Smart Investing on a Small Budget

smart ways to invest on a small budget

There is a pervasive misconception that those who want to invest need to first have a lot of money. However, building a strong investment portfolio that achieves a decent amount of savings can be achieved with a sum as small as a few hundred dollars. The key is to know how to invest your money smartly. Understanding what smart investment is will give you the necessary tools to understand how to financially plan for retirement and other big financial decisions.

It is generally acknowledged that the longer one invests, the higher the accumulation of their returns. Many young people are now turning to investment as an additional source of income. But then again, young people at the beginning of their careers are not exactly earning a disposable income, which then begs the question of how exactly should they invest in something they cannot afford? The answer is pretty simple. When you know how to invest smartly, you do not need a large capital. And we have prepared some basic things to know before engaging in low budget investments.

Before starting to invest, here are a few things to keep in mind:

Automate your savings

As a young investor, begin setting aside some money in a savings account each month. It is easy to set up an auto-debit that transfers a certain amount from your monthly pay to a separate savings account that you keep for investment purposes only. There are also many apps that round up your spending to the nearest ringgit, and invest the difference for you.

Clear Debts

Before you begin putting aside money for investment, clear all outstanding debts that you have. Some debts like credit cards can carry a pretty high-interest rate, which will accumulate the longer the debt stands. Speaking to a financial planner may give you a better idea of how to clear your debts fast so that you can begin putting money aside for investment.

Establish retirement plans

There will be a time when the young and strong will eventually grow old and frail, and this is why it is important to ensure that you have enough money to live comfortably off once you have retired. Take advantage of all the retirement securities offered by the government, and also look into long term investments that create portfolios.

Invest tax refunds

While it is tempting to see tax refunds as a bonus to spend further, avoid the temptation to do so, and invest the returns.

Now that the bases are covered, the following are some smart ways to invest money in different amounts:

  • $500 – ETFs, CDs, new businesses

As small as this amount seems (for investment purposes), there are many ways to smartly invest this amount and still get pretty good returns. Exchange-traded funds (ETFs) are a good option for starting small, as most of them do not have a minimum investment cost. With a passive management structure, ongoing costs are lower. You could also be eligible to get a cash deposit (CD) from a bank, or if you are feeling adventurous, you may buy shares in new businesses.

  •  $1000 – low-fee target-date funds, individual stock shares

If you’re looking for a longer-term investment, consider target-date funds that usually have low minimum investment amounts. In the beginning, it may be high risk, but earns higher returns, but closer to your target date (typically your retirement), the risk is lower and is less prone to sudden losses. You may also want to consider purchasing individual stock shares that pay out dividends, which you can cash out in times of need, or just reinvest.

  •  $3000 – mutual funds, indexed funds

With $3000 in hand, there are more options for investments such as mutual funds. An index fund is a type of mutual fund that tracks specific market indices and is managed passively, resulting in lower fees that maximise returns. Although it is a high risk, the broad range of asset classes that are included minimises potential losses.

  • $5,00 – REIT

While $500 is not even enough for a down payment to own property, it is enough to get you investing in real estate via real estate investment trusts (REITs). REITs enable the investors to reap a share of the income generated by the property they invest in.

While investment can get complicated the deeper you get into it, the basics are pretty simple – maximize savings and minimize taxes and fees. After all, you want your money for yourself, instead of going towards exorbitant fees. Learn more about different investment options and tips here.


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