The Frugal Creditnista

7 Easy, Low-Risk Ways to Start Investing

Think you need to “save up” money to invest? You’re right — and wrong. 

Investing is the only way to grow your wealth without working extra hours. It’s also the only way to maintain your money’s value over time, depending on how you invest. And while there are plenty of people who want to throw thousands of dollars into the stock market or commercial real estate, the reality is you don’t have to wait to build a fortune before you can invest.

I’m sharing seven easy ways you can start investing with little money and less risk.

1. Open a high-yield savings account.

ways to start investing

The lowest hanging fruit for would-be investors, a high-yield savings account is one of the safest investment options. Get a higher return than the average savings account, which can be as much as half a percent or more. Accounts that offer higher interest might also have higher minimum balance requirements, so make sure you understand the terms and conditions of your account in order to earn the most interest. 

Unlike many non-liquid investments, you can freely deposit and withdraw funds from your savings account with no penalty fees. 

2. Buy a Series I savings bond.

A Series I savings bond adjusts its interest rate as inflation changes. When inflation increases, the bond’s interest rate will also increase. These bonds are directly backed by the U.S. Treasury and inflation rates are adjusted every six months to ensure you get the most for your investment. This can be a great way to protect your money from the eroding effects of inflation. 

The downside is that you have to wait for your bond to come to term before you can cash it in. Otherwise, you might end up paying a penalty and losing most of your gains.

3. Invest in a Certificate of Deposit (CD).

ways to start investing

A Certificate of Deposit (CD) is also considered a safe investment option. You place your money in a CD, wait for it to come to term (usually one or two years), then you have the option of cashing it in or rolling it over into another term. The funds are guaranteed and you never lose money on a CD.

However, because of inflation, you may end up losing some purchasing power if inflation is higher than when you opened the CD. What’s more, CD rates don’t offer the greatest returns (currently around 1.0% to 2.0%), so you won’t be able to grow your funds substantially. If you close your CD before it comes to term, you will have to pay a penalty and risk losing some or all of your gains. 

4. Put money in dividend stocks.

Dividend stocks aren’t usually considered as safe as CDs and savings accounts, but they offer more attractive returns. They’re also less risky compared to growth stocks, namely because they’re more mature and stable. 

With dividend stocks, you get paid a regular income based on the stock’s value at the time of payout. Not all stocks pay dividends, so you may want to work with a financial expert to explore this option.

5. Open a money market account.

ways to start investing

Money market accounts are similar to savings accounts in that they’re extremely low risk. You can open a money market account with as little as $100 in most cases and contribute more funds to the account as you wish. The FDIC insures each account up to $250,000, so you never risk losing your money. What’s more, there are no penalties if you need to withdraw some of your funds.

The downside is that money market account rates are very low, so you won’t earn substantial income from them. However, they can be a good option to help you grow your money while you’re exploring other investment opportunities instead of letting your money sit idle in a checking account.

6. Invest in a real estate crowdfunding campaign.

Like the idea of investing in real estate? A cheaper option is to go into real estate with several other investors, a growing practice called crowdfunding. You can own fractional shares of large properties with a lot less money than it used to cost. 

If you have money in stocks, bonds, and various savings accounts, real estate crowdfunding can be an impactful way to diversify your investments. You partially own a physical piece of property that isn’t tied to the stock market, plus you don’t have the added headache of being a landlord.

7. Take part in your employer’s 401(k) plan.

ways to start investing

Does your employer offer a company retirement plan? If so, you have a unique advantage to invest money you might not even miss! Contributions to a 401(k) are taken out of every paycheck. Even putting in just 1% of your salary can make big gains over time, especially if your company matches your contributions to a certain amount. What’s more, it ensures you always have money to invest since that money goes into your 401(k) before you ever see your paycheck.

There are lots of ways to start investing if you don’t have a ton of money to put aside. None are completely perfect options, but many of the supposed downsides are easy to tolerate. Explore your options before putting up your hard-earned money!

For more financial insights, head back to the blog

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