13 Ways to Invest on a Budget

If you wait until you have a big wad of cash to invest, you might never start. Fortunately, there are lots of ways to get started investing with a small amount of money — and if you invest small amounts of money regularly, you could end up with a sizeable portfolio. The key is to start right now — and make it a habit.

Click through to learn investment ideas for even the smallest budgets.

Before you put a line item in your budget for investments, take a look and see what you’re spending money on.

If you have high-interest credit cards, your first step should be paying them off completely. If you’re paying 20 percent interest on your credit card balance, paying it off immediately earns you a 20 percent return — guaranteed. There is no investment in the world with returns like that, so this is one of the best small investment ideas there is.

Once you’ve paid them off, you can take the money you were spending on those bills each month and put it to work for you.

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Look at the other places your money is going — and see where you can make some cuts. Start by making sure your budget is accurate. If the “miscellaneous” category is almost as large as your mortgage, it’s time to take a closer look at where that money is going.

If you don’t have one big category that jumps out at you as being ripe for reduction, see if you can reduce your spending by a certain percentage in several areas.

If you spend 20 percent less on eating out or entertainment, you might save enough to start your investing program. Once you determine where the money is coming from, add a line item for investing in your budget so you’ll be sure to add something to your portfolio every month.

Another step to take to start your investing plan is to build an emergency fund. You should have three to six months of living expenses in a separate account to use if an unexpected expense comes up. Build up your fund by having part of your paycheck deposited into a savings account that only you use for emergencies.

A recent GOBankingRates study found that 69 percent of Americans have less than $1,000 in savings. If you don’t have an emergency fund, you might have to raid your investment account to pay for that unexpected car repair or medical bill. You should always have enough money for unexpected expenses without having to liquidate your investments.

If someone came to your door with a bag of money to give you, most people would accept the cash with little hesitation. But if you’re not taking advantage of your company’s 401k match, it’s as though you didn’t bother to answer the door when free money came knocking.

Your first foray into investing should be to contribute at least as much to your 401k as your employer will match. Some employers will match a certain percentage of your salary dollar for dollar and others will match 50 cents on the dollar. Either way, it’s the trifecta of investing:

– Your contribution comes right out of your paycheck so you don’t miss it.

– You can deduct your contributions from your income within limits, which reduces your taxable income.

– And finally, your employer might match your contribution.

Exchange-traded funds (ETFs) are mutual funds that trade on exchanges like stocks. Many of them are designed to mimic an index, so they are not actively managed — which makes them low-cost investments.

Others focus on a particular sector, such as financials or technology. If you don’t know where to invest your money, ETFs can be a good place to start. They provide automatic diversification, so you don’t have all your eggs in one basket.

Some ETFs change a commission for each trade, however, which can be costly for the small investor. Others are commission-free, making them a better choice if you’re investing small amounts. All funds have fees of some kind, so make sure you understand what your investment is costing you.

Portfolio diversification is key in order to reduce risk, but you don’t want to settle for mediocre returns — and you certainly don’t want your returns eaten up by fees and taxes. An online platform can help you decide where to invest money.

Betterment is an online investment platform that helps you select the best investments for your time horizon and risk tolerance. You can specify whether you are saving for a safety net, a major purchase, retirement or just general investing.

The platform uses low-cost index funds and you can invest a small amount every month, automatically. Fees are from 0.25 percent to 0.40 percent, depending on your balance.

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Sometimes you need to trick yourself into finding the money to invest. One way to do this is by investing your spare change. There are a number of apps that will invest small amounts you won’t even miss, building up a portfolio over time.

– Acorns: Rounds up the amount you spend on your debit or credit card to the nearest dollar and invests the change. So if you buy a latte for $4.19 using your debit card, Acorns debits your account for the $0.81 to round up to $5. That money goes in your Acorns account and is invested.

– Stash: Considers your monthly budget, and transfers any extra cash into your investment account.

– Clink: Lets you specify a percentage of certain transactions, such as shopping or dining purchases, to go to your investment account.

All of these apps can make adding to your investment account relatively painless.

If you want to try your hand at picking your own stocks or mutual funds, use an online brokerage to keep your fees reasonable. There are a number of online brokerages to choose from, with many charging as little as $4.95 per trade. A full-service brokerage will often charge more, plus a percentage of your assets to manage your account.

– Ally Invest: Charges $4.95 per trade, although they have a promotional offer of $3.95 per trade if you have a $100,000 average balance (or make 30 or more trades in a quarter).

– E*TRADE: Charges $6.95 per trade, or $4.95 for 30 or more trades per quarter.

– Merrill Edge: Charges $2.95 per trade.

Online brokerage sites might offer advice on your investments, but the choice is ultimately up to you, so do your homework before you invest.

Investments clubs are made up of a group of investors who meet regularly to discuss and invest in stocks, mutual funds or other securities. The club typically pools their money and makes investments based on a majority vote. This allows the club to have access to investments that each individual might not be able to purchase, like shares of pricey stocks or alternative investments.

Investment clubs do have some risks. An investment club typically does not have to register with the Securities and Exchange Commission, so you typically have no recourse if your money is mishandled. Also, you might find that the other members of the club do not have the same objectives or preferences that you have, so your recommendations might be overridden by the larger group.

Some investment clubs can be difficult to get out of, since liquidating your share might affect the other members.

If your employer is a publicly traded company, ask if they have an employee stock purchase plan.

This is one of the best investment opportunities around, as it is a way for employees to purchase company stock with no fees, and sometimes at a discount off the trading price. You might be able to have the cost of the stock deducted from your paycheck, up to IRS limits. Some employee stock purchase plans are qualified plans, which means they are intended for retirement and you might be able to deduct your investment from your taxable income.

An employee stock purchase plan is a great way to purchase at a discount, in a company whose business you understand. You might also feel that you have more of a stake in the company’s success when you own a piece of it. Keep in mind, however, that you don’t want to be too heavily invested in any single company — and this includes your own employer. You should have other investments as well in order to be safely diversified.

Speaking of being diversified, it’s important to have different kinds of investments, but pay attention to your total portfolio. You might have investments in different places, so look at the whole picture when you are trying to determine if you are properly diversified. A well-diversified portfolio will weather market volatility better, as some of your positions will fall as others rise. For example, stock prices often — but not always — rise when bond prices fall, and vice versa. Having some stocks and some bonds in your portfolio will protect you if there’s a sudden drop in one of these markets.

You’ll want to diversify across three asset classes: stocks, bonds and cash. You might also want to include real estate or commodities if you feel comfortable with those investments. Stocks constitute a broad category, so you should further diversify by size and type.

You can spread your bond investment over corporate, municipal and Treasury bonds. The right mix of assets will depend on how much risk you want to take, and how long you want to leave the money invested.

As your portfolio grows, it might become more complicated to manage it. An online investing platform might suggest an asset allocation, but you should also understand which specific equities you hold. There are software programs that will help you manage and track your investments.

– StockMarketEye: Monitors all of your positions as well as those you might be considering for investment. You can see how much your investments are gaining — or losing — and see if there might be better places for you to put your money.

– Fund Manager: Tracks and reports on your holdings and provides technical analysis.

These programs are similar to those used by professional money managers, so they have a fairly steep learning curve and will require a time commitment on your part.

You probably have friends or family members who are in the financial services industry who might be willing to provide you with advice on your investments. This could be very helpful to you as you try to invest on a budget — just be sure they know what they’re talking about.

Many online platforms also offer investment advice at no charge, although it might be somewhat general.

The Certified Financial Planner Board of Standards, Inc., the Financial Planning Association, the Foundation for Financial Planning and the U.S. Conference of Mayors offer Financial Planning Days each October. These events include one-on-one financial counseling and educational presentations in a classroom style format. It’s free, and there’s no selling involved.

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Karen Doyle contributed to the reporting for this article.