Now a huge number of online brokerages have eliminated commission fees entirely. You won't have to worry about them eating away at any potential returns. And without commissions, it actually makes sense to buy one or two shares (or partial shares) as soon as you get your hands on even a small amount of spare money.
3. Minimum balances are low or nonexistent with many online brokers
Minimum balance requirements also kept many investors from getting started in the past, as many brokers required you to deposit hundreds or even thousands of dollars to open an account.
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Today, many online brokers have either eliminated minimum balances or set them very low. You can pick from among the brokers that don't require a set minimum to get started, and begin investing with whatever cash you've got.
Investing even a little bit can make a big difference
Investing money doesn't make sense for everyone. If you can't cover your bills or have no emergency savings, you need to take care of the basics first. But if you've checked them off your list and you have even an extra dollar or two to spare each week or each month, you can afford to invest and you should.
Putting even a few dollars into the market here and there can help you start building your nest egg. Over time and with smart stock choices, these small contributions can add up to big money.