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October 22nd, 2017

Wealth Strategies

How to start investing if you have $100 or less

  Jonnelle Marte

By Jonnelle Marte The Washington Post

Published August 12, 2016

How to start investing if you have $100 or less

The thought of investing can feel intimidating, particularly if you don't have a lot of money to work with.

But new apps and trading platforms are making it easy to start investing with as little as $5. And they can help you spread your risk across multiple stocks and bonds to achieve the kind of diversification you would have with a much larger portfolio worth thousands of dollars.

Instead of pairing you with financial advisers, many of these programs keep costs low by using software and algorithms to help you create portfolios that are in line with your goals and risk tolerance. Some of them don't offer any investing guidance at all. Remember, you should only invest money that you won't need to cover bills or other costs within the next year or two. And advisers generally recommend investing outside of your retirement account after you have an emergency fund set up.

Figuring out exactly which tool might be best for you depends on your goals and how much money you have to invest. You'll want to invest differently if you're saving to buy a house than you would if you were building a college fund or generally looking to build wealth.

Here are the basics on some apps and websites that can help you launch your portfolio, a few bucks at a time.

Acorns
Minimum Investment: $5
Cost: $1 a month or 0.25 percent of assets a year for accounts with more than $5,000.

Through the investing app Acorns, people who answer questions about their risk tolerance are recommended one of five different portfolios. Each portfolio is made up of six exchange-traded funds, which invest in a basket of stocks and bonds rather than focusing on any one company. (That kind of diversification minimizes risk for investors because if one stock tanks, it can have a smaller effect on the overall portfolio.) Investments made with a minimum of $5 are used to buy fractional shares of ETFs, making it accessible to people who might not be able to afford a full share. Even small investments are split up across multiple stocks and bonds. As Acorns puts it, a $20 investment in a moderate portfolio may only include 12 cents in Apple stock and 5 cents in General Electric.

The investment approaches range from conservative to aggressive, with the more conservative portfolios holding more bonds and the aggressive portfolios investing more in stocks.

After creating their accounts, consumers can choose to keep investing in small increments through a feature that tracks their daily expenses. Customers who link their Acorns account to their debit or credit card can have each transaction rounded up to the nearest dollar and Acorns will compile that spare change to be invested at a later time. Take the example of a latte that costs $3.60. The app would see that purchase, round it up to $4, and set aside 40 cents to be invested later. Once the tiny contributions add up to at least $5, the money can be invested as part of the portfolio. "We're helping you invest in the background of life in small, meaningful ways," said Noah Kerner, chief executive of Acorns.

Stash
Minimum Investment: $5
Cost: $1 a month or 0.25 percent of assets a year for accounts with $5,000 or more.

Stash is an app targeting people who want to invest based on their wants and beliefs while also staying diversified. With every $5, users can buy a fractional share of a stock or ETF focusing on a particular purpose or industry. Customers are pointed to a list of investments that might be a good fit after they answer questions about their risk tolerance, goals and the types of causes they want to support. For example, people who care about investing in environmentally-conscious technology may be pointed to the iShares S&P Global Clean Energy Index fund, which buys energy stocks. Other people who say they want to invest like Warren Buffett can buy fractional shares of Berkshire Hathaway, Buffett's large conglomerate that owns a range of companies, including Coca-Cola, Kraft Heinz and Geico. (With the exception of Berkshire Hathaway stock, the majority of the 30 investments that Stash users can choose from are ETFs.)

Investors can also buy fractional shares of more general funds that invest in a mix of stocks and bonds based on whether they want a conservative, moderate or aggressive approach. For instance, one option is the iShares S&P Moderate Allocation fund, which is about 60 percent in bonds and 40 percent in stocks. Stash users who invest mostly in one sector may receive messages encouraging them to diversify by choosing one of the three more general investments, said Ed Robinson, co-founder and president of Stash. The company plans to roll out more educational information for customers in the near future.

Robinhood
Minimum Investment: None
Cost: No trading fees.

With the investing app Robinhood, customers can buy full shares of individual stocks and ETFs but they don't receive any advice on which investments might be a good fit for them. Because investors are not buying fractional shares, the app requires users to have enough money to buy full shares of a stock or ETF. However, owning full shares also means having more direct exposure to individual companies. Take someone who wants to buy a share of Disney, which was recently trading at $96 a share. That investor will need at least $96 in their account to buy that share and the value of their investment would change directly with the price of the stock. So if that stock sinks to $80 a share, investors would lose $16 for every share they own.

It's possible to use the app to build and manage a diversified portfolio using individual stocks. But investors who want that kind of diversification may need to have more cash to invest through Robinhood than they do through Acorns and Stash. Another option is to diversify by buying shares of an ETF, which already invest in a group of stocks or bonds. Robinhood customers don't have to pay trading fees, but they are left on their own to decide which investments to buy.

Folio
Minimum Investment: None
Cost: $4 per trade or $29 a month for unlimited trades

Through Folio Investing, an online brokerage firm, investors are recommended a customized portfolio of stock and bond ETFs based on their goals and risk tolerance. Users can adjust their portfolios if they want to avoid investing in certain companies or industries, says Steve Wallman, chief executive and founder of the company. (Say, someone who already has company stock from their employer may decide not to invest in that same company again through their portfolio.)

People with simple portfolios and small amounts to invest - picture someone who wants to invest $100 a month into one ETF - may want to use the plan that charges them $4 a trade, Wallman said. (Those investors who make fewer than four trades a quarter may be subject to a $15 fee.) But investors putting money into multiple funds each month may find those costs add up if they are only investing small amounts. Those customers with larger account balances who want to invest in several funds while keeping costs down may be better off in the unlimited plan for $29 a month. When customers want to withdraw cash from their accounts, they can choose if they want to sell investments that will lead to gains that they may have to pay taxes on, losses that can help offset other income, or if they want to minimize their tax bill by balancing both.

Betterment
Minimum Investment: None
Cost: 0.35 percent a year for accounts less than $10,000, with a $100 monthly investment; 0.25 percent a year for accounts between $10,000 and $99,999, with no monthly deposit required; 0.15 percent for accounts greater than $100,000 with no monthly deposit required.

Are you working toward more than one goal? Through Betterment, investors can create separate accounts for different goals. For example, a customer can have an IRA for retirement savings, a separate account for a home down payment and another for general wealth building. After answering questions about their goals, investors receive guidance on which kind of account to open and how to invest those funds using ETFs. Someone with a far-off goal may be recommended a more aggressive portfolio and people saving for short-term goals might be pointed to more conservative options. But those portfolios don't shift over time, say from more aggressive to more conservative allocations, as people get closer to needing their money. It will be up to the investor to check back in and make sure that approach still makes sense for them. Investors can start their accounts with small amounts, but those with less than $10,000 in their accounts need to contribute at least $100 a month. Those with larger account balances pay lower fees and aren't required to set up the recurring deposits. As for taxes, investors who want to withdraw cash from their accounts or change the allocation of their portfolios receive guidance on how the move might affect their tax bill.

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