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The Boring But Best Way to Start Investing With $100

Even money saved can slowly start to burn a hole in our pocket. Most new investors scrounge up a little money, open a brokerage account, and immediately start buying whatever stocks they can afford. 

But that's actually a huge mistake. 

Investing is a game of patience, and that means taking the long-term approach to both to owning stocks and deciding what you will own. 

In this video from our YouTube channel, we break down the best thing a new investor can do with $100 and talk about the importance of playing the long game with investing. 

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Narrator: So you've got an extra $100 laying around. You've built up an emergency fund and can provide for all your basic needs today. Now it's time to invest for the future.

Is $100 bucks too little to get started investing?

Well while very few people are going to retire off of one $100 investment, investing is a journey – and as the ancient Chinese proverb says "a journey of a thousand miles begins with a single step."

You've already taken your very first step: saving $100. Savings are the fuel that feeds your investing engine. Make a savings plan to make sure you'll be able to continuously invest month after month and year after year.

You can even set your bank account up to automatically put aside a set amount every week or month to help.

Next, you'll need to sign up for a brokerage account. When choosing a brokerage, be mindful of commissions and fees. While being aware of fees is important for all investors, it's even more important for an investor buying $100 at a time.

Many brokers will ask for $7 or $8 per transaction, and if you have to pay an $8 commission every time you buy and sell an investment, you'll be 8% in the whole right off the bat – and 16% in the hole if you take into account the commissions you'll have to pay when you sell the investment.

As a result, you'll probably want to sign up with a discount brokerage, particularly ones that offer free trades. Well known online brokers like eTrade, TDAmeritrade, Schwab, and others often will give customers free trades who ask for them. In addition, Robinhood's brokerage provides unlimited free trades, though it has fewer tools and functionality than other brokerages.

Once you've chosen a brokerage, it's time to make your first investment.

Now with that first $100 you could go out and look for stocks that trade for less than $100 – but we wouldn't advise doing that. If you were to do that, the value of your whole portfolio won't depend on the results of one company.

For just about every investor, an index fund or ETF is the perfect first purchase. These investment vehicles allow instant diversification because they represent an ownership interest in all the stocks in the index that the fund tracks. So instead of owning just one company, you own a teeny piece of hundreds or thousands of companies. Further, these funds charge very low fees, so you get to keep as much of your returns as possible. Even if you don't get free trades at your brokerage, many brokerages allow unlimited free trades of select index funds and ETFs.
As for which ETFs to buy – if you can think of an investing idea or theme, there's probably an ETF for it. There are tech-centric ones, dividend-focused ones, ones that own small companies and ones that own big companies.

For new folks, we recommend starting out with an ETF that mirrors the S&P 500, such as Vanguard's S&P 500 ETF (NYSEMKT: VOO)– or the SPDR S&P 500 ETF Trust  (NYSEMKT: SPY).

These ETFs represent ownership in the S&P 500 index, composed of 500 of the largest US companies.

Now astute viewers may have looked up these tickers and realized – wait a minute, shares of these ETFs cost most than $100, what am I supposed to do then?!?!?

Circling back to the point from the beginning of the video, investing is a long-term thing. The best thing you can do with $100 now is create a low-fee or commission-free brokerage account, put the money in it and then put yourself in a position to add more money to that account over time. Once you have enough saved, you can begin buying shares of quality, low-fee ETFs.

It may sound unsatisfying, but taking the long view instead of just immediately buying shares of whatever stock happens to cost less than $100 will put you in a far better position 10, 20, and 30 years from now.

Even after you've bought that first ETF, remember, this is not the end, this is the beginning. The beginning of an investing journey that will last a lifetime, and, hopefully, make you smarter, happier, and richer.

Thanks for watching – if you have any thoughts on the topic, or have any future topics you'd like to request, drop a comment below.

And if you're looking for some help with investing, we've got a free starter kit over at Fool.com/Start – it covers everything from money saving tips to buying your first stock and it comes with a 5 stock sampler from our premium analysts!

If you enjoyed this video, give us a thumbs up, and subscribe to get more content like this from The Motley Fool. Fool on!

Nick Sciple has no position in any of the stocks mentioned. The Motley Fool owns shares of Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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