Many people assume that they either don't have enough money to invest or that most investments are going to eat up a smaller investment through fees and other hidden charges. However, there are quality investment options out there that cost very little, have no minimum investment requirements, and come with all fees upfront. That means you can invest for $100 quickly and easily, so there's no excuse not to put your money to work for you right now. Here is a guide to investing for less with the most cost-effective investments to help your money grow.
Low-Cost Index Funds
Index funds are a great way to invest on a small budget in world-class companies and fast growing sectors. The best part is index funds offer extremely low fees and a lack of hidden fees like front-end loads, deferred charge fees, and Rule 12b-1 fees that can eat into your hard earned money. Vanguard funds are famous as the go-to fund for people who want to invest for low cost. That's because Vanguard doesn't charge you fees related to marketing and brokerage expenses. Additionally, there's no fee for when you purchase or sell your index fund for those investors who buy and hold.
Most active funds are going to cost you between 1 to 2.5 percent a year, but a low-cost index like Vanguard means you'll often pay less than 0.2 percent a year in fees. There are also no account fees for Vanguard when you receive your account documents electronically, That means you have a quality investment for funds that often cost less $100 to get started with.
An ETF, Especially One Tracking The S&P 500
Exchange Traded Funds, also known as ETF, offer a low-cost way to invest, and they operate much like purchasing a stock. The great part? You can purchase a whole pool of stocks for the cost of only one. Consider the equivalent of ordering one ice cream scoop and getting the other 499 scoops for free. It's also an excellent choice for those whose employers don't offer 401(k) plans or students who want to start investing early.
Just remember, most funds and investments underperform the S&P 500. Despite big promises of huge returns from mutual fund managers and brokers, it makes sense for investors to purchase an ETF like the SPDR Trust, which simply mimics the performance of the S&P 500. During the 1990s, the S&P 500 returned 17.3 percent annually while the average mutual index only returned 14 percent. This trend persists today.
Warren Buffet recently noted in a newsletter that his will stipulated that "90 percent" of his money be placed in a "very low-cost S&P 500 index fund" for his wife. There's no point in arguing with the Oracle of Omaha; he's richer than us for a reason. With the S&P 500, you simply buy and hold, and your investment should grow over time.
Are you working? Purchasing stock through a brokerage often costs money, and if you want an investment that costs less than $100 in fees, contributing to a 401(K) is a solid investment decision that almost everyone who is working should consider. However, the key to a smart 401(K) investment decision is to carefully analyze the fees, sales charges and maintenance costs associated with the options your employer offers. Otherwise, you could be paying more than $100 in fees per year, especially if you have a much larger pool of money.
Often, employers offer plenty of investment options including mutual funds, collective investment funds, and variable annuities. However, fees can have a significant impact on how much your investment will cost during the year and at the time you sell your fund. That's why you should sit down and carefully analyze different 401(k) investments and fees, and take care to select a fund that has a minimum fees and a historically strong track record.
As you can see, it's possible to invest for less than $100 and keep your fees at a minimum. Keep these tips in mind and you should be able to turn a small amount of money into an investment that lasts a lifetime. Here are some more tips on how you can start investing today.