How To Start Investing for Beginners With Little Money

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Want to learn how to start investing with just a little money? You’re in the right place — and more importantly, at the right time.

Thanks to fractional shares, free stock trades and an abundance of digital investing apps, there’s never been a better time to invest small amounts of money.

In this article, I’ll provide some investing tips for beginners including money expert Clark Howard’s advice on saving before you invest, which investment company to choose and some ideas on how to invest your money.

Table of Contents

Save Before You Invest

Before you invest, assess your overall financial situation.

Do you have debts to pay off? Have you built an emergency fund? If not, you probably need to check those boxes first.

Paying off debt isn’t as fun as investing. But it’s often a critical move that deserves prioritizing, especially if you have high-interest credit card debt.

Clark strongly recommends saving before you invest. Relying on credit cards is not a good way to pay for unexpected expenses. Clark says it’s a matter of when, not if, you’ll need to pay for something unexpected. Putting together an emergency fund can ensure you don’t have to borrow money whenever “oops” happen.

Before you get started, understand that by definition, any investment is a risk. You can theoretically lose some — or all of your money.

Clark says that it’s usually not a good idea to invest if you’ll need the money in less than five years, and that 10+ years is more ideal. By building an emergency fund first, you can truly invest.

Investing for retirement should be your highest priority after saving, Clark says. For most people, it takes decades to fully fund retirement. So if you’re just getting started, it is okay to start small.


Step 1: Explore Your 401(k) and IRA Options

So you’ve paid off your debt and built an emergency fund. Congratulations! It’s time to invest.

But before you launch into the first investment app you find and start trading, find out whether your job offers a 401(k) plan.

As long as the combined expenses and administrative costs of your 401(k) plan are less than 0.5% annually, Clark thinks your first move should be to contribute to your 401(k) plan up to the maximum amount allowed.

If you don’t have access to a workplace 401(k), consider opening a Roth IRA instead. 401(k)s and IRAs are both tax-advantaged retirement accounts. Both offer Clark’s most common investment recommendation as well.

Step 2: Decide To Invest on Your Own or Get Help

There are basically three investing options: do it yourself, use a robo-advisor or hire a financial advisor. Consider this series of questions to help you decide.

Should You Hire a Financial Advisor?

If you don’t have much money to invest, you probably shouldn’t hire a financial advisor. In fact, it may not be an option at all, as many financial advisors require an investment of $100,000 or more to begin working with you.

What’s a Robo-Advisor? Should You Use One?

You can pay a “robo-advisor” to manage your investment portfolio for a low cost. Robo-advisors consider your age, time horizon and risk tolerance before matching you with a pre-built portfolio. These robo-advisors offer automatic portfolio rebalancing. Most also offer some level of tax-loss harvesting.

Are You Investing Within a 401(k)?

If so, you won’t have the option to use a robo-advisor. Typically, your 401(k) plan will provide a limited number of mutual funds, often index funds, from which you’ll choose. The good news is that Clark’s recommendation for which kind of fund to choose is super, super easy.

Step 3: Choose From the Best Investment Companies & Apps

Just 10 years ago, it would have made very little sense to start investing with just $50. At the time, you probably would’ve paid more than 20% in commissions on any trade.

That’s no longer the case. There are plenty of investment companies that offer free trades and extremely low (or no) account minimums.


Here are some of the investment companies that offer commission-free trades and minimum investments of less than $10:

And remember, if you’re investing within a 401(k), you won’t need to choose an investment company. Your 401(k) plan will work with a pre-selected “custodian” company.

Step 4: Choose Your Investments

Clark is fond of advising people to bet on the future of capitalism rather than the future of an individual company. That usually means investing in a diversified fund: either a target date fund or an index fund.

A target date fund is “the easy button” of investing, according to Clark. You can find target date funds in 401(k) plans and in IRAs. Just pick the year closest to when you plan to retire and put all your investment money into it.

An index fund can be a mutual fund or an ETF. You can invest in an index fund via a retirement account — 401(k) or IRA — or on your own. However, many mutual funds require investment minimums between $1,000 and $3,000.

Outside of a few options at Fidelity, almost every fund will charge at least a small annual fee. When the market is going up, even index funds can generate annual tax bills.

So while index funds are especially good investments for retirement, they may not always be the best option for someone with only a little money to invest.

Consider Fractional Shares

There’s a way to build a diversified portfolio without spending much money and without buying a mutual fund or ETF: fractional shares.

Many commission-free investment companies will let you invest $1 (sometimes even less) into a number of individual stocks and ETFs. So if you have $100 to invest, you can still own a small piece of 100 different companies.

I’m not suggesting that’s the ideal way to invest $100. That’s a lot of clicking and trading to start with and potentially extra work for you in the future. But fractional shares are great, especially if you’re looking to invest outside of a retirement account.


Final Thoughts

Educating yourself on broad financial strategy can help you figure out your best first steps. For example, it may not be the most prudent decision to invest if you have high-interest credit card debt.

But once you are ready to invest, even with a small amount of money, there are a myriad of good, relatively simple ways to get started.

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