Investing with small amounts, does it make sense? Yes! That’s the short answer. But in this article, we’re going to explain to you why investing with small amounts makes sense, and how best to get started. Because it makes sense that with the more money you invest, the more returns you can make. But did you know that it has been proven that when you start with a small amount of money, this feeds your confidence and good habits? This is the perfect way to slowly invest more and more and build wealth.
Investing with small amounts
Investing with small amounts is popular. Modern investment apps also make it easy to start even with €10. In addition, in recent years you see more and more people investing, because the savings rate is so low and people would still like to get some returns. Investing can easily give you about 7% per year in returns, and that compared to virtually 0% savings rate. Suppose you invest €1000 in a year, then after a year your investment will be worth €1070. Had you put this amount in the savings account, that €1000 might have been worth €1001. On top of that, you earn interest on interest and this can grow your money in the long run. Even if you only put in small amounts.
What is investing again?
Before we start giving you tips on how to invest with small amounts of money, we want to take a quick look at what investing is again.
An investment is a form of investment in which money is committed for a longer or shorter period of time for the purpose of future financial gain. Investing can be done in several ways. You can invest in the stock market, such as stocks, bonds or ETFs. You can also invest in real estate. Or in cryptos. Or in gold. It’s about diverting your money to something, assuming that your money is going to be worth more. With the caveat that you also accept that money may become worth less (temporarily), because investing involves risks.
Read more about the risks of investing here.
How does investing with small amounts work?
Depending on the platform, bank or broker, you use, there are different ways to invest with small amounts. Some parties, such as Peaks, allow you to link your checking account. If you then set that you want to invest with your change, each time you debit the amount is rounded up. This allows you to invest small amounts unnoticed. Read more about investment app Peaks here.
Also, through a party like Brand New Day, you can easily automatically transfer a low amount, say €50, every month and invest this money automatically. That requires a little more action from you compared to an app like Peaks, but also gives you more options in terms of investment products. Learn more about investing at Brand New Day here.
How do you start investing with small amounts?
To invest with small amounts you will need to perform some actions.
- Compare different brokers, platforms and apps. Not all investment parties offer the ability to invest with small amounts. Those that do, offer several options, all with different cost structures. If you are going to invest with a small amount of money, it is the ste more important that you pay close attention to costs. If you want to invest €50 every month, and you pay a service fee of €2.99 per month (as with BUX Zero), that takes a huge chunk out of your returns. Read this article to discover the difference between banks and brokers.
- Open an account. Once you have found a party that suits you and your needs, open an account. You can often do this online. Note! They ask quite a lot of information from you, and that’s normal. Calling apps must comply with strict regulations and have visibility into who can be customers.
- Deposit money. To deposit money into your new account, you need to link an existing bank account and specify how much you want to transfer. Don’t know how much money you can invest each month? Elfin can help you create a financial plan where you know exactly what amounts you can invest with.
- Set up automated transfers. At Peaks you can invest with your change which is automatic, at BUX Zero you can invest with an investment plan and at Brand New Day you can transfer a fixed amount each month which is invested automatically. Again: check carefully the fees of each broker or bank!
- Check your investments. Log into your account regularly to track your investment performance. Good fun! But beware: investing in the stock market means that sometimes your investments will also fall in value. Don’t let yourself go crazy and invest for the long term.
Tip! Before you begin investing, it is wise to create an investment strategy for yourself. You can do this with elfin help, for example, read this accessible e-book on investing.
Where can you invest with small amounts?
There are several parties where you can invest with small amounts. The important thing is to choose a party that fits your strategy and your needs. For example, do you want to invest actively or passively? Want to invest in stocks or ETFs? It is also important to look closely at costs. Parties that could be an option as far as we are concerned to start up with small amounts are:
- DEGIRO (tip: ETFs from the core selection!)
- Brand New Day
- Peaks
- Semmie
- Easybroker
Calculation example costs investing with small amounts
Suppose you want to invest €50 each month in 1 ETF. Then DEGIRO may be a choice because there you can invest in 1 ETF from their core selection every month for free. Would you like to invest €100 every month in a broadly diversified fund without looking further? Then cost you at:
Brand New Day
- 0.34% service charge per year: €100 x 12 x 0.34% = €4.08
- Fund cost 0.15%-0.17% per year: €100 x 12 x 0.17% = €2.04
- Total cost for €1200 a year investing is then €6.12. That’s 0.51% of your total deposit
Semmie
- 0.75% management fee per year: €100 x 12 x 0.75% = €9
- fund fees, depending on the chosen fund, between 0.14% and 0.27%: that’s between €1.68 and €3.24 per year for €100 per month invested
- Total costs at Semmie for €1200 per year investing are between €10.68 and €12.24. That’s 0.89% to 1.02% of your total deposit
Note! Fees may vary, this is only for guidance and message: before choosing a bank or broker, do proper research on fees.
Is investing with small amounts smart in the long run?
Maybe you think investing only makes sense if you have a lot of money. But waiting until you are rich to start investing is like waiting until you are married before dating. It is precisely by investing, even with small amounts, that you can put your money to work for you and grow your wealth. Investing with small amounts can also yield returns. How that works.
You receive returns with investing every year, the value of your investments increases because you invest your money in the economy and it grows (assuming investing in the stock market). The following year you then receive a return on the initial amount plus the interest from the previous year. In the long run, this so-called interest-on-interest effect becomes increasingly powerful.
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Saving versus investing
If you put in €30 every month, you would have saved €7,200 after 20 years in a savings account with no interest.
If you invest €30 a month in an index fund, your money grows with the value of the companies you invest in. If you assume a 7% return (which is a realistic long-term return to calculate, looking back at history), with €30 invested each month for 20 years, you have accumulated not €7,200, but €15,312! That’s twice as much! Want to calculate for yourself what your investments can earn you? Then check out this site.
Of course, investing has risks, and some years you can make more returns, and some years less. Also, investment fees have not yet been subtracted from this. Still, experts say you can assume that investing in index funds will give you more returns in the long run than saving.
Pros and cons
There are some pros and cons to investing with small amounts. We see these at elfin as follows:
Advantages:
- It is convenient. Investing with small amounts is not cumbersome. In some cases, the whole process is automated and it is just a matter of choosing a good investment party and automating everything.
- Good money habits. Investing with small amounts can help create good money habits.
- Minimum deposit. You don’t need a million to profit from investing. Start investing your change and see how your money grows over time.
- Spread. The money in your mutual fund can easily be spread across different types of investments. And it is important to know that spreading your money is the key to long-term investment success.
Disadvantages:
As with any investment, there is no guarantee that you will make money. You may also end up losing money. Apart from the risk of loss, here are some other things you should know before you start investing:
- Fees. You pay fees for the investment platform, but this can take quite a bite out of your investment percentage-wise when investing with small amounts.
- Easy to forget. Investment parties that help you automate your investments make it easy. But if you have to transfer and invest your own money every month, it can soon be forgotten.
- Long-term. If you invest with small amounts, it will take longer before you might have your desired final amount invested together. So try to review your investment deposit every year. Maybe you can increase it continuously a little.
What does investing cost?
There is no such thing as a free lunch. Free investing simply does not exist, and that is not a bad thing. Fees are charged by each app, platform or broker. After all, they also need to make money to keep platforms running. However, costs can vary widely. Before choosing a party you want to invest with, it is wise to find out what fees are charged. The four most common fees for investing with small amounts are:
- Management costs. Sometimes you have to pay a fee to keep your account open. This is not useful when you want to invest with small amounts, as it can affect your returns. Ideally, look for a platform that does not charge management fees.
- Deposit and withdrawal fees. Some brokers charge a fee to deposit or withdraw money into your investment account.
- Buying and selling expenses. Also called transaction fees. Most brokers charge a small fee or percentage when you make a trade, i.e., purchase a stock or ETF. Some brokers such as DEGIRO charge a flat fee per transaction.
- Spread. The spread is the difference between the actual cost of an investment product such as a stock or ETF, and the cost you pay to buy it or the price you receive when you sell.
Depending on the platform, they use different fee structures. Figure this out carefully and try to find a platform that keeps costs down.
Tips before you start
If you want to start investing, possibly with small amounts, we have a few final tips for you:
- Learn and discover everything about investing before you start! For example, buy this e-book by Elfin that provides an introduction to the world of investing in easy language.
- Pay close attention to costs. Especially when investing with small amounts, costs are important to keep a close eye on. Choose a low-cost broker that charges low transaction fees for buying and selling stocks or charges low percentage fees.
- Lay in as soon as you can. Don’t save your change until you have a larger amount. Return on return you receive on all the money you put in. And the sooner you put it in, the sooner you will receive returns.
- Start as soon as possible. The longer you can invest your money, the longer your money is at work, the more returns it will generate.
- Automate or pinpoint a fixed time. If you do not invest your money automatically, it is best to choose a fixed time in the month. For example, just after your salary is deposited or by default the first of the month. This will help you create smart money habits for yourself!
