How to Start Investing and Saving for Retirement With Little Money

Main Street Americans have long believed you need a big bank account to start investing in stocks, bonds and mutual funds.

There’s some truth to that notion, at least at the top of the S&P 500.

For instance, the so-called Magnificent Seven stocks — Apple, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla — are all considered trillion-dollar stocks due to their massive market capitalizations. Yet plenty of opportunities exist for investors with low cash flow to invest in these and other stocks to accumulate savings for retirement.

“Anyone can start investing, whether you have a ton of extra cash or not,” says Mark Henry, founder of Alloy Wealth Management in Greenville, South Carolina. “There’s no rule that says you have to invest $1,000 in a stock to get into the game.”

These steps can help Americans with fewer financial resources get started in the financial markets:

— Start small and build momentum.

— Review your finances.

— Leverage workplace retirement plans.

— Buy smaller amounts of stock with a micro-investing app.

— Invest in real estate investment trusts.

— Leverage dollar-cost averaging.

— Pay yourself first.

— Get educated about the stock market.

Start Small and Build Momentum

If you struggle to save money or live paycheck to paycheck, don’t overextend yourself when you begin to invest.

“If you don’t feel like you have enough to save monthly to invest, you’ll be surprised how consistency can add up over time,” Henry says. “The general rule of thumb for saving is 20% of your income; if that’s not feasible for you or feels overwhelming, start with 10%, or $20 a week, or whatever number works for your budget right now.”

For starters, try opening a high-yield savings account that earns 4% to 5% interest rather than a traditional account offering less than 1% APY, Henry advises.

[READ: 10 Ways to Reduce Taxes on Your Retirement Savings]

Review Your Finances

When planning your investment goals, start by reviewing your financial picture.

“Focus on how much cash went to fixed expenses like rent, taxes, car payments, student loans, and how much went to food, entertainment and shopping,” says Emily Luk, a financial planner and CEO at San Francisco-based wealth management platform Plenty. “Create a rough plan for how much you’d like to invest over the next year. Establish your regular household expenses and budget, then set up automatic contributions to your savings and investing accounts.”

Leverage Workplace Retirement Plans

Aim to maximize contributions to company retirement accounts.

“Especially do so with tax-advantaged accounts, and also invest in taxable investment accounts since you can’t withdraw from retirement accounts early,” Luk says.

Some employers offer to match the amount an employee contributes to their 401(k). Matching policies vary by company, but typically an employer will match $1 for every $1 you contribute up to 3% of your salary, then 50 cents on the dollar on the next 2% of your salary.

[READ: Retirement Accounts You Should Consider.]

Buy Smaller Amounts of Stock With a Micro-Investing App

Fractional investment platforms like Robinhood and Acorns allow anyone to start investing with a little money.

“In fact, it requires no more than some spare change,” says Andrea Woroch, a personal finance analyst and former U.S. News contributor based in Bakersfield, California. “Set up the round-up feature and link your debit or credit card. The app will then round up purchases to the whole dollar and invest the change into various funds depending on your risk tolerance.”

Invest in Real Estate Investment Trusts

It’s possible to invest in real estate without having significant cash.

“Put some money in a real estate investment trust,” Woroch advises. “REITs allow you to buy shares of a real estate portfolio with a variety of properties like office buildings, shopping centers, hotels and more. You’ll also earn dividends through the income generated by these properties, which is similar to buying stocks.”

Leverage Dollar-Cost Averaging

“One of the best ways to begin investing is through small, consistent contributions,” says Terry Parham, chief financial officer at Innovative Wealth Building in Los Angeles.

“A strategy known as dollar-cost averaging allows you to invest regular amounts at consistent intervals — weekly, daily or monthly — regardless of market conditions,” Parham says. “Many tools and platforms now enable this approach, offering options like buying slices of stocks, fractional units of mutual funds or other investment vehicles.”

“The hardest part is often just starting, but once you do, those small contributions can grow into significant wealth over time,” he adds.

Pay Yourself First

Becoming a saver and an investor starts with understanding your financial situation and the beliefs and behaviors that have led to this reality.

“From there, it’s important to establish clear goals because, without compelling reasons to save, it’s much harder to commit to the process,” Parham says. “A proven strategy is to pay yourself first. This means setting aside a portion of your paycheck or income for savings before it’s accessible for spending. Automating this process ensures consistency and helps build a habit of saving.”

[Related:How Much of Your Retirement Portfolio Should Be Gold and Precious Metals?]

Get Educated About the Stock Market

It’s important to develop an understanding of the stock market by reading the news, listening to podcasts and staying current on topics that may impact your investments.

“It’s a complicated ecosystem you’re entering, and you need a plan,” says Jason DeLorenzo, owner of Ad Deum Funds in Chantilly, Virginia. “Once you have an idea of how to pick your stocks and learn how to plan your trades, practice on a test trading account. Once you’ve made your trade plan and practiced it for long enough, execute your actual trade plan.”

DeLorenzo warns of common investing pitfalls.

“The primary challenge is being directed by emotion,” he says. “Don’t enter or exit a stock for reasons other than your plan. For instance, don’t buy an obscure crypto coin because it had strong gains for your friend.”

Additionally, if your strategy hasn’t changed, don’t sell a stock because you’re uncomfortable with losses in your account, DeLorenzo adds: “Always stick to your plan.”

More from U.S. News

Here’s What Gen X Should Know About Retirement

Best Investing Apps for Retirement

Are I Bonds a Good Investment for Retirees?

How to Start Investing and Saving for Retirement With Little Money originally appeared on usnews.com

Update 01/24/25: This story was previously published at an earlier date and has been updated with new information.

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