Finance, Investing, Personal, Real Estate, Stock Market

How to Start Investing With Little Money in 8 Easy Ways

Investing is a powerful tool that can help you grow your wealth and achieve your financial goals. 

However, many people believe that investing requires a significant amount of money to get started. 

The misconception that investing is only for the wealthy often discourages individuals with limited funds from leaping into the world of investments. 

Fortunately, the truth is that you don’t need a substantial amount of money to begin your investment journey. 

In this article, we will explore eight practical ways on how to start investing with little money.

Whether you’re a recent graduate, a new investor, or someone with a low-risk tolerance, this guide will provide you with actionable steps to kickstart your investment journey.

1. Evaluate Your Situation 

Before diving into the world of investments, it’s crucial to have a clear understanding of your current financial position and goals. 

This evaluation will help you make informed decisions and set realistic expectations for your investment journey.

Firstly, assess your financial health by looking at your income, expenses, and existing savings. 

Determine how much money you can comfortably allocate towards investments without compromising your day-to-day needs and emergency funds

Next, define your financial goals. Ask yourself what you hope to achieve through investing. 

  • Are you saving for retirement, a down payment on a house, 
  • or simply looking to grow your wealth? 

Having a specific goal in mind will help you choose the right investment options and create a roadmap for your investment strategy.

Lastly, consider your risk tolerance as well. Investments come with varying levels of risk, and it’s essential to understand your comfort level with taking risks. 

2. Investing in ETFs

One of the ways to start investing with little money in Canada is by investing in ETFs, which stand for Exchange-Traded Funds. 

ETFs have gained popularity among investors due to their affordability, diversification, and ease of access.

ETFs are investment funds that trade on stock exchanges, just like individual stocks. You can invest in them yourself through an online discount brokerage like Qtrade or have everything done for you by a robo-advisor.

They are designed to track the performance of a specific index, such as the S&P/TSX Composite Index in Canada or the US S&P 500. 

By investing in an ETF, you essentially own a basket of securities that represent the underlying index.

Investing in ETFs with little money is possible because they offer a lower entry point compared to investing in individual stocks or mutual funds. 

While the price of individual stocks can be high, ETFs enable you to buy fractional shares, allowing you to invest in a diverse range of securities with as little as a few dollars.

ETFs provide instant diversification, as they typically hold a wide variety of stocks or bonds within a single fund. 

This diversification helps reduce the risk associated with investing in a single stock or sector, making ETFs a suitable option for beginners with limited funds.

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3. Investing in Fractional Shares

Traditionally, purchasing a whole share of a company’s stock could be expensive, deterring many individuals with limited funds from participating in the stock market.

However, fractional shares have emerged as a solution to this problem, enabling investors to own a fraction of a share rather than the entire share.

Fractional shares allow you to invest in high-value stocks that may otherwise be out of reach. 

With fractional shares, you can invest as little as a few dollars and still gain exposure to some of the most renowned companies in Canada and around the world.

Investing in fractional shares provides diversification opportunities, as you can allocate your limited funds across different companies and sectors. 

This diversification helps spread the risk and can potentially yield better returns over time.

Moreover, fractional share investing allows you to take advantage of the long-term growth potential of established companies, even if you cannot afford to buy a whole share. 

It empowers you to gradually build a well-rounded investment portfolio, setting the foundation for future wealth accumulation.

Related Post: Wealthsimple Fractional Shares Trading in Canada

4. Join Real Estate Crowdfunding

Real estate has long been considered a lucrative investment option, but it often requires a substantial amount of capital to get involved. 

However, with the advent of real estate crowdfunding platforms such as — addy Invest and NexusCrowd — investing in real estate has become more accessible to individuals with limited funds.

Real estate crowdfunding involves pooling together small amounts of money from various investors to collectively fund real estate projects. 

These platforms allow you to invest in fractional ownership of properties, such as residential or commercial buildings, without having to buy an entire property on your own.

By joining a real estate crowdfunding platform, you can start investing in the Canadian real estate market with as little as a few hundred dollars. 

This allows you to diversify your investment portfolio and potentially earn passive income through rental payments or property appreciation.

However, it’s important to conduct thorough research, evaluate the platform’s track record, and understand the risks involved before investing in any real estate crowdfunding opportunity.

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5. Reinvest Your Dividends

One effective strategy to start investing with little money in Canada is to reinvest your dividends.

Dividends are a portion of a company’s profits that are distributed to shareholders. 

Instead of receiving these dividends as cash payouts, you can choose to reinvest them back into purchasing more shares of the same company or other investments.

Reinvesting dividends can be a powerful way to grow your investment portfolio over time, particularly if you are starting with limited funds. 

By reinvesting dividends, you benefit from the compounding effect, where your investment grows not only based on the original amount but also the reinvested dividends.

In Canada, many companies offer dividend reinvestment plans (DRIPs), which allow shareholders to automatically reinvest their dividends back into additional shares without incurring any transaction fees.

By reinvesting your dividends, you can gradually increase your ownership in profitable companies, take advantage of long-term capital appreciation, and potentially earn more dividends in the future. 

Related: RBC Dividend Payment Dates

6. Automate Your Savings and Investments 

By setting up automatic transfers from your bank account to a separate savings or investment account, you can ensure that a portion of your income is allocated towards your financial goals automatically.

Automation provides several benefits. Firstly, it helps you establish a disciplined saving and investing habit by making it a routine part of your financial management.

Secondly, it eliminates the temptation to spend the money that you intend to save or invest, as it is automatically redirected before you have a chance to use it.

Moreso, automation enables you to take advantage of dollar-cost averaging, where you consistently invest a fixed amount regardless of market fluctuations, potentially reducing the impact of short-term volatility.

Whether you choose to direct your savings into a high-interest savings account or invest in low-cost index funds, automating your savings and investments can be a powerful tool to grow your wealth over time.

7. Invest Any Tax Refund & Gift

Tax refunds and unexpected monetary gifts can provide you with a valuable opportunity to kickstart your investment portfolio.

When you receive a tax refund, rather than using it for discretionary spending or short-term gratification, consider allocating a portion or the entire amount towards your investments.

This can be done by setting up an automatic transfer to an investment account or purchasing low-cost investment products such as ETFs or index funds.

Similarly, if you receive a financial gift, whether it’s for a special occasion or simply unexpected, consider using it to begin your investment journey. 

By redirecting this money towards investments, you can leverage it to generate potential long-term returns.

Investing your tax refunds and gifts can provide a significant boost to your investment portfolio, especially when you have limited funds to start with. 

Over time, as you continue to invest and compound your returns, the impact of these initial contributions can grow exponentially, helping you reach your financial goals faster.

8. Improve Your Income

While it may seem obvious, increasing your income can provide you with more funds to allocate toward investment. here 

There are several strategies you can employ to achieve this goal.

Firstly, consider seeking a raise or promotion at your current job. 

Demonstrate your value to your employer by taking on additional responsibilities, exceeding expectations, and consistently delivering high-quality work. 

If a raise or promotion is not immediately available, explore opportunities for side gigs or freelance work to supplement your income. Check out the following posts for ideas:

Furthermore, you can explore alternative income streams, such as starting a small business or investing in a profitable venture.

Additionally, upgrading your skills and education can open doors to higher-paying job opportunities.

By actively working on improving your income, you can free up more money to invest and accelerate your wealth-building journey. 

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About John Adebisi

John Adebisi is a CPA, FCCA and MBA holder with a Bachelor's degree in Accounting & Finance. He has over a decade of experience in writing personal and business finance content for audiences across North America, Europe, the UK and Africa. In addition to his writing experience, he also has a strong background in financial research and analysis, giving him a unique perspective of the financial markets. John derives pleasure in helping people make smart financial decisions, and he believes that knowledge and experience can be valuable resources for anyone who wants to learn how to manage their money.

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