Tips for Beginner Investors: How to Invest $100

While $100 may seem like a small sum, no amount is too small to start investing. Cash that sleeps in the bank always loses value in the long-term. Being even slightly invested can preserve or gain wealth.

How to invest $100?

Without further ado, let’s explore the different ways you can invest your first $100:

 

  1. Stocks

For beginner investors, stocks are likely the easiest financial tool to buy and understand. When you buy a stock, you are buying a fraction of a company, giving you exposure to price fluctuations and dividends when these are paid out.

While you could invest your entire amount on one single stock, it is generally not considered wise to do so, as if this company goes through a bad phase, so will your entire portfolio. The trick to long term investing returns is diversification.

To diversify, look for 4-5 stocks under $20, preferably in different industries, to make sure that if one of your companies experiences a price drop, the others will maintain your portfolio value.

There are many stocks under $20 on the market. Following the advice of Benzinga, here are 5 great stocks under $20.

  • Ford Motor (NYSE:F) is worth around $14. With a 14% market share in the US and around 7% in Europe, it is a solid player in the car market.
  • CarParts.com (NASDAQ:PRTS) offers a complete catalogue of car parts and equipment. The company just had a great year with a 2020 revenue of $119.7 million, up 90% from a year ago.
  • Travelzoo (NASDAQ:TZOO) is an internet company that publishes deals from travel and entertainment businesses. While 2020 was not the best year for the company, analyst believe that it should benefit from a rebound as people can gradually return to a normal life.
  • Vonage Holdings (NASDAQ:VG) is an American technology company that provides cloud communication services, a service used both by businesses and consumers. The demand for telecommunication is continuously increasing as remote work is becoming more popular.
  • Finally, Zynga (NASDAQ:ZNGA) is a company that makes games played on mobile platforms and social networking websites like Facebook. The company generates revenue from download and advertising.

 

  1. Fractional shares

But what if you are interested in big names like Google and Amazon? Unfortunately, with stock prices in the thousands, $100 will not get you far.

Thankfully, online stockbrokers developed fractional shares, products where – as the name suggests – you buy only a fraction of the given share. That means that instead of having to buy an entire stock, you can choose to invest $20 in Google, and the broker will give you the fraction of the share corresponding to your invested amount.

Fractional shares are available at FlowBank on many stocks, like Google, Amazon, Tesla. It remains a great way to diversify and get exposure to companies you like but that your portfolio cannot afford.

 

  1. Build an easily diversified portfolio through ETFs

Buying stocks and building a portfolio can be a little daunting for a beginner investor. There still needs to be a choice as to the sector as well as individual stocks.

Thankfully, there are Exchange-Traded Funds or ETFs. ETFs are like mutual funds, expect that they have much smaller fees and trade on the stock exchange like shares. With that in mind, you have two options to choose from: ETFs tracking broad indices or an ETF tracking indices more specific to a certain sector.

With classic index-based funds, things are straightforward. You certainly won’t beat the market, but you will not underperform it either. One good example is the Vanguard S&P 500 ETF (VOO). As you can guess by the name, this ETF tracks the broad S&P 500, meaning that it represents a proportionate share of each stock on the index, the 500 largest publicly traded firms in America. Thanks to this ETF, you can buy all these companies with only your $100, not bad!

The second option, if you already have somewhat of an idea regarding a specific sector, are thematic ETFs. If you want to get exposure to a trend and slice the specific exposure that you desire. Say for example that you strongly believe in cloud computing as a disruptive technology. What you could do is buy the First Trust Cloud Computing ETF (SKYY), and index ETF that invests in companies related to cloud computing. In the same way as for the S&P 500 ETF, you buy many companies at once without having to analyse every single stock. You only chose a sector or trend that seems promising to you.

Note that of course, these are riskier than broader ETFs, but they will get you superior returns if the sector or technology it is based on makes progress.

There are many ETFs tracking different kind of baskets, such as:

 

  1. All other products

Of course, there are many more other products to play with on the market. Futures allow you to trade commodities, options let you bet on the rise or fall of an underlying asset like a stock, Forex lets you bet on your favorite currency, Contracts-for-Difference (CFDs) give you the opportunity to bet on price changes without owning the underlying and high leverages.

However, these investments cannot realistically be recommended to someone wanting to invest a smaller sum. Although the returns can be higher, the same goes for the potential losses. And you most likely do not want to risk losing everything right at the start.

 

Conclusion

As you can see, there are many opportunities to invest even a small sum. All you need to know about are the risk involved, and that these are not the same with any investment. Warren Buffett encouraged most investor to buy ETFs based on indices. Indeed, many believe that beating the market is a rather unrealistic goal, especially for beginner investors that do not have days to do extensive investment research.

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