Let's talk small dollar investing

Yes, another investing thread. My apologies in advance. 

We've covered a lot of "high dollar" investing strategies here, but what about small dollar investing? Specifically for someone who only has $300-500 a month that could be used. 

Online savings accounts average 2%Apr from the places I've seen, but that is lower than I'd like to see for a return. Would it be wise to start there though, so there is still fairly painless emergency access to money?

I've been looking at roboadvisors and places like that stock app mtn(Robinhood) recommended a while ago that let you buy fractional shares, but that seems like too much hassle. 

Are there like mini mutual funds or ETFs that don't require a couple grand to start?

Here's the situation. I'm completely out of debt. I have $350 ish in monthly revolving credit card usage and a 760+ credit score. I'm happy with how that's working and want to keep that as it is. Having now finally paid off the money I borrowed to buy my truck with, I now find myself used to living on next to nothing, except with a few extra bucks every month. Instead of spending that extra money, since I'm already used to not having it, I'd like to make it grow. 

Overall, adding in my monthly and yearly bills, I need $900/month to cover everything but food. That's insurances, taxes, utilities, everything. I'm looking for some sort of investment strategy that could take the $300-500 I have "extra" every month, and show me a healthy return over the next, say 15 years, IE double my next to nothing every month. 

I'd really like it if I could use that money to play with hedge funds because I foresee several bubbles popping in the next few years and would like to be on the winning side of them for a change, but I don't think it's enough to even get my feet wet. 

I don't currently have an emergency fund, so the first step is building up 6 months or a year worth of bills just so I feel a little safer should something happen. But what is the next step from there? Money market accounts? One of those small business loan websites where you give someone money towards their business and get a slice back? Mini mutual funds?

Googling is full of completely and utterly useless lists of things you can do with $500/month, none of which really bring any money back to me, and since you guys seem to be on top of investing larger amounts of money, maybe you know something for small amounts too.

Easy start is open a Scwab account and buy their internal ETFs. They range from $20-$50 a share and have performed very well over the last couple of years. Their management cost structure is very low; so your de-risk cost is trivial. They also cost nothing to buy/sell. Sell, Buy, Reallocate at you leisure. #EasyButton. 

Once you gain some comfort you can start buying stock, but IMHO stocks rarely make sense unless you are buying $1000+ of an individual company. 

Another note. If you are playing with post tax money, it would be really easy to use your investment account as your reserve. Sell instantly and have the $ back in you bank account in 24 hours. 

Yah, online brokerage account (I've been with e*trade forever) and ETF's.  Or you can find decent stocks selling in the 10-20 dollar range and buy 10 or 20 shares.

Set the account up as a Roth IRA, and you won't complicate your taxes with selling shares.

RevRico said:

Yes, another investing thread. My apologies in advance. 

We've covered a lot of "high dollar" investing strategies here, but what about small dollar investing? Specifically for someone who only has $300-500 a month that could be used. 

For starters, I'd scrap the "only" and pat yourself on the back. That's a lot more than most people have left over to invest.

Online savings accounts average 2%Apr from the places I've seen, but that is lower than I'd like to see for a return. Would it be wise to start there though, so there is still fairly painless emergency access to money?

Savings accounts really are for emergency money only that you're likely to need in the next 2-5 years. I personally don't like having a bunch of money sitting in savings accounts doing nothing so I keep some money in there to weather things like roof or car repairs and stick some more into a Roth IRA (as that allows you to withdraw the contributions, just not the earnings).

I've been looking at roboadvisors and places like that stock app mtn(Robinhood) recommended a while ago that let you buy fractional shares, but that seems like too much hassle. 

I'd stay away from shares in companies. Recent studies (IIRC by Besenbinder) show that the total market return is more or less achieved by about 4% of companies, the rest of them give you a return roughly equal to T-bills. Unless you're stock picking god, finding those 4% is going to be close to impossible.

Are there like mini mutual funds or ETFs that don't require a couple grand to start?

The usual cheap places (Vanguard, Schwab, Fidelity) all have index based ETFs that have no minimums other than you having the money to purchase a share. Most of them will require a certain amount (usually about a grand) to open an account though.

Overall, adding in my monthly and yearly bills, I need $900/month to cover everything but food. That's insurances, taxes, utilities, everything. I'm looking for some sort of investment strategy that could take the $300-500 I have "extra" every month, and show me a healthy return over the next, say 15 years, IE double my next to nothing every month.

Are you saying you want to double your money every month? That's highly unlikely to happen - bank for a 8-10% compound return annually over  those 15 years and you're in the historic ballpark with a reasonably low-risk asset allocation.

Doubling your money within the time frame you mention should be possible with pretty low risk investments. Usually the expectation is that you double your money in a reasonably conservative strategy every 10 year-ish.

I'd really like it if I could use that money to play with hedge funds because I foresee several bubbles popping in the next few years and would like to be on the winning side of them for a change, but I don't think it's enough to even get my feet wet. 

Hedge funds make money for hedgies. Any money made for the investors in generally accidental. Yeah, that's snarky, but a lot of hedge funds have had problems outperforming the S&P 500 over the last decade. You're also jumping from indoor karting to F1 in one fell swoop.

I'm personally not a big fan of active managed funds as pretty much none of them appear to be able to outperform the market over longer time horizons, at least not without taking undue risk.

I don't currently have an emergency fund, so the first step is building up 6 months or a year worth of bills just so I feel a little safer should something happen. But what is the next step from there? Money market accounts? One of those small business loan websites where you give someone money towards their business and get a slice back? Mini mutual funds?

Depends on how you want to structure it. A lot of people suggest that you have 6 months of expenses in a savings account before you do anything else. I tend to disagree with that - I have a fair part of our emergency fund in reasonably low risk investments and a pretty small savings account. But I've also worked on investment bank trading systems and investment analytics for a good decade and a half and am concious of the fact that I can lose 40-50% of that within short time span.

The main issue with the peer-to-peer loan sites is that your money is locked up for the length of the loan. I keep eyeing them but I won't touch them until I've maxed out both our Roth IRAs and the 401k and stuffed a healthy chunk of money into a savings account.

Googling is full of completely and utterly useless lists of things you can do with $500/month, none of which really bring any money back to me, and since you guys seem to be on top of investing larger amounts of money, maybe you know something for small amounts too.

Not a surprise, the big issue is that a lot people have something to sell for you.

For some investment ideas from someone who doesn't want to sell you stuff, have a look at Paul Merriman's website. I like his approach to portfolio construction and the fact that he's doing is for educational purposes only. Plus, it's based on solid academic research.

Blackjack is fun.

watch the fees that are charged , they can eat up any small profits you make......

If you live in an area where buying income property pays for itself  with rents that is a good way to add  money long term ,   

If you want to work , start hitting up Craigslist for free stuff you can resell , many people need to get rid of good stuff at the end of the month when they are moving.....

A decent yard sale can make you  a couple hundred $$$  for little work. 

Well, I’d first figure out where you can get free transactions because with small starting funds your profits will be eaten alive by transaction costs—so go with robinhood or buy a brokerages etfs (vanguards etfs are free to trade if you have vanguard, same with fidelity)

id personally advise a Roth IRA. 

Hi RevRico,

BoxheadTim’s reply was fantastic so I’ll just briefly reiterate a few of his points.

Although quick and low cost (including taxes) access to your money is obviously beneficial, most people over do it meaning the opportunity cost of not having the money working hard for them far exceeds the savings from the few, if any, times they’ll take a hit (short term capital gains, credit card interest, etc.) because they didn’t have immediate low cost access to their money. It takes money to make money and thoughtful aggression ultimately wins…don’t play it too safe.

I wouldn’t start looking at complex investment vehicles such as hedge funds until I had a portfolio that was well north of three million dollars. FYI, I’m 54, started buying stocks in my mind 20’s and I have read piles of books on investing. I’m a practicing statistician and I’ve done all kinds of analysis and modeling over the years on different strategies and currently have about 1.4 million in the stock market.

Despite all of this, I just max out my annual 401K contribution which is 24K since I’m over 50 to get the maximum AGI reduction and to capture every penny of my employer’s match and I put it all in super low load S&P 500 index funds. Warren Buffett has consistently said over the years that the average investor is best served by just income averaging (buying the same amount over equal time intervals) and putting it all in a S&P 500 index fund…I completely agree with him.

The market can not be timed...if it could, a few smart and/or advantaged people would wind up with all the money  and everyone else would go away because they realize they can't win.  In other words, the fact that the market exists, is a proof that it can't be outsmarted.

Remember, the S&P 500 is nearly 100 years old and has averaged 9.8% over its life…all of the wars, pandemics, natural disasters, and political parties de jour are baked into that 9.8% number. Just buy and hold super low load S&P 500 index funds and forget about it.

Good luck

Dude, way to go so far! Reducing expenses and getting out of debt are two huge advantages in your corner. I like your overall plan.

For somebody with a low, or inconsistent income I think the emergency fund becomes more important. Liquid assets can be really nice. If you're willing to risk a bit, you could open a Roth IRA with Vanguard,etc and have maybe half of your emergency fund there. Money that you contribute to the IRA can be withdrawn anytime without penalty, and it has a chance to grow a bit on it's own. But, of course being invested, the value can decrease too (hence the suggestion to have at least half of the emergency fund in cash). It can also take some time to access the funds in an IRA which sucks in a true emergency. 

Once the E fund is full, your best bet is to just dump any/all investment money into low-fee funds that track the stock market overall. The important thing is to avoid speculating. Don't invest because you think something big is about to happen, or because your neighbor's tinder date heard something about a hot new stock. That's much more likely to lead to worse performance than the general market than it is to beat market returns. Just invest whatever you can, whenever you can in the overall market and leave it alone. It takes discipline to go through difficult times and not panic. But you've already shown discipline in keeping your expenses down and digging out of debt so keeping it there to grow shouldn't be all that tough.