How to Invest Small Amounts

Many investors who are just getting started don’t have a lot to invest.  Hopefully one can find $200 per month or so to put away, but even that can be difficult on many budgets.  With any investing, consistency is at least as important as selection of investments, and  regular investments – even if it is only $50 per month – can add up over time.

As a rule of thumb, you need at least $2000 at a time to invest in individual stocks.  That would allow you to buy 100 shares of about an $18 stock.  I wouldn’t buy fewer than 100 shares, unless it was for a child’s account, and wouldn’t buy stocks that trade for less than about $10 per share, so something like $1000-$2000 is needed before you can buy individual stocks.  And then, you would be buying shares in one stock at a time, which would be fairly risky, although with only a small amount of money.

There are really three choices for investing smaller amounts:

1.  Save up and invest when you have $2000 saved.  The first choice is to simply deposit the cash in a money market or savings account and then invest when it builds up enough to purchase 100 shares or so.  At $200 per month, this could allow shares to be bought about once per year.  In this case, the strategy would be to have about five stocks on a watch list and then buy 100 shares of the stock that has the best prospects and price when $2000 or so is saved.  This would take a lot of time, but in 20 years you’d have something like a $100,000 portfolio.

2.  Invest in a mutual fund.  It will normally take an initial $3000-$5000 investment, but once that is made most mutual funds will allow you to send in cash in small amounts.  To get the most “bang for your buck,” index funds are recommended since they have the lowest fees and will beat the majority of managed funds over time.

3.  DRIP, DRIP, DRIP.  Many large companies that pay dividends have Dividend Re-Investment Plans, or DRIPs. These allow shares to be purchased using dividends from the company.  Many companies also allow small amounts of money to be sent in to buy additional shares for a minimal fee.  There are a large number of companies that offer DRIPs, but they tend to be the larger, more established companies and not the smaller, faster growing companies.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


  1. As an investor who was in the same exact situation (only a couple thousand to start) the initial investment phase is the most difficult part of investing. If you’re like me, you do your research and pick out a few stand-out stocks and would like to purchase them, but you can’t because you don’t have the capital. Crap. So what do you do?

    Based on personal experience I would suggest NOT buying a single stock unless you had the buying power to purchase 100 shares per month a stock. When you only own 1 stock, your entire portfolio is hanging on its every movement and if that movement is down or stagnant, then you’re gains are going to look terrible. Also what tends to happen in a mature portfolio (one that is well diversified) is that you have a few stocks that do poorly, several that do well or OK, then a couple that blow everything else away. So, chances are with 1 stock, that you pick a stock that either does poorly or decent but nothing spectacular.

    Anyway, I’d suggest a mutual fund to start out with. I can think of several that are no transaction fee (where as stocks cost a $10 to both buy and sell, cutting into any profits of yours) and also have $2500 starting balances. These type of funds will get you around 10% gains if you pick the right fund. Its not amazing, but its great for a beginner and mutual funds stay relatively “diversified” so that your balance isn’t dependent on how one sector does. Once you have a decent amount in your fund, lets say $10,000, start to branch out: buy stocks you like, learn different strategies, all while your mutual fund is providing some extra stability to your portfolio. You may find that you can achieve greater gains that way, or you may find that the mutual fund is the way to go.

    Sorry for such a long winded reply, I just wanted to give my experience because I’ve been there, have sort of restarted and am doing a lot better now from what I’ve learned.

    • It’s really a matter of perspective. If you have $2000 in a single stock, you might very well see it drop $5 per share and go down to $1500, which seems like a huge percentage (a 25% loss!), but it is still just a $500 loss. If you pick well, over many years your stock could double several times and split, so you could look back in 15 years and your original 100 shares could have become 800 shares worth $20 each, for a $14,000 profit, making that drop of $500 seem like nothing.

      Of course, if you pick a bad stock, you might sit there for ten years and see it yo-yo between 10 and 20 and generally see it go nowhere. In that case, you’ll still have $2000 while an investment in an S&P500 index fund might have been worth $4000.

      Probably the best strategy is just to keep saving and investing regularly and maybe buy both some individual stocks and some funds.

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