Chapter 3:

Small Investment Ideas

How to Invest with Little Money

While investing has historically been left up to the big guys at large banks managing serious money, that’s not the only way to invest today. Investing is accessible to everyone with every size bank account. There are plenty of small investment ideas for as little as $20 or as much as $1,000.

Important: Everyone needs to start somewhere. In fact, if you’re just beginning your investing journey, it’s a good practice to start small.

When it comes to an amount of money, “small” means something different to everyone, so I’ll walk you through a few small investment ideas based on different budgets.

With the right strategy, starting small can be an advantage rather than a shackle. Over time, small investments can reap big returns. You may be surprised to learn just how easy it is.

Chapter Guide

  1. A Strategy for Making Small Investments
  2. How to Invest $1,000
  3. How to Invest $500
  4. How to Invest $20
  5. How to Invest With Little Money or No Money
  6. Continue to Learn More Small Investment Strategies

A Strategy for Making Small Investments

Before we dive in, I want to make one thing very clear…

The value of the investment is always the top priority. Make sure you know how much the business you want to invest in is actually worth and then make sure the price you’re going to pay for it is less than that.

Key Takeaway: Whether you’re investing a little bit of money or a lot of money, you’ll follow the same basic investing strategy. The best way to invest $1,000, $500, or even $20 is the best way to invest $10,000. Investing is always investing.

Determine The Best Type of Small Investment for You

As we covered in the last chapter, there are lots of different types of investments you can make, but not all investments are great for small amounts of money.

For example, you can’t invest in real estate with $500, and even though you can invest $500 in Exchange Traded Funds and bonds, it doesn’t mean you should. 

If you put $500 in ETFs or mutual funds each year for the next 30 years and get an average return of 7%, all you’ll have in 30 years is $45,000. 

Take bonds next; with a historical average return of 5% per year – over the next 30 years, your investment will grow to around $35,000. Bonds may be the safest way to invest, but how safe is a retirement of $35,000?

If you ask yourself, “What will make me the most money?” The answer is investing in stocks. 

Later, I’ll show you how to calculate how much you can have in 30 years if you invest $500 in the stock market. Spoiler: it’s a lot more than the other investing options.

But first, let’s talk a bit about the number one thing I hear beginners say holds them back: fear of the stock market.

Overcome Your Fears of Investing in the Stock Market

I totally get that the stock market can be scary if you don’t know what you’re doing, I’ve been through it. The key principle of Rule #1 investing is to invest only in businesses you understand. It’s a lot easier to overcome the fear and risk of the stock market if you understand what you’re putting your money into.

Warning: Putting money into things you don’t understand is NOT investing. It’s SPECULATION and speculating stocks is the same thing as gambling.

Frankly, that’s the way most retirement accounts are managed. The money managers are speculating on someone being willing to pay more for a stock tomorrow than you paid today. 

This is likely to be true in the long run, but you have to ask yourself, “How long is the long run?” and “How much more will you make?”

That’s why you should consider learning how to invest (real investing, not speculation). Real investing is when you buy wonderful businesses you understand at prices that guarantee great returns.

“Risk comes from not knowing what you are doing.”

Warren Buffett

Understand How Small Investments Pay off in the Long Run

I can’t stress enough how important it is to just start. It is so much better to start with small investments and add to them over time than to wait and lose out on great returns as well as the power of compounding interest.

Every day you don’t invest you are losing out on compound interest. With compound interest, when your money grows, its growth is also invested. 

There’s a tool I like to use called The Rule of 72 that does a good job of explaining the power of compounding interest and will show you just how fast your money can double. This is how even small investments can pay off big over time. 

What Can I Invest in to Make Money Fast?

The answer to this question might disappoint you. Investing and making money fast go together about as well as oil and water… 

If you used The Rule of 72 I mentioned above, you’ll see that it will probably take a few years for your money to double, but if you’re investing the Rule #1 way, which is for the long term, a few years is nothing. 

If you want to make money fast, go to Las Vegas, bet everything on black, and hope you come out on top. When you’re taking risks just to make money fast, you’re not investing, you’re gambling.

Important: Remember, we don’t gamble with our money here. We buy wonderful companies at attractive prices.

So, I propose a new question: 

What Can I Invest in to Make More Money?

If you really want to learn how to invest, it takes a good amount of due diligence and patience but the payoff is well worth it.

By following smart investment practices that have made people like Warren Buffett extremely wealthy, you may not make money fast, but you will make more of it.

Warren Buffett started with a small amount of money too, and he turned it into $30 billion. This goes to show that it isn’t about the money you have, it’s about the knowledge you have. 

That’s good news if all you have to invest is a small amount. It means there are no real barriers to getting rich if you’re willing to work hard and learn. When you know how to invest like the richest people in the world, you won’t ever have to risk losing all of your money to do it. 

So, what are the best small investment ideas to invest $1,000, $500, or $20? 

Let’s break it down.

How to Invest $1,000

Alright, let’s get specific with small investment ideas for $1,000.

Don’t worry! Even if you don’t have $1,000 to invest yet, these strategies will help you learn what you can do with your money as you earn and save more of it.

Make A Promise to Yourself

You have a small amount of money to invest, but are you really ready to put your money where your mouth is? 

If so, make a promise to yourself that you are going to do your due diligence to find the right companies, buy them at attractive prices, and double your $1,000 over the next 5 years. 

Once you’ve made that commitment, you’re ready to move on to the next step. 

Research The Company

The key thing to understand is that we make money by buying wonderful companies and buying them on sale. So, what makes a wonderful company? 

Charlie Munger, the partner of Warren Buffett, says that there are four things you’ve got to focus on when you invest your $1,000, or any amount of money, in a company:

  1. Be sure you’re capable of understanding the business that you’re getting into.
  2. Be sure that this business has this thing that we call a moat: something deeply embedded in it that protects it from the competition.
  3. Make sure that the management team is made up of people who share your values, have integrity, and are talented.
  4. Make sure you buy it on sale. “Sale” means at a purchase price with a margin of safety.

I call these the 4 Ms: Meaning, Moat, Management, and Margin of safetywhich we’ll cover in-depth in chapter 5.

Avoid the Temptation to Diversify

Contrary to popular belief, you don’t need to diversify when you invest in a few wonderful companies that meet the above criteria.

Diversification is what the speculators like to do to safeguard their stock picks. Like I mentioned above, you can’t get the same great return on your investment from other types of investments. ETFs, mutual funds, and bonds are all a waste of your time and money if you want to actually see your investment grow.” 

But don’t just take my word for it. Here’s Warren Buffett’s thoughts on diversifying.

Diversification is a protection against ignorance. [It] makes very little sense for those who know what they’re doing.

Warren Buffett

So to put it simply if you’re investing $1,000, you’ll be better off stick to a few wonderful companies that you know will continue to increase in value.

Here’s a short video that answers more questions about small investing.

Key Takeaway: When it comes to making great investments, it’s really not about the amount you’re starting with, it’s about the strategy you’re using. The right strategy is going to continue to grow that initial investment over time.

How to Invest $500

Now, you may be thinking “$1,000 is a lot of money, what about $500?”

If you’re asking yourself this question, remember: the best way to invest $500 is the best way to invest $1,000 is the best way to invest $10,000.

It’s not the amount of money that makes a great investment, it’s the strategy. However, starting with $500 does have its perks.

Consider A Little More Risk

When you’re investing a small amount, you can be more aggressive.

You can afford to take more risk because if you lose, while it may hurt a little, it’s likely not tragic. You lost $500. You can make that money back and take another shot.

More risk = more reward, but that doesn’t mean you should throw away everything you learned above. You can minimize your risk and maximize your reward by investing the Rule #1 way: buy wonderful businesses on sale. Yes, even if you’re only investing with $500. This initial investment, while small, will help you get more comfortable with “the risk” of investing.

Utilize the Magic of Compound Interest

Don’t stop there. If you can continue to invest $500 per year the Rule #1 way, you can watch your initial investment grow even more. 

It’s the power of compounding interest that can make you rich even with little money. 

Let’s take a look at this example: If you started out with $15,000 saved and contributed an additional $500 per year for 30 years, you could end up with $1.2 million when you’re ready to retire. See how I calculated this using my free retirement calculator below. 

Plug in your own values using how much you have to invest today and how much you can contribute to your portfolio each year to calculate how much you could have for retirement.  

Rule #1 Calculators for Investing Analysis

Make your investment research faster and simpler.

How to Invest $20

Alright, maybe your idea of a small investment is closer to the $20 range. That’s totally fine – baby steps are better than no progress at all. 

The fact that you’re even thinking about investing when you only have $20 means you’re in the right mindset. One of the best things that you can do to begin investing when you have very little money is to form good habits. Practice these good habits with $20 and you’ll have a rich future ahead of you.

Don’t Wait

You can start forming good habits by taking money out to invest as soon as you receive your paycheck.

Most often, people end up taking the exact opposite approach, waiting to see how much money they have leftover before they invest. However, if you wait to see how much money you have leftover before investing it, the number will almost always be a big ‘ol zero.

Instead, invest your $20 straight out of your paycheck and watch it work for you. Setting aside money to invest right away, even as little as $20, can become a natural, nearly subconscious act when you do it regularly. 

Don’t Save It

Saving isn’t inherently bad, but if you want to get a great return on your money and create generational wealth, it won’t happen by saving it. 

Most Saving accounts provide less than 1% interest, which means you can’t even beat inflation, which means your money won’t really grow at all. 

Think of your investment account as your saving account and you’ll be well on your way to “saving” $10,000 this year (if you’re lucky).

Avoid Money Traps 

It’s simply too easy to spend money rather than investing it if you make spending it an option.

Things like fancy cars, new tech, and weekend parties can mean you have less to invest. Avoid these money traps and focus on the promise you made to yourself.

Take your $20 and invest it in a great company rather than its fancy product.

How to Invest With Little Money or No Money

When I first learned to invest, I was working as a Grand Canyon river guide making a whopping $4,000 a year—that’s not a typo.

I lived out of a tent and all of my belongings could fit into a small duffle bag. All that to say…I know what it’s like to try and invest when the price of a single share in many companies is more than you have to spend.

phil town before he was an investor

I was about as far away from an “investor” as you can get.

I am living and breathing PROOF that investing is something anyone can succeed at with the right approach, no matter how much or how little money they are starting with.

When you don’t have any money (and you’re trying to change that) you have to step out on a limb. Take some chances, invest the money you do have, and start climbing your way up. Again, everyone has to start from somewhere, and there’s no such thing as not having enough to start with.

Continue to Learn More Small Investment Strategies

Investing isn’t about jumping in with all the money you’ve saved – it’s about finding wonderful businesses you want to own and knowing when it’s the right time to buy them. With these small investment ideas, you can start right now and grow your returns into a comfortable retirement nest egg for the future.  

Follow the lead of the best investors and take the next step in your investing journey by learning even more. 

Continue on to the next chapter now for a look at how to grow your wealth once you start. From robo-advisors to investing in commodities, I’ve got you covered. Plus, we’ll talk about how the 4M’s of investing really help.

If you want to learn all of the principles of Rule #1 investing and start making smart investing decisions, join me at my Free 1-Hour Investing Webinar where I’ll teach you how to generate consistent returns annually – no matter how large (or small) your initial investment is.

Hi, I’m Phil

I’m a full-time investor and 3x New York Times best-selling author. I want to help the little guys, people like you and me, gain financial freedom by using simple principles that Warren Buffett and Charlie Munger have been using for over 80 years.

I have a passion for investing and I can’t wait to share it with you.