Investing for Beginners: 5 Tips to Get Started with Little Money

In 2023, inflation and recessionary concerns made more than half of Americans hesitant to invest in the stock market. 

When inflation puts a dent in the household budget and everything from toilet paper to groceries becomes more expensive, investing sounds like something only the very wealthy can afford. 

Plus, economic uncertainties stop many from diverting part of their savings into stocks or bond investments. 

While saving in itself can be difficult in this economy - most Americans have $1,000 or less in savings - utilizing a traditional savings account alone will not help you achieve your larger, long-term financial goals very quickly. 

It’s wise to at least consider tapping into more aggressive income generators to make your money work for you. 

Investing does that for you, but it does carry some risk, so it’s important to note these 5 factors when considering investing for the first time. 

1. Do not borrow to invest 

If there is a list of things that you should never do in investing - borrowing to invest is at the top. 

No matter how lucrative an investment sounds, NEVER borrow money to invest!

You have to pay interest on borrowed money. And interest rates have sharply gone up in the last 2 years - taking it to the highest level in more than 2 decades. 

While interest costs can be very high depending on the type of borrowing, the value of your investments can come down in the short term.  For instance, there is no guarantee that the stock market will not take a 10-20% dive in the next year and take a couple of years to break even. (In the decade between 2000 and 2010, the S&P 500 had a net negative return!).  

Yet no matter what happens to your investments, you need to repay your lenders - on time. Failing to do so is going to hurt your credit score and your ability to borrow in the future. 

Moreover, investing in borrowed money puts psychological pressure on you to earn a certain percentage of return every year. However, returns from investing, especially in the stock market, are never certain. Plus, psychological stress can lead to ill-advised investing decisions such as investing in riskier assets like crypto or penny stocks. 

If your current earnings are not sufficient to save enough, look for side hustles that can generate extra income. 

2. Do not invest without first having an emergency fund

Please do not start investing until you have built a 3-6 month emergency fund first. Investing is an upfront cost for a hopeful long term gain, and it’s imperative you’ve built a solid foundation first. 

Not planning for emergencies is one of the most common budgeting mistakes that can seriously hurt your ability to get ahead financially. According to a Bankrate survey, fewer than half of Americans say they can afford to pay a $1,000 emergency expense from their savings. 

Starting to invest without having an emergency fund could portend having to halt investing when an emergency strikes or selling your assets prematurely - potentially at a loss - to increase your liquidity.  

Moreover, the best investment decisions are taken when you are not financially stressed. The mental stress of economic uncertainties that could lead to unexpected emergencies could push you to make investing blunders.  

3. Start early and start small 

Warren Buffet, the investing wizard, once said, “never test the depth of the river with both feet.” Investing in the market is risky because while you can make a larger return than with a savings account, you can also lose it - unlike with savings accounts. 

So the best way to get into any risky venture is starting small. You can start your investing journey with as low as $1 thanks to low or no-minimum brokerage accounts, although experts suggest starting with $500 to $1,000. 

Starting small will help you get familiarized with the nitty-gritty of investing: how to buy and sell assets, risks and return, and market volatility. 

It’s a safe idea to start investing 10-20% of your savings, which should be part of your 401(k) or other retirement account, and then gradually add more as you gain confidence. 

Also, starting small ensures that the early investment mistakes don’t put a big dent in your capital. It’s easier and less overwhelming to recover the small losses. 

While starting small is important, it’s equally crucial to start early in life to leverage the magic of compound interest. The earlier you start, the more time you have to allow your investments to grow and multiply - exponentially - even despite market volatility and fluctuations. 

While most people wait till their early-to-mid-30s before starting to invest, starting in your 20’s is going to give you an extra decade to make your savings hustle for you. 

The good news is that a lot of Gen Zers are already starting to invest much earlier in their lives compared to any other generation. 

4. Be consistent 

Spoiler alert: Investing is not a one-time activity. 

You need to keep doing it over and over again for years and decades to accumulate generational wealth. It’s not a sprint - it’s a marathon. 

Once you start investing, commit to the long term. The stock market tends to grow over the long-term despite short-term fluctuations. Today, Warren Buffet’s net worth is $129 billion, but did you know 99% of his wealth was generated after his 50th birthday? 

Even though he started investing at the age of 11 (wowzers - he was determined), his consistency paid off in the longer term. 

So, decide on a frequency of investment  - do you want to invest monthly (this suits a majority as they are paid a monthly wage), quarterly, or yearly? 

Luckily you can automate your investments with automatic transfers to make it easier to be consistent. It can also help take away the emotions from investing when there are drops in the market, but it’s important to monitor your accounts’ performance regularly if you set up automatic transfers.

And if you’re ever in a financial pinch, try to find ways of cutting discretionary spending before you touch your investment allotments. This is also why we emphasize the importance of first building and maintaining an emergency fund. 

5. Diversify your risks 

When you are just starting to invest, it may be tempting to go all in and invest your entire capital in a single stock or an asset. 

Don't do that. 

Ask your grandma and she will tell you not to put all your eggs in one basket. There is a reason financial advisors swear by diversification.

Investment is a risky affair. Today, one company stock may be making news highs every other day - but this does not mean the stock will keep increasing forever. 

The economy changes and so does the investment landscape. So, invest in multiple assets (stocks, bonds, mutual funds, commodities, high-yield saving accounts, and retirement accounts) to manage risks. 

Remember that while investing involves risks, diversification is one of the best-proven ways of managing that risk. 

Want to learn more? These tips are a small part of a comprehensive course on personal finance. At uThrive, our mission is to equip young adults to become successful, independent adults in today’s economy. Check out our ultimate finance course, which teaches you how to earn an income, budget, save, invest, and protect your assets!