Investing is one of the most intelligent ways to use your money. Instead of putting your money toward things that you want now, investing lets your money grow over time.
As Warren Buffet says, “The 8th wonder of the world is compounding interest.”
If you’re new to investing, one of your biggest hurdles will be finding investments you can get into with a small amount of money. Is it really possible to create passive incomes streams outside of your job if you only have a small amount of cash?
The short answer is, yes. Regardless of how much money you have right now, there are ways to move it into investment vehicles where you can start earning passive income flows today.
If I was your mentor, I’d first encourage you to go after earning $100 in passive income per month. Then, as earning passive income became “real” to you, we would work together to increase that number. Personally, I had enough passive income to replace my active income by the time I was in my early 30s. But, really, age is irrelevant. What’s important is that when it comes to creating passive income streams, anyone can do it if they’re taught the right approach.
If you haven’t achieved financial freedom yet, it’s likely because your parents and teachers taught you to use investment options like a 401(k) that separate you from your money for decades and severely limit your investment options.
With that context, let’s explore what low capital investments are and how investing small amounts of money can help you to become financially free.
13 of the Best Ways to Invest on a Small Budget
When we think about investments, we have to think about two things:
- First, what is the return you can expect? In other words, how much can you reasonably expect your investment to multiply over time?
- Second, we have to think about cash flow. That is, how much can you be paid to wait while your investment grows in value?
It might not seem helpful to invest your $1,000 right now when you’re short on rent and groceries. However, that could change when you think about that sum growing into tens of thousands of dollars a few years down the line.
Keep those ideas in mind as you consider the following investment opportunities.
1. Buy a Stock Market ETF or Index Fund
First, you can use stock market ETFs (Exchange-Traded Fund) or index funds to get broad exposure to the entire U.S. or global stock market. ETFs are simply diversified investment products that trades on stock exchanges and which own baskets of “things”, such as stocks, bonds, or commodities (think oil, corn, etc.).
For broad exposure to the U.S. market, you can use ETFs like SPY (a SPDR S&P 500 ETF Trust) or VTI (a Vanguard Total Stock Market ETF) that which track the S&P 500 and the total U.S. stock market, respectively. If you prefer international diversification, VXUS (Vanguard Total International Stock ETF) offers exposure to non-U.S. developed and emerging markets.
In general, you want to buy one that has a very low expense ratio because that means the entity which is running it isn’t gouging you with fees.
Once you’ve decided which one you want to buy, you simply go to any brokerage account, like Fidelity or Robinhood, and place your order using those three-letter symbols, called ticker symbols. ETFs don’t have a minimum investment requirement but they do require you to buy one share to get started since they are like stocks and must be bought as whole shares.
2. Buy Bitcoin (BTC)
Did you know that 13% of all people in the United States have traded cryptocurrency?
Bitcoin, known as BTC, was invented in 2008 by an anonymous person using the pseudonym Satoshi Nakamoto and released in 2009. This made it the world’s first decentralized cryptocurrency . Bitcoin is unique because buying, selling, and trading it is not controlled by a central intermediary, such as a bank or government, for example. It exists outside of the control of governments, unlike your USD dollars.
Benefits of buying Bitcoin are that you’re not putting your trust any any single issuer (because it is decentralized), it has performed extremely well since its inception, adoption rates are high, and it can transferred nearly instantly anywhere in the world. Also, it is the first global, digital money we have ever had that has a fixed supply, so it is likely to do well for those who plan to hold it over long periods of time.
You can also buy fractions of a Bitcoin for as little as a dollar, which makes it extremely accessible as an investment vehicle. You can acquire Bitcoin through any cryptocurrency exchange, such as Coinbase, as well as through Paypal, Venmo, Robinhood, or many other sites.
3. Buy Ethereum (ETH)
Ethereum, known as ETH on the market, is a cryptocurrency similar to Bitcoin but with several notable differences. One of the major differences is that its coding is different. While Bitcoin uses the common programming language C++, Ethereum has its own unique programming language known as Solidity.
Ethereum is part of a blockchain network and is decentralized from any government or corporation control much like Bitcoin. Blockchain refers to information that is chronologically sorted into blocks and every transaction is recorded.
While Ethereum is not as popular as Bitcoin at this time, it is the second most popular cryptocurrency on the market. Today, Ethereum is the most common network on which DeFi applications are being built and most non-fungible token (NFTs) are created and stored on the Ethereum network.
Today, it is easier than ever to buy Ethereum because you can buy it through any cryptocurrency exchange, such as Coinbase, as well as through Paypal, Venmo, Robinhood, or many other sites.
4. Invest in Money Market Mutual Funds
Because we are in a high interest rate environment, you can now earn 5 to 5.5% by investing in low-risk money market mutual funds. Money market mutual funds are a type of investment vehicle that invests in extremely low risk, short-term, high-quality debt instruments such as Treasury bills, commercial paper, and certificates of deposit (CDs).
Investing in money market mutual funds offers liquidity and stability, making them ideal for short-term financial goals. They also provide a relatively low-risk investment option with modest returns. Personally, I put most of my liquid cash into these funds and then sell I them as and when I want my money back to pay for life expenses.
If you’re honest with yourself, why should you have your cash sitting in a bank earning little to nothing, when you can transfer it to a brokerage account and be earning 5% on your money 48 hours later.
Examples of two low-fee money market mutual funds are:
- Vanguard Treasury Money Market Fund (VUSXX): This fund has an expense ratio of 0.09% and primarily invests in U.S. Treasury securities. It requires a minimum initial investment of $3,000.
- Vanguard Federal Money Market Fund (VMFXX): This fund has an expense ratio of 0.11% and invests in high-quality, short-term securities issued by U.S. government agencies. It also requires a minimum initial investment of $3,000.
Both funds offer a low-cost way to invest in high-quality, short-term securities, providing liquidity and stability for investors. When you invest in a money market mutual fund you will always see it priced at $1.00. This is because these investment products are meant to preserve your capital and then pay you a monthly yield.
5. Invest in a Cash Flowing Asset / Piece of Equipment
Another type of investment you can make is into a cash-flowing asset.
For example, you could buy a used RV and rent it out on site like Outdoorsy. Or, you could buy a used manufactured home and rent it out to tenants using Zillow.com.
You could also buy a small plot of undeveloped and then list it on Hipcamp.com for others to camp on or Sniffspot for dog owners to use as a private dog park. According to the USDA, the average cost of farmland in the U.S. is only $3,160 per acre, so using these sites, you could create a cash flowing asset for very little money.
Another type of cash flowing asset you could invest in would be a piece of equipment that you could monetize by renting it out. For example, you could buy a hyperbaric oxygen therapy (HBOT) unit, which is used for many different health applications. Or, you could acquire a used Inbody Machine, which is a machine that offers a precision method of body fat testing.
You could then partner with a local gym, doctor, or chiropractor to store your equipment at their office and sell sessions/access to people who want to use it.
6. Invest in a Business
When it comes to low capital investments that provide a large return, there’s one more option that deserves a mention and it is entrepreneurship. With many service and digital businesses requiring little to no money to get started and offering limitless upside potential, this is another option you may want to consider.
For example, you could start a power washing business by buying a used power washer for $300 and going door-to-door to offer your services. Or, you could start a consulting business for the small pricing of buying a domain and making a website. Usually, a URL domain is about $15/year and hosting is around $10/month to maintain a live website.
Starting a small business can also come with some risks, but usually the most you can lose is your start-up capital.
7. Invest in Crowdsourced Real Estate
Typically, you need large sums of money to invest in real estate. However, things have changed in recent years and you can now invest with smaller amounts of money using real estate crowdsourcing.
For example, FundRise is a crowdsourced real estate fund that has an impressive record of providing annual returns from 8.7 to 12.4 percent. The company will let you invest in real estate online through an electronic Real Estate Investment Trust, called an e-REIT.
Historically, FundRise has paid out 8-12% return to investors over the past 20 years, has their fund backed by real (“hard”) assets, and lets you invest for as little as $500. This low threshold to get started makes Fundrise accessible to most beginning investors. Impressively, the company’s trailing 20 year annualized return has been 12.3%.
Likewise, DiversyFund is a site that allows you to invest your money into a diversified real estate portfolio. This is an alternate investment option that provides you with a return that’s often higher than stocks or bonds. The fund also owns hard assets in the form of commercial real estate—specifically, apartment complexes in California and Texas.
Best of all, you can start investing with only $500 and earn a 7% preferred return, plus a portion of all upside that that fund earns beyond that. Diversy Fund is an interesting way to get into the world of real estate investing without having to acquire, own or manage any real estate yourself.
I don’t have a relationship with either FundRise or DiversyFund, so please do your own research.
8. Invest in Real Estate Syndications
Historically, the best real estate investment opportunities were only available to those who had millions of dollars. Cardone Capital has shaken this up by giving the public access to huge real estate investment opportunities that don’t require you to be rich.
Specifically, Cardone Capital invest in massive apartment complexes worth $10M to $100M+ and then lets the public buy equity in these deals to earn a return.
If you’re not an accredited investor (aka, a high net worth individual), you can start investing with them for around $5,000 in one of their Non-Accredited Funds.
Or, you get a slightly better investment return by investing $100,000 in one of their funds for Accredited Investors.
9. Stock Options
Stock options are an excellent way to enter into a potentially lucrative agreement with a low commitment upfront. Options tend to be riskier than investing in normal stocks, but the initial investment is low and the returns can be high.
Essentially a stock option is the right, but not the obligation, to buy a stock in the future at a specific price. For this right, you pay a small amount of money.
Put another way, a stock option gives you the right to buy or sell a stock at an agreed-upon price during an agreed-upon period of time. Depending on the length of time over which you want this right, you might pay a few cents to a few dollars (or more) to purchase it.
That said, you don’t have to sell that share later on if you don’t want to.
Many apps, like the Robinhood app mentioned above, will let you trade stock options. If you want to learn how to do this, it’s easy to learn on YouTube or you can buy this inexpensive Udemy course for only $15.99.
That is not a sponsored link. I just personally used stock option trading to earn money during and after college when I needed it, so I want you to have the skill too if it’s something you’d like to learn.
10. Mortgage Tax Liens
Mortgage tax liens are another lucrative investment option that many people aren’t aware. With this approach you can earn upwards of 18% returns per year without having to actually own property.
The way that mortgage tax liens work is that when a property owner doesn’t pay their real estate taxes, the county in which the property is located can sell its tax lien.
The person who buys that tax lien then has the right (but not the obligation) to foreclose on the property if the owner fails to pay back the taxes you covered plus interest. In short, investors buy the liens in an auction, paying the real estate taxes owed in exchange for the right to collect back that money plus interest from the property owner.
If the owner of the house doesn’t pay, then you foreclose on the property and get the title in order to receive the back taxes, penalties, and fees that are still owed.
You can invest in mortgage tax liens through the county government. Most counties hold annual tax lien sales and online auctions.
This typically requires that you register in advance and pay a small fee.
11. Micro Venture Capital Investing
Historically, venture capital investing was only possible for rich people who had large sums of money to throw around. Today, this has all changed. With sites like MicroVentures, you can act like the big venture capitalists, but on a small scale. You can use these platforms to buy into investment opportunities online, investing in startup companies for as little as $100.
You can see the company’s current crowdfunding opportunities and their projected returns here.
If you have an eye for potential, you might be able to swing excellent returns by investing small amounts of money into early-stage and growth-stage companies.
12. Peer-to-Peer Lending
Peer-to-peer lending is the process of lending money to people or businesses with the agreement that they’ll give your money back with the interest. Naturally, it is smart to enter into a legal contract with anyone with whom you do this.
Companies like Lending Club, Prosper, and Upstart can help you navigate the legalities.
Peer-to-peer lending is an excellent way to make a good deal of money over time—often returns of 10% or higher—if you choose the right people to lend to.
When you’re looking to multiply your money, achieving returns above 10 percent is a big mark to hit, because it means your money will double every 7.2 years.
13. Invest in Monetizable Skills
Finally, I’d be doing you a disserve if I didn’t mention investing into monetizable skills. I don’t like the phrase “invest in yourself” because it lacks specificity. When you’re trying to make money, you’ve got to be very specific.
What I mean here is that you can invest in acquiring skills for which people and employers will pay you generously.
At every point in history, there are certain skills that are paid are a high rate than other skills. This isn’t fair, but it is reality. Given this, what can you do? The simple answer is, learn one or more of them.
If I was to suggest one skill for which you could be very highly paid for that doesn’t seem to change over time, it would be sales skills. This is because every employer will pay you more if you can bring more money into the business for them.
However, noticing trending areas and learning skills related to them can be very lucrative as well. For example, at this point in history, you’re likely to be paid very well if you learn about blockchain technology, AI, augmented reality, precision medicine, or green energy. This is because all of these areas are experiencing an explosion of interest.
A simple way to invest in yourself is to take courses, like those offered on Udemy. As an example, you can see Udemy’s top Blockchain courses here, most of which cost less than $20. Or, you can see their sales courses here.
Regardless of the skills you decide to learn, make sure you have a clear path for monetizing them afterward, such as asking for a raise, starting a consulting business, or applying to new, higher paying jobs.
How to Invest When You Have Very Little Money
Again, there’s a whole lot that we weren’t taught in school. Whether it’s how to identify a low capital investments, increase your income or understand your taxes, this site can help.
Explore it for more insights on how to live an abundant life.
Do you have questions about to invest when you have little to no money? Ask them in the comments below.