What do you imagine when you think of the US stock market? Maybe it's wealthy business professionals on Wall Street, or families managing their generational wealth. But the truth is that you can invest for as little as a dollar.
How do you invest in stocks with little money? Let's dive in.
Beginners with little money should find an exchange that offers fractional investing
Stocks can get expensive. Berkshire Hathaway Inc. Class B (NYSE:BRK.B) is priced at $284.50 per share as of May 19. At the same time, the stock for Google's parent company Alphabet Inc. (NASDAQ:GOOGL) is at $2,255.05.
How can someone with just a dollar afford this? With fractional stocks.
Fractional investing from exchanges like Raseed split shares into smaller, more affordable increments. A traditional brokerage requires you to fill in an integer (aka a whole number) such as 1 or 100.
However, there are trading apps that purchase whole shares and sell fractions to investors. You can enter the dollar value you want to invest and get a fraction based on the current market value.
If your capital is limited, consider investing in blue-chip or dividend stocks to start
When you're starting with $1, you don't have much to lose. But limited capital means less padding for risky investments.
That's why it might be wise to start with a blue-chip stock (aka a well-known and historically stable public company). Even with intermittent volatility, there's a higher chance you'll earn profit over your initial investment.
There are also dividend stocks, which can create passive income over time through monthly, quarterly, or annual earning payouts.
You can also pick a market-wide ETF to build your baseline
When the US market is down, it may be wise to buy a fractional share of a market-wide, diverse exchange-traded fund (ETF). Examples include the SPDR S&P 500 ETF (SPY),Invesco QQQ Trust (QQQ), and SPDR Dow Jones Industrial Average ETF (DIA).
Eventually, the market will recover and you'll be in the green. Returns aren't as dramatic, but you can maximize them by buying shares when the market is down.
Once you get some returns on your dollar, sell and diversify
If you're starting your investment journey with little money as low as a dollar, you can "realize" your returns by selling your positions. Then, you can use those capital gains to expand and diversify your portfolio. Ultimately, this will help you compound your investments.
Once you've compounded your investment, you can take more risk or hold your positions
The beauty of investing is that you can grow your wealth regardless of if you're starting with $1 or $1 million.
Once you've earned some profit, you can reinvest your capital to continue growing. Soon, you'll be in a position where you have enough money that you can hold in the market while it grows. You may also be able to take on additional risk, like niche ETFs or startup stocks that you believe in.
